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Thank you to the Texas Bar Foundation for the generous financial support for this project.
FOUNDATION
Effective as of September 15, 2014
MORTGAGE ORIGINATION CHECKLIST This checklist and the related templates referenced in the endnotes are designed to assist in the Affiliate’s compliance with legal requirements related to the Affiliate’s origination of each mortgage loan. Affiliates should also adopt and refer to the Mortgage
Origination Policy Template for additional information regarding such requirements. Neither the checklist nor the Mortgage Origination Policy template is meant to constitute legal advice. Affiliates must check with local counsel and should add to this checklist any applicable
Partnership Assessment/ECOA Application
Outreach/Marketing
Pre-Approval Process – Preliminary Underwriting Phase
Is above criteria being met at all times?
• Right to Receive Copy of Appraisal Notice/Valuation Disclosure Noticeviii Best Practice: Provide as a separate document with the application or include the required language within the application. Has this been provided no later than 3 business days (including Saturdays) after application received?
Is above criteria being met at all times? Date:
Date:
(2) If all requested information received in time stated, Affiliate must make decision within 30 days of date additional information received from applicant and send: • Partnership Agreement (Notice of Pre-Approval) to accept (see final box of Phase 1 to the left) or • Adverse Action Notice to deny (see next box) or • Informational Notice of Incompleteness (Informational NOI) (see (4) )
(3) If all requested information not received in time stated, send: • Adverse Action Notice to deny (see next box to the left) and close file, or • Another Informational NOI to extend timeframe for applicant to provide missing information.
Complete within 30 days after affiliate accepts first piece of information to evaluate applicant, either oral or written.
Complete within 30 days after date additional information received by affiliate.
Complete within 30 days from missed deadline.
Date:
(Policy 23 and PAS 23)
Has this criteria been met?
Has this criteria been met?
Date:
PHASE
Legal Requirements:
PHASE
4
Closing Documents Review with Homebuyer Best Practice: Meet and review closing documents with homebuyer before closing. Have documents been reviewed?
Flood Insurance • Obtain proof of flood insurance, if required and not already provided. [FDPA] Has flood insurance been obtained?
PHASE
Date:
Date:
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Closing
• Engage local counsel or closing agent familiar with Habitat process to close in compliance with federal and state law. Have you consulted with counsel or closing agent?
Partnership Agreement
• Provide property description to certified vendor. [FDPA8] • Obtain flood certificate stating whether or not property is in a special flood hazard area [FDPA]. • Obtain an elevation certificate (for land-only purchase).
• Obtain appraisal or other property valuation. • No appraiser conflicts of interest. Do not use staff or board members. [TILA] • Donated appraisals are allowed (per verbal authorization of CFPB). • Provide free copy of Appraisal or Property Valuation [ECOA]
• To ensure Affiliate ownership and marketable title; • Gather land ownership documents and title policy [HFHI Policy 22].
Provided promptly upon completion of appraisal (within 7 days) and at least 3 days before closing.
Complete when Affiliate acquires land.
Date:
Provide within 3 days of change and at least within 3 business days prior to closing (including all calendar days except Sundays and legal holidays).
Mortgage Servicing Disclosure Statementxviii [RESPA] No later than 3 business days (excluding legal public holidays, Saturdays and Sundays) after completed RESPA application received.
Truth in Lending Disclosure Statementxix [TILA] Provide within 3 business days of completed written application and at least 7 business days prior to closing (including Saturdays). Date:
Date:
• Initial escrow statementxxviii [RESPA] • Confirm escrow account is separate from Affiliate operating account Due at closing or no later than 45 days post-closing.
See Notice of Action = Denial (2), Adverse Action Notice, above for more details.
Send within reasonable timeframe. Best Practice: Within 30 days of applicant notifying Affiliate of self-withdrawal.
Send within 30 days of making decision to deny the partner family. Date:
Privacy Notice [GLBA]xx Provide before or at the time “customer” relationship is established (assuming “customer” rather than “consumer” under GLBA)
List of Homeownership Counseling Organizationsxxii [RESPA] Provide no later than 3 business days (including Saturdays) after application received.
Affiliated Business Arrangement Disclosure (if applicable)xxi [RESPA] Provide no later than time of each referral or, if Affiliate requires use of a particular provider, time of loan application; or, if Affiliate makes referral to borrower, at time that GFE/LE is provided.
Pre-Closing Approval Letter/ Mortgage Commitment Letter
Documents: • Form of deed • Note • Mortgage (residency requirement and other provisions) • Right of repurchase (in separate document or mortgage) • Note: If you have an NMLSR ID, include name and NMLSR ID information on all communications as required by applicable law. • Document form of equity protection (separate from mortgage document) • [Insert additional Affiliate closing documents (e.g., home warranty)]
(If Required) • If required by Affiliate policy or state law
Has sufficient time been allowed for homeowner to obtain required flood insurance? Date:
Date:
Underwriting – Final Underwriting Phase
PreClosing
Must be done in a reasonable time or as required by state law.
5
(1) Verify all conditions met, including those in the Partnership Agreement (Notice of Pre-Approval) (2) Re-verify credit, employment/income and any other underwriting requirements under Affiliate’s policy.11 (3) Financing mechanisms • First mortgage is the lesser of (i) TDC (ii) FMV or (iii) affordability index. [Habitat policy] • Consider equity protection mechanism(s). [Habitat policy] Has above criteria been met?
Date:
Date:
Flood Disclosure Notice [FDPA] • If property is in special flood hazard area (SFHA) and community participates in the National Flood Insurance Program, notify borrower of flood hazard and legal requirement to purchase flood insurance prior to closing.xxiii • If community is in a SFHA but does not participate in National Flood Insurance Program, provide notice of SFHA. Best Practice: Require flood insurance to protect asset.
Date:
Date:
Document verification
FOR REPAIR PRODUCT MORTGAGES ONLY: Right of Rescission (only for repair product loans when a lien is placed on the principal dwelling): [TILA] • Each titleholder must receive a copy of the disclosure (it only takes 1 titleholder/co-applicant to rescind). • Provide 2 copies (1 if electronic) of rescission notice. Borrower has until midnight of the 3rd business day (including all calendar days except Sundays and legal holidays) following consummation, delivery Have the above criteria been met?
Date:
3
Applicant fails to meet conditions under Partnership Agreement (Notice of Pre-Approval)
See the first part of Disclosure Requirements above for more details.
Date:
Engage local counsel familiar with Habitat process and your state’s residential real estate law. Follow Mortgage Documentation Checklist.xxiv
Notifications (“Closing Disclosures”)
• Closing Disclosure 12 CFR 1026.19(f)(1)(ii)(A) [TILA] (Replaces the HUD-1 effective all applications taken after August 1, 2015) Provide at least 3 business day prior to closing (including Saturdays).
Send within reasonable timeframe after receiving final board approval of applicant or last condition met.
If Applicant selfwithdraws at any time during Partnership Agreement phase
Date:
Date:
Have the above criteria been met?
Optional: Send Partnership Approval Letter. • Explains which conditions of the Partnership Agreement (Notice of Pre-Approval) have been met. • Sets forth additional conditions (i.e., finish X hours of sweat equity).
Date:
Date:
CFPB Settlement Cost Booklet [RESPA] Provide no later than 3 business days (including Saturdays) after completed RESPA application received and at least 7. days prior to closing.
Good Faith Estimate (GFE/LE)xvi [RESPA] Provide no later than 3 business days (including Saturdays) after completed RESPA application received and at least 7 days prior to closing.
Promptly upon completion of appraisal (within 7 days) and at least 3 days before closing.
approval into program and loan approval, explaining that partner family is approved subject to certain conditions. (3) Establish homebuyer education curriculum and schedule. (4) Perform judgment searches for each potential buyer.
Date:
xvii
• If not already provided, provide copy of appraisal or other property valuation. [ECOA]
Best Practices: (1) Establish requirements for successful completion of the partnership program including length of time allowed. (2) Hold acceptance meeting to explain pertinent information and forms for each approved partner – clarify distinction between
Preparing for Sale
Mortgage Fundamentals and Financing
Date:
Applicant fulfills conditions under Partnership Agreement (Notice of Pre-Approval)
Date:
Date:
Date:
Date:
Provide within 3 business days of receiving information sufficient to establish the changed circumstance or borrower-requested change.
• HUD-1 settlement statementxxvii [RESPA] Provide at least 1 business day prior to closing (including Saturdays).
Date:
Date:
List of Service Providers (If applicable, provided with GFE/LE) [RESPA] Provide no later than 3 business days (including Saturdays) after completed RESPA application received and at least 7 days prior to closing.
Cover Letter Best Practice: Provide cover letter with this Initial Disclosure Packet that itemizes the disclosures listed in this section.
Date:
• Provide revised Good Faith Estimate if required due to changed circumstances or borrower-requested change.13xxvi Note that if change is not due to changed circumstances or borrowerrequested change, then no change can be made to origination fees, transfer taxes, or certain other items, as applicable (zero tolerance rule). [RESPA]
Date:
Date:
Initial Disclosures
Updates to Initial Disclosures • Provide revised Truth in Lending Disclosure Statement if required due to change in certain terms, such as plus or minus .125 change in APR.xxv [TILA]
Send a Notice of Action Taken within 30 days after affiliate accepts first piece of information to evaluate applicant, either oral or written (other than just name and address).
(2) Monitor progress monthly and establish communication system to partner regarding progress or lack thereof. Affiliate must remain in contact with applicant on a regular basis to inform applicant of his or her status during this time period. [ECOA]
• Indicates that the applicant remains approved for a certain time period, which can be extended by Affiliate only.
Title review
• Some subsidy providers require a formal loan application. If so, provide loan application (e.g., Form 1003) as well. • (Note: If you have an NMLSR ID, include name and NMLSR ID information on all communications as required by applicable law.)
Date:
Local counsel or closing agent
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• States that partner family accepted into the Habitat Program and pre-approved for the loan up to a certain amount, subject to specified changes in overall financial readiness and conditions.
Property Valuation
Date:
Obtain all the above information.
Complete above within reasonable timeframe. Best Practice is within 30 days of applicant notifying Affiliate of self-withdrawal.
• Applicant works to fulfill conditions listed in the Partnership Agreement (Notice of Pre-Approval) such as sweat equity, maintain suitable check, etc.
(1) Partnership Agreementxiv
Has above criteria been met?
RESPA Application completed when the following information is obtained - RESPA
RESPA Loan Application
Within 30 days after Affiliate accepts first piece of information to evaluate applicant, either oral or written, Affiliate must provide one of the notices identified in Section (E) (unless applicant self-withdraws within that timeframe – see Disclosure Requirements, next box).
(Notice of Pre-Approval)
Certificate must be obtained less than 6 months prior to closing to get flood insurance quote. [FEMA]
• (1) Borrower’s name • (2) Borrower’s monthly income • (3) Borrower’s SSN • (4) Property address • (5) Estimate of value of property • (6) Loan amount • (7) Other information needed by lender10
Legal Requirement: You must define “completed application” in Affiliate policies (i.e., when Affiliate has obtained all the information it normally considers in making a credit decision). If Affiliate does not define “completed application” in its policies, then the industry standard will apply. • Based on the ECOA Application definition above, once the first piece of such information has been received, the timeframes discussed in the Disclosure Requirements section below begin, regardless of whether the application actually is complete (see below). • Once the ECOA Application is complete and upon pre-approval of the application, send a Partnership Agreement (Notice of Pre-Approval) (see (E-3) below).
Partnership Agreement
Flood Determination
Date:
Notice of Action Taken Do either Notice of Incompleteness, Notice of Denial OR Notice of PreApproval within 30 days from receipt of first piece of information (see ECOA Application discussion in box above).
Date:
Date:
Determine sales price • Sales price does not exceed FMV [HFHI Policy]. • See House pricing calculator.xv
(Triggers disclosure requirements below)
Date:
Affiliate of withdrawal by family. • Update all records in application file and close file. • Keep file, including withdrawal confirmation letter, for 25 months. [ECOA]
Date:
Agreement can be sent within 30 days of receipt of first piece of information, but no later than 30 days after receipt of all information necessary to make credit decision.
Send within 30 days of making decision to deny.
• If required by Affiliate procedures or subsidy providers/ industry partners, provide sales contract.
• Ensure loan file is properly documented to show proof that family expressly requested withdrawal. • Send withdrawal confirmation letter to family and place copy of letter in loan file. • Notify all parties within the
Best practice: Within 30 days of receiving completed ECOA Application, and must keep applicant informed on a regular basis (best practice = monthly).
Send Partnership Agreement (Notice of Pre-Approval). See first box in Phase 2 for more details.
Date:
Sales contract (If applicable)
Have the above criteria been met?
Date:
If applicant self-withdraws at any time during assessment phase
If Notice of Action Taken = Pre-Approval
(2) If applicant denied at any time, send Adverse Action Notice.xiii • Include additional language in the Adverse Action Notice if denial was based in whole or in part on a credit report or criminal background check (consumer report). • Provide a copy of the credit score and all supporting documents if a credit score was used in whole or in part to make a credit decision. • Keep file for 25 months after denial. [ECOA]
Date:
(4) If Affiliate has all the information from applicant to complete the ECOA application but Affiliate needs to obtain more information internally (such as board approval or home visit), send: • Informational Notice of Incompleteness (Informational NOI)xi.
Date:
If Notice of Action Taken = Denial
Send as soon as decision made (best practice) but not more than 30 days of receipt of first piece of information to evaluate applicant.
Provided with initial application materials
ECOA Application
Disclosure Requirements
(1) If Affiliate needs additional information from applicant regarding information that applicant can provide to complete evaluation, send: • Notice of Incompleteness (NOI)x with time-frame for information to be provided to Affiliate. • Include language that failure to provide information in specified time period constitutes denial without further action from Affiliate. Best practice: Follow up with family if information not received and Affiliate may extend timeline.7
(1) If no additional information is required and Affiliate has decided to deny applicant, send Adverse Action Notice.xii • Include additional language in the Adverse Action Notice if denial was based in whole or in part on a credit report or criminal background check (consumer report). • Provide a copy of the credit score and all supporting documents if a credit score was used in whole or in part to make a credit decision. • Keep file for 25 months after denial. [ECOA]
Best Practice for “Completed ECOA Application” Definition: • Provide document that explains components of a “completed application”: For example, ability to pay/financial readiness, need, willingness to partner pursuant to your Affiliate family selection policy, credit check, board approval [include any additional Affiliate application components]. • Explain timeline; citizenship policy; immigration, sex offender and criminal background checks; financial literacy class requirements, sweat equity; and home visits. • Consider additional Affiliate procedures such as decision tree for progressing to home visit, determining house size (number of children and bedrooms needed), and the Affiliate checklist for home visit/willingness to partner, intake checklist/application.
Date:
If Notice of Action Taken = Notice of Incompleteness (NOI)
Date:
• Privacy Notice [GLBA6]ix Best Practice in situations where Affiliate is using a third party lender or grant/ subsidy provider. For other situations, see GLBA requirements under Section IV(B) of the checklist.
PHASE
(“ECOA Application”)
Legal Requirements: • Do not discriminate per FH Act and ECOA, and any other applicable Fair Lending laws. • Apply all written board-approved policies consistently and uniformly. • Obtain approval from applicant for background checks (sex offender and criminal).
• No unfair, deceptive, misleading, or abusive advertisements, marketing or promotional materials. [UDAAP3 and TILA4 ] • No written or oral statements to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application. [ECOA] • If including triggering terms (e.g., amount or percentage of any downpayment, number of payments or period of repayment, etc.) in advertisements, proper additional language must be included. [TILA]
PHASE
START
1
• Fair Housing Act (“FH Act”) “Equal Housing Lender” sign must be posted wherever you meet with families. [FH Act]v • FH Act “Equal Housing Opportunity” logo must be on all applications, advertisements and marketing materials. [FH Act]vi • Must provide access to applications at times other than open houses. [ECOA2 /FH Act] • If applications provided electronically, ensure compliance with Electronic Signatures in Global and National Commerce-E-Sign Act (Federal E-Sign Act).vii
of notice of right to cancel, or delivery of all “material disclosures” (whichever occurs last) to rescind loan. Borrower has until midnight of the 3rd business day (including all calendar days except Sundays and legal holidays) following consummation, delivery of notice of right to cancel, or delivery of all “material disclosures” (whichever occurs last) to rescind loan. Date:
• Transfer of Servicing Notice (if required) [RESPA] At closing or not less than 15 calendar days (including weekends and holidays) before effective date of transfer of servicing of mortgage loan, unless extended time applicable.
PHASE
PHASE
If Affiliate provides any documents or advertisements:
Partnership Assessment Phase
state and local laws and regulations that apply to the stages discussed in this checklist. In addition, Affiliates must also ensure that they are compliant with all SAFE Act, Anti-Money Laundering, and TILA Loan Originator qualification requirements.
7
Date:
PostClosing
To be performed by someone other than loan originator: • Verify HUD-1/CD to all docs (e.g., compare HUD-1/CD to GFE/LE); ensure all amounts are correct (including amounts included on final Truth in Lending Disclosure Statement). [RESPA] • Note and deed of trust/mortgage: match names, dates, loan amounts, etc. [RESPA] • Verify promissory note correctly accounts for loan term and amount, payment date, maturity date, where payments are to be made and correct monthly principal and escrow requirements. [RESPA] All the above must be verified immediately after or at closing. Date:
(B) Document recording Immediately after document verification, record mortgage liens in real property records to ensure priority. Record liens soon as possible after closing but no later than 15 days after closing. Date:
(C) Document retention • Ensure record retention policy is followed (e.g., original, executed promissory notes must be retained by Affiliate along with bases for credit decisions). • Keep all written information related to an application for 25 months after the date you have informed applicant of acceptance or denial or the applicant withdrew. [ECOA] • Keep all RESPA initial and closing disclosures for 5 years. [RESPA] • Keep all TILA initial and closing disclosures for 2 years. [TILA] Have the above criteria been met? Date:
PROCEED TO MORTGATE SERVICING CHECKLIST 1. This checklist contemplates two different application phases in order to best match the Habitat model to federal mortgage regulations. The Equal Credit Opportunity Act (“ECOA”) Application Phase addresses the initial Habitat Partnership assessment. The Real Estate Settlement Procedures Act (“RESPA”) Application Phase addresses the loan assessment and closing phases. Note that these phases may overlap. Accordingly, once applicant begins providing information of any kind to Affiliate, Affiliate should look at both phases to determine when an application is triggered; the RESPA Application may occur concurrently with the ECOA Application or after the ECOA Application. Affiliate should follow the steps in each phase when they
are triggered. 2. Equal Credit Opportunity Act (“ECOA”) 3. Unfair, Deceptive or Abusive Acts or Practices (“UDAAP”) 4. Truth in Lending Act (“TILA”) 5. For purposes of this notice, 6. Gramm-Leach-Bliley Act (“GLBA”) 7. While the Affiliate may not be required to send an Adverse Action Notice (as described in this checklist) if first NOI includes proper notice that failure
to provide information in specified time period constitutes denial without further action, it is a more prudent course of action to send the Adverse Action Notice if Affiliate denies application. 8. Flood Disaster Protection Act 9. Federal Emergency Management Agency 10. Important Change as of August 1, 2015: It would be prudent for Affiliate to treat information as a “RESPA Application” if the six other pieces of information have been provided, but Affiliate has not yet received its other “Affiliate-required” information. The seventh element (“Other information
needed by lender”) is no longer included as of August 1, 2015. 11. Affiliates should only keep partner families on waitlists when a house is not yet available due to Affiliate circumstances. Affiliates should never include a partner family on a waitlist if for credit repair purposes. If applicant is included on an Affiliate’s waitlist, re-verification must be conducted on a periodic basis to ensure applicant continues to be sufficiently creditworthy for the mortgage loan. 12. If a revised Truth in Lending Disclosure Statement is provided, then closing may not occur until both the seven business day (including all calendar days except Sundays and legal holidays) waiting period for the
Truth in Lending Disclosure Statement and additional three business day (including all calendar days except Sunday and legal holidays) waiting period described herein have expired. 13. Changed circumstances include (1) acts of God, war, disaster or other emergency, (2) information particular to the borrower or transaction that was relied on in providing the GFE/LE which changes or is found to be inaccurate (including credit quality of borrower or estimated value of property), and (3) new information not relied on in providing the GFE/LE or circumstantial changes, that are particular to the borrower or transaction (i.e., boundary dispute, environmental problem).