1. USPS validation exception – This is not a Compliance issue. Check with your RPM or contact the helpdesk for a resolution.
2. Maximum Rate Spread Limit, QM APR violation, QM points and fees violation – Must be resolved. APR violations are typically dealt with by lowering the interest rate. Points and fees violations are usually resolved through a pricing concession to bring the points below the threshold. These exceptions would not apply to non-QM programs and the exceptions may be able to be overridden. If this is the case, please ask to speak to a person.
3. Reimbursement date validation, charges that cannot increase, revised CD fail, funding date fail – Half the time these fails are a result of the closing date needing to be updated. Changes in the system cannot occur after the consummation date in the system, and the most recent disclosure must be marked as received before the consummation date. If the charges that cannot increase fail still exists after updating the closing date, please ask to speak to a person.
4. In person delivery fail – A disclosure marked as being delivered in person cannot have a different sent and received date. Please update the received date to the sent date or update the method of delivery and this fail should go away.
5. Blocker needs to be addressed fail – When this fail fires by itself, usually exiting the file and going back in will clear it.
6. Borrower wet signed documents and you need the received dates entered – Please contact your RPM.
7. HPML/Higher Priced mortgage loan/safe Harbor is allowed if loan meets the following criteria:
· Not a streamline product
· Not an ARM product – Conventional or Government
· No prepayment penalty
· Not a Balloon mortgage
· Not waiving escrows
· No PIW being used
· Cannot waive right to receive appraisal
· There shouldn’t be an alert or exception to override. If there is, there may be another issue that needs to be addressed.
· QM APR fail is different and typically not allowed outside of certain loan programs.
The Compliance Report
Most fails are due to points and fees being too high or the loan is considered HPML.
We allow HPML loans to close if they pass a 2-part test:
1. the QM points and fees test and
2. the following are not allowed on HPML loans:
o FHA Streamline non‐credit qualifying loans
o VA IRRRL
o Conventional and Government ARMS
o HARP Loans – DU Refi Plus and LP Relief Refinance
o Fannie Mae HomePath
o Any loan with a PIW (appraisal waiver)
o Any loan with a prepayment penalty
o Balloon Mortgages
o Cannot waive escrows
o Flipped properties that are HPML require a 2nd appraisal at no cost to borrower
o Additional Programs may be added based on restrictions
There should not be an action or exception to clear on these that would prevent you from moving forward with the file. If there is, then it may involve another issue. Please ask to speak to a person.
What happens if we close a loan that fails QM points and fees threshold, can we cure/correct this post-closing?
No. The post-closing cure provision was removed/taken away by the CFPB in January 2021. If the loan closes and we are in fact failing points and fees – we have a loan that can’t be sold. This is where the ‘no cure provision post-closing’ is applied...nothing can be done post-closing to cure/fix the points and fees fail on a loan and we are stuck with the loan, or we have to tell our sellers/business partners we can’t buy their loan.
What fees can be excluded from APR – this is TILA?
See APR chart – APR fees are included doesn’t matter who pays them. These fees are not like QM fees where depending on who pays some can be excluded or considered bona fide and excluded. All fees that are considered APR fees as per the chart, will remain and be calculated in the APR testing.
What fees can be excluded from QM – this is ATR/QM?
· Up to 2 bona fide discount points
· Discount points paid by the seller
Bona fide discount points 12 CFR 1026.32(b)(1)(i)(E), 32(b)(1)(i)(F), and 32(b)(3).
Exclude up to 2 bona fide discount points if the interest rate before the discount does not exceed the APOR for a comparable transaction by more than 1 percentage point; or exclude up to 1 bona fide discount point if the interest rate before the discount does not exceed the APOR for a comparable transaction by more than 2 percentage points.
A discount point is “bona fide” if it reduces the consumer’s interest rate by an amount that reflects established industry practices, such as secondary mortgage market norms. An example is the pricing in the to-be-announced market for mortgage-backed securities.
If the starting rate is already at a discount, this discount amount can’t be excluded as bona fide since it is not buying the rate down.
What is the APOR and what does it effect?
APOR stands for Average Prime Offer Rate. The APOR is used to determine a loans rate spread and to determine if the loan is high cost/higher priced. To determine if a loan is higher priced, you would look at the difference between the APR and APOR.
Although the mandatory date of the new Rule was delayed, Fannie and Freddie will no longer be able to purchase loans under “The Patch” with an application date on or after July 1, 2021. For a loan to be a General QM based on the revised definition effective March 1, 2021 (with a mandatory compliance date of October 1, 2022), the loan must meet a new pricing-based threshold and specific underwriting criteria. Based on the new, revised definition, a loan is a General QM only if the APR for the loan does not exceed the APOR based on the thresholds below.
The thresholds for General QM are:
Loan Amount | APR – APOR Spread | Category |
≥ $134,841 | < 2.25% | QM Rebuttal Presumption - HPML |
≥ $80,905 < $134,841 | < 3.50% | QM Rebuttal Presumption - HPML |
< $80,905 | < 6.50% | QM Rebuttal Presumption - HPML |
Manufactured Home[1] < $134,841 | < 6.50% | QM Rebuttal Presumption - HPML |
What are the timing requirements for APR increases?
If the APR increases with a valid CIC by more than .125 for fixed rate and .25 for an ARM loan, there is a three-day waiting period that must be met prior to consummation.
Give examples when APR violation/issue can be cured and how it can be cured?
Scenario 1:
If the loan closes and the three-day waiting period was not met and the APR increased by more than .125 for fixed rate loans and more than .25 for an ARM loan, there is no cure for this as the reg. requires a 3-day waiting period.
Scenario 2:
The Business Partner believes they ONLY need to lower the fee enough to be under the .125%/ $100.00 threshold from last APR disclosed. If that is only half the fee, they are trying to understand why FCM is saying they must take the entire fee off the charges (POC by lender) and eat this fee. The fee was always on the LE to the final CD, they just didn’t think they needed to include it in the ARP amount financed. They agree it should have been, but if they get under the .125% and amount financed passes the test, they don’t want to eat the entire fee. Hope this helps. They also have asked their Compliance team to locate documentation on their position on it.
Although the disclosed APR was incorrect on the Closing disclosure...the fee was disclosed...so zero tolerance is not the problem – TRID is not the problem. The problem is the fee was disclosed but not as an APR fee…to correct the incorrectly disclosed APR, a refund is due in order to bring the APR in to 'compliance'. The fee is an APR fee (and everyone has agreed on this previously per email below) and was charged to the borrower – but not as an APR fee…the ‘cure’ is an APR issue – not a TRID tolerance cure/violation issue and so to get the originally disclosed APR to be accurate for the borrower the solution would be to refund the charge to the borrower since it was not disclosed as an APR fee. Once this has been done, the finance charges and APR on the CD from closing will be accurate.
To correct it as an APR fee post-closing would not be allowed since the increase of an APR by more than .125 requires a 3-day waiting period prior to consummation and this can’t be offered since the loan has already closed.
They can go to 1026.18 (d) if they need further Reg assistance but I suggest they get with their compliance department on this as well.
Scenario 3:
Is a creditor required to ensure that a consumer receives a corrected Closing Disclosure at least three business days before consummation if the APR decreases (i.e., the previously disclosed APR is overstated)
The answer depends on whether the overstated APR that was previously disclosed on the Closing Disclosure is accurate or inaccurate under Regulation Z. If the overstated APR is accurate under Regulation Z, the creditor must provide a corrected Closing Disclosure, but the creditor is permitted to provide it at or before consummation without a new three business-day waiting period. 12 CFR § 1026.19(f)(2)(i). If the overstated APR is inaccurate under Regulation Z, the creditor must ensure that a consumer receives a corrected Closing Disclosure at least three business days before the loan’s consummation (i.e., the inaccurate APR triggers a new three-business day waiting period). 12 CFR § 1026.19(f)(2)(ii).
A disclosed APR is accurate under Regulation Z if the difference between the disclosed APR and the actual APR for the loan is within an applicable tolerance in Regulation Z, 12 CFR § 1026.22(a). For transactions secured by real property or a dwelling, Regulation Z includes several tolerances that might apply, including a tolerance whereby the disclosed APR is considered accurate if it results from the disclosed finance charge being overstated. See 12 CFR § 1026.22(a)(4). For example, if the APR and finance charge are overstated because the interest rate has decreased, the APR is considered accurate. Thus, the creditor may provide the corrected Closing Disclosure to the consumer at consummation and is not required to ensure that the consumer receives the corrected Closing Disclosure at least three business days before consummation.
Scenario 4:
I have a loan where the borrower already signed the closing docs, and it is in the rescission period. The loan officer apparently wanted to give the borrowers a lender credit and that was not relayed to the closer. Can I do a post consummation CD to correct this during the rescission period or do I need to have the borrowers rescind and re-close?
If pricing is getting better for the borrower (i.e., it is not adversely impacting "material terms" since APR is decreasing; also, if current CD reflects "accurate" APR/Finance Charge/TOP => not under-disclosed within $100 purchase and $35 for refi), you should be ok in not re-opening rescission.
So, if investor isn't being quirky, you should be fine letting the 3-day ROR period run out before disbursing on Day 4. The applicable authority is the Right of Rescission regulation under 1026.23(a)(3)
(3)(i) The consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, whichever occurs last. If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer's interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with section 125(f) of the Act.
(ii) For purposes of this paragraph (a)(3), the term "material disclosures" means the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total of payments, the payment schedule, and the disclosures and limitations referred to in §§ 1026.32(c) and (d) and 1026.43(g)
Give examples of when a loan fails QM points and fees, and can these be cured and how?
A loan that fails points and fees testing prior to closing can be fixed with either lowering the points and fees on the loan and/or lowering any discount points on the loan. They can also be fixed by applying seller-paid closing costs to certain fees
A loan that fails points and fees testing post-closing can’t be fixed and results in a loan we can’t purchase (Del Corr) or sell (all other channels)
If there is a Retail licensing issue on the Comp ease report, these emails should go to the licensing team: [email protected]
For TPO licensing issues, contact BP approvals.
[1] Manufactured home means any residential structure as defined under HUD regulations establishing manufactured home construction and safety standards. 24 CFR 3280.2. Modular or other factory-built homes that do not meet the HUD code standards are not manufactured homes for this purpose.