Know The Rules – Truth in Lending and Florida Compliance

Know The Rules – Truth in Lending and Florida Compliance

Continuing Education

for Florida Mortgage Professionals

www.BookmarkEducation.com

Know The Rules – Truth in Lending and Florida Compliance A considerable amount of care has been taken to provide accurate and timely information. However, any ideas, suggestions, opinions, or general knowledge presented in this text are those of the author and other contributors, and are subject to local, state and federal laws and regulations, court cases, and any revisions of the same. The reader is encouraged to consult legal counsel concerning any points of law. This book should not be used as an alternative to competent legal counsel.

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TABLE OF CONTENTS TRUTH IN LENDING ACT ................................................................................................1

Introduction.................................................................................................................1 Coverage and Organization of TILA and Regulation Z ..............................................1

Coverage..............................................................................................................1 Exempt Transactions............................................................................................2 Organization of Regulation Z................................................................................2 Definitions of Open-End Credit and Closed-End Credit........................................3 Summary – Coverage and Organization ..............................................................3

Finance Charge..........................................................................................................4 Definition of “Finance Charge”..............................................................................4 Examples of Charges Included In and Excluded From the “Finance Charge”......4 Summary – Finance Charge.................................................................................6

Open-End Credit ........................................................................................................6 Disclosure Requirements .....................................................................................7 Prompt Crediting of Payments............................................................................ 10 Treatment of Credit Balances............................................................................. 11 Billing Error Resolution....................................................................................... 11 Home Equity Plans............................................................................................. 13 Right of Rescission............................................................................................. 21 Advertising ......................................................................................................... 29 Summary – Open-End Credit ............................................................................. 30

Closed-End Credit ....................................................................................................30 Disclosure Requirements ................................................................................... 31 Special Rules Regarding Certain Residential Mortgage and Variable-Rate Transactions....................................................................................................... 34 Rules Regarding Treatment of Credit Balances ................................................. 46 Rules Regarding Determination and Accuracy of Annual Percentage Rate....... 46 Right of Rescission............................................................................................. 47 Advertising ......................................................................................................... 50 Summary – Closed-End Credit........................................................................... 51

Miscellaneous Provisions .........................................................................................51 Special Rules for Certain Home Mortgage Transactions .........................................52

Section 32 Mortgages ........................................................................................ 52 Reverse Mortgages ............................................................................................ 55 Summary – Special Rules for Certain Home Mortgage Transactions ................ 56

TILA Enforcement and Penalties..............................................................................56 Conclusion................................................................................................................57

FLORIDA LAW ...............................................................................................................58 Introduction...............................................................................................................58 Definitions.................................................................................................................58 General Provisions ...................................................................................................62

Financial Services Commission and Office of Financial Regulation ................... 62 Investigations, Complaints, and Examinations ................................................... 62 Record Keeping.................................................................................................. 63 Prohibited Advertising - Record Requirements................................................... 64

Penalties.............................................................................................................64 TLiability In Case Of Unlawful Transaction.........................................................65 TLiability to the Public ........................................................................................65 TConflicting Interest ...........................................................................................65 TWaiver ..............................................................................................................66 Prohibited Practices ...........................................................................................66 Disposition of Insurance Proceeds .....................................................................67 Arbitration ...........................................................................................................68 Mortgage Business Schools ...............................................................................69 Professional Education Requirements ...............................................................69

Mortgage Broker Requirements .............................................................................. 70 Who Needs a License? ......................................................................................70 Mortgage Broker's License.................................................................................71 Renewal of Mortgage Broker's License ..............................................................72 Principal Broker and Branch Broker Requirements ............................................72 Licensure as a Mortgage Brokerage Business ...................................................73 Renewal of Mortgage Brokerage Business License or Branch Office License...73 Mortgage Brokerage Business Branch Offices...................................................74 Mortgage Brokerage Agreements and Mortgage Broker Disclosures ................74 Principal Place of Business Requirements.........................................................75 Requirements of Licensees................................................................................75 Mortgage Brokerage Files ..................................................................................77 Mortgage Brokerage and Lending Transaction Journal......................................78 Administrative Penalties and Fines; License Violations......................................78 Brokerage Fees..................................................................................................80 Fees Earned Upon Obtaining a Bona Fide Commitment ...................................81 Requirements for Brokering Loans to Noninstitutional Investors ........................82

Mortgage Lender Requirements.............................................................................. 84 Who Needs a License? ......................................................................................84 Mortgage Lender's License Requirements .........................................................85 Correspondent Mortgage Lender's License Requirements ................................87 Renewal of Mortgage Lender's License; Branch Office License Renewal..........88 Branch Offices....................................................................................................89 Requirements of Mortgage Lender Licensees....................................................89 Mortgage Lender Files .......................................................................................91 Mortgage Brokerage and Lending Transaction Journal......................................91 Loan Application Process...................................................................................92 Lock-In Agreement .............................................................................................93 Commitment Process .........................................................................................94 Expiration of Lock-In Agreement or Commitment...............................................95 Administrative Penalties and Fines; License Violations......................................95 Net Worth ...........................................................................................................97 Mortgage Lender or Correspondent Mortgage Lender When Acting As a Mortgage Brokerage Business ...........................................................................97 Lender Fees and Charges..................................................................................97 Requirements for Selling Loans to Noninstitutional Investors.............................97 Servicing Audits..................................................................................................98 Other Products and Services..............................................................................99

Florida Fair Lending Act ........................................................................................ 100 High Cost Loans and Predatory Lending..........................................................100 Purpose of the Florida Fair Lending Act ...........................................................100 Definitions as Used in the Florida Fair Lending Act:.........................................100 Acts Prohibited by the Florida Fair Lending Act................................................101

Disclosures Required For High-Cost Home Loans........................................... 104 Liability of Purchasers and Assignees.............................................................. 105 Rights of Borrowers To Cure Under High-Cost Home Loans ........................... 105 Powers and Duties of the Commission and Office ........................................... 106 Enforcement ..................................................................................................... 107

Loans Under Florida Uniform Land Sale Practices Law.........................................108 Conclusion..............................................................................................................108

Appendix A – Final Examination................................................................................109

TRUTH IN LENDING ACT

Introduction The Truth in Lending Act, commonly referred to as “TILA,” was originally enacted in 1969 based upon a Congressional finding that economic stabilization would be enhanced and competition between financial institutions and other lenders engaging in the extension of consumer credit would be strengthened by borrowers’ informed use of credit. Congress specifically found that the informed use of credit arises from the consumers’ awareness of the cost of that credit.

TILA’s stated purpose is to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him or her and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.

Regulation Z was issued by the Board of Governors of the Federal Reserve System to implement TILA. According to Regulation Z, its purpose is to accomplish each of the following:

Promote the informed use of consumer credit by requiring disclosures about its terms and cost.

Give consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling.

Regulate certain credit card practices.

Provide a means for fair and timely resolution of credit billing disputes.

Require a maximum interest rate to be stated in variable-rate contracts secured by the consumer’s dwelling.

Impose limitations on certain home equity plans and mortgages.

Prohibit certain acts or practices in connection with credit secured by a consumer’s principal dwelling.

Regulation Z is accompanied by an extensive supplemental commentary in which the staff of the Division of Consumer and Community Affairs of the Federal Reserve Board issues official staff interpretations of Regulation Z. Good faith compliance with the Regulation Z commentary affords creditors protection from civil liability for breach of TILA. As a result, mortgage professionals may rely on the supplemental commentary in order to interpret the ultimate meaning of Regulation Z and TILA.

Coverage and Organization of TILA and Regulation Z

Coverage In general, TILA and Regulation Z apply to each individual or business that offers or extends credit when all of the following conditions are met:

The credit is offered or extended to consumers.

The offering or extension of consumer credit is done “regularly”.

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The credit is subject to a finance charge or is payable by a written agreement in more than four (4) installments.

The credit is primarily for personal, family or household purposes.

With respect to the second condition listed above, a party “regularly” extends credit if it extended credit more than twenty-five (25) times (or more than five (5) times for transactions secured by a dwelling) in the preceding calendar year; if the party did not meet these numerical standards in the preceding calendar year, the standards are applied to the current calendar year. In addition, a party will be deemed to “regularly” extend credit if, in any 12-month period, the party does either of the following:

Originates more than one credit extension secured by the consumer’s principal dwelling and which has rates and fees above certain amounts described in Regulation Z.

Makes one or more such high rate or high cost home loan through a mortgage broker.

Notwithstanding the four (4) general conditions indicated above, when a credit card is involved, certain provisions of TILA and Regulation Z apply even if the credit is not subject to a finance charge, or is not payable by a written agreement in more than four (4) installments, or if the credit card is to be used for business purposes.

Exempt Transactions TILA and Regulation Z do not apply to any of the following types of transactions:

Extension of credit primarily for a business, commercial or agricultural purpose.

Extension of credit to other than a natural person.

Extension of credit not secured by real property, or by personal property used or expected to be used as the principal dwelling of the consumer, in which the amount financed exceeds $25,000 or in which there is an express written commitment to extend credit in excess of $25,000.

Extension of credit that involves public utility services if the charges for service or delayed payment are filed with or regulated by a government unit.

Transactions in securities or commodities accounts in which credit is extended by a party registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission.

An installment agreement for the purchase of home fuels in which no finance charge is imposed.

Student loans made, insured or guaranteed pursuant to federal law.

Organization of Regulation Z Regulation Z is divided into subparts and appendices as follows:

Subpart A contains general information. It sets forth:

• The authority, purpose, coverage, and organization of the regulation.

• The definitions of basic terms.

• The transactions that are exempt from coverage.

• The method of determining the finance charge.


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Subpart B contains the rules for open-end credit. It requires that initial disclosures and periodic statements be provided, as well as additional disclosures for credit and charge card applications and for certain home equity plans.

Subpart C relates to closed-end credit. It contains rules on disclosures, treatment of credit balances, annual percentage rate calculations, rescission requirements, and advertising.

Subpart D contains rules on oral disclosures, Spanish language disclosure in Puerto Rico, record retention, effect on state laws, state exemptions, and rate limitations.

Subpart E contains special rules for mortgage transactions. Specifically, Subpart E requires certain disclosures and provides limitations for loans that have rates and fees above specified amounts. Subpart E also requires disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Finally, Subpart E prohibits specific acts and practices in connection with mortgage transactions.

Subpart F contains requirements for electronic communications between a creditor and a consumer.

Several appendices contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, and the rules for computing annual percentage rates in closed-end credit transactions and total annual loan cost rates for reverse mortgage transactions.

Definitions of Open-End Credit and Closed-End Credit As indicated above, Subpart B of Regulation Z contains rules for open-end credit. Regulation Z defines “open-end credit” as consumer credit extended by a creditor under a plan in which all of the following occur:

The creditor reasonably contemplates repeated transactions.

The creditor may impose a finance charge from time to time on an outstanding unpaid balance.

The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

Subpart C of Regulation Z contains rules for closed-end credit. Regulation Z defines “closed-end credit” as all consumer credit other than “open-end credit.”

Summary – Coverage and Organization TILA and Regulation Z apply to two major categories of personal, family or household consumer credit transactions:

Open-end credit.

Closed-end credit.

Regulation Z is specifically organized to separately set forth rules for open-end credit (Subpart B) and closed-end credit (Subpart C). Other portions of Regulation Z set forth general rules for all types of personal, family and household consumer credit, and certain portions of Regulation Z set forth specific rules for particular types of credit transactions.


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These materials will examine the portions of TILA and Regulation Z which most strongly impact the mortgage industry and the day-to-day responsibilities of mortgage professionals.

Finance Charge In general, Regulation Z applies to individuals or businesses which extend personal, family or household consumer credit subject to a finance charge.

Definition of “Finance Charge” Regulation Z defines the “finance charge” as the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.

With respect to the prior sentence, the supplemental commentary to Regulation Z explains, for example, that taxes, license fees or registration fees paid by both cash and credit customers do not constitute finance charges.

In addition to direct charges by the creditor, the finance charge also includes fees and amounts charged by a third party if the creditor does either of the following:

Retains the use of a third party as a condition of or incident to the extension of credit, even if the consumer can choose the third party.

Retains a portion of the third party charge, to the extent of the portion retained.

However, Regulation Z provides special rules relating to two types of third party charges -- closing agent charges and mortgage broker fees:

Closing Agent Charges – Fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor does one of the following:

• Requires the particular services for which the consumer is charged.

• Requires the imposition of the charge.

• Retains a portion of the third party charge, to the extent of the portion retained.

Mortgage Broker Fees – Fees charged by a mortgage broker (including fees paid by the consumer directly to the broker or to the creditor for delivery to the broker) are finance charges even if the creditor does not require the consumer to use a mortgage broker and even if the creditor does not retain any portion of the charge.

Examples of Charges Included In and Excluded From the “Finance Charge” Regulation Z explains that the finance charge includes the following types of charges:

Interest, time price differential, and any amount payable under an add-on or discount system of additional charges.

Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature.

Points, loan fees, assumption fees, finder’s fees, and similar charges.

Appraisal, investigation, and credit report fees.


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Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer’s default or other credit loss.

Charges imposed on a creditor by another person for purchasing or accepting a consumer’s obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.

Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction.

Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction.

Discounts for the purpose of inducing payment by a means other than the use of credit.

Charges or premiums paid for debt cancellation coverage written in connection with a credit transaction, whether or not the debt cancellation coverage is insurance under applicable law.

On the other hand, the following charges are not finance charges, even if generally included in the above list of items:

Application fees charged to all applicants for credit, whether or not credit is actually extended.

Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default, or a similar occurrence.

Charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing.

Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis.

Seller’s points.

Interest forfeited as a result of an interest reduction required by law on a time deposit used as security for an extension of credit.

The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount:

• Fees for title examination, abstract of title, title insurance, property survey, and similar purposes.

• Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents.

• Notary and credit report fees.

• Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest infestation or flood hazard determinations.

• Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge.

Discounts offered to induce payment for a purchase by cash, check, or other means.


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In addition, specific exclusions exist for certain types of credit insurance premiums and property insurance premiums, and voluntary debt cancellation fees. Certain itemized and disclosed security interest charges may be excluded from the finance charge:

Taxes and fees prescribed by law and paid to public officials for searching, perfecting, releasing or satisfying a security interest.

The premium for insurance in lieu of perfecting a security interest.

Any tax levied on security instruments or loan documents if the payment of the tax is a requirement for recording the document.

Regulation Z further provides that the creditor may not deduct from the finance charge any interest, dividends or other income to be received by the consumer on deposits or investments. The finance charge must show the full amount notwithstanding the ultimate benefit of such income to the consumer.

Summary – Finance Charge The finance charge is a crucial element of TILA’s disclosure requirements described later in these materials. As a result, Regulation Z and the related supplementary commentary expend significant resources to spell out the specific definition of “finance charge.” The inclusions and exclusions are explained and clarified in order to eliminate judgment by creditors when preparing the actual finance charge disclosures required by TILA and Regulation Z.

Mortgage professionals must be aware of the specific inclusions and exclusions related to the finance charge in order to comply with the critical TILA disclosure requirements. The supplemental commentary to Regulation Z repeatedly states that when a creditor is unable to determine whether an item should be included in the finance charge, that creditor should include the item in the finance charge, rather than exclude the item.

Open-End Credit Subpart B of Regulation Z implements TILA’s requirements regarding open-end credit. As indicated above, “open-end credit” is consumer credit extended by a creditor under a plan in which all of the following occur:

The creditor reasonably contemplates repeated transactions.

The creditor may impose a finance charge from time to time on an outstanding unpaid balance.

The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

Home equity lines of credit are the best example of open-end credit mortgage indebtedness, while credit cards are the most common form of open-end credit.

Regulation Z governs open-end credit through all of the following methods:

Disclosure requirements.

Rules regarding prompt crediting of payments.

Rules regarding treatment of credit balances.

Rules restricting issuance of credit cards.

Other rules affecting credit cards.


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Rules regarding billing error resolution.

Rules regarding home equity plans.

Implementation of consumer right of rescission.

Rules regarding advertising of open-end credit.

The following sections of these materials discuss the above-listed items which directly affect the mortgage industry and the day-to-day duties of a mortgage professional. These materials do not elaborate upon sections of Regulation Z which exclusively affect credit cards and related transactions.

Disclosure Requirements The very purpose of TILA is to assure a meaningful disclosure of credit terms. Regulation Z strives to achieve that purpose by imposing various disclosure requirements upon creditors extending open-end credit. Disclosures include initial disclosures, periodic statements, credit card application and solicitation disclosures, and specific disclosures for home equity plans.

Disclosures must be made clearly and conspicuously in writing in a form which the consumer may keep. The terms “finance charge” and “annual percentage rate,” when required to be disclosed with a corresponding amount or percentage rate, must be more conspicuous than any other required disclosure. The “annual percentage rate” or “APR” is a measure of the cost of credit, expressed as a yearly rate.

If a disclosure becomes inaccurate because of an event which occurs after the creditor mails or delivers the disclosure, the resulting inaccuracy is not a violation of Regulation Z, but new disclosures may be required.

Regulation Z permits a creditor to provide any written disclosure through electronic communication. “Electronic communication” means a message transmitted electronically in a format that allows visual text to be displayed on equipment, including a computer monitor. Electronic transmission may occur either by sending the disclosure to the consumer’s e-mail address, or by making the disclosure available at another location such as an internet website. If the creditor chooses to make the disclosure available at another location such as a website, the creditor must alert the consumer of the disclosure’s availability by sending a notice to either the consumer’s e-mail address or the consumer’s postal address. The notice shall identify the account involved and the address of the website or other location where the disclosure is available. If the creditor makes the disclosure available at another location such as a website, the disclosure must remain available at least ninety (90) days from the date the disclosure first becomes available or from the date of the notice alerting the consumer of the disclosure, whichever is later.

Initial Disclosure Statement An initial disclosure statement must be furnished by the creditor before the first transaction is made under a plan of open-end credit. In the initial disclosure statement the creditor shall disclose to the consumer each of the following items, to the extent applicable:

Finance Charge – The creditor must disclose the circumstances under which a finance charge will be imposed and an explanation of how it will be determined, as follows:

• A statement of when finance charges begin to accrue, including an explanation of whether or not any time period exists within which any credit extended may be repaid without incurring a finance charge. Even if such a time period is provided in the disclosure statement, a creditor may, at its option and without further


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disclosure, impose no finance charge when payment is received after the time period’s expiration.

• A disclosure of each periodic rate that may be used to compute the finance charge, the range of balances to which it is applicable, and the corresponding annual percentage rate. If a creditor is offering a variable rate plan, the creditor shall also disclose: (i) The circumstances under which the rate may increase; (ii) any limitations on the increase; and (iii) the effect of an increase. When different periodic rates apply to different types of transactions, the types of transactions to which the periodic rates apply shall also be disclosed.

• An explanation of the method used to determine the balance on which the finance charge may be computed.

• An explanation of how the amount of any finance charge will be determined, including a description of how any finance charge other than the periodic rate will be determined. Note that even if no finance charge is imposed when the outstanding balance is less than a certain amount, no disclosure is required of that fact or of the balance below which no finance charge will be imposed.

Other charges – The creditor must also disclose the amount of any charge other than a finance charge that may be imposed as part of the plan, or an explanation of how the charge will be determined.

Security interests – The creditor shall disclose the fact that it has or will acquire a security interest in the property purchased under the plan, or in other property identified by item or type.

Statement of billing rights – The disclosure shall include a statement that outlines the consumer’s rights and the creditor’s responsibilities regarding billing rights and that is substantially similar to the statement found in Appendix G to Regulation Z. (See the subsection “Billing Error Resolution” below for a copy of the sample Appendix G statements.)

Home equity plan information – The creditor shall make the following disclosures, as applicable:

• A statement of the conditions under which the creditor may take certain action such as terminating the plan or changing the terms.

• The payment information regarding the length of the draw period and any repayment period and an explanation of how the minimum period payment will be determined and the timing of the payments for both the draw period and any repayment period.

• A statement that negative amortization may occur.

• A statement of any limitations on the number of extensions of credit and the amount of credit that may be obtained during any time period, as well as any minimum outstanding balance and minimum draw requirements, stated as dollar amounts or percentages.

• A statement regarding potential tax implications of the transaction indicating that the consumer should consult a tax advisor regarding the deductibility of interest and charges under the plan.

• A statement that the annual percentage rate imposed under the plan does not include costs other than interest.


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• Certain variable rate disclosures.

Later in these materials we discuss the statement of billing rights and the home equity plan information

statement for open-end credit plans, Regulation Z also editor furnish the consumer with a periodic statement disclosing certain

outstanding at the beginning of the billing cycle.

saction by furnishing an actual copy of

billing cycle, including the amount and the date of crediting. The date need not be

the

which a periodic rate was applied and an explanation of how

during the billing cycle, using the term finance

must be disclosed, using the term annual percentage rate.

ount during the billing cycle.

in greater detail.

Periodic Statement In addition to the initial disclosurerequires that the critems. Specifically, Regulation Z requires that the periodic statement include the following items:

Previous balance – Each periodic statement must include the account balance

Identification of transactions – The creditor shall identify credit transactions on or with the first periodic statement that reflects the tranthe receipt or other credit document, or by otherwise identifying the amount and name of the transaction. Note that failure to disclose this information shall not be deemed a failure to comply with Regulation Z if: (1) The creditor maintains procedures reasonably adapted to obtain and provide the information; and (2) the creditor treats an inquiry for clarification or documentation as a notice of a billing error as required under Regulation Z.

Credits – Each periodic statement must also disclose any credit to the account during theprovided if a delay in crediting does not result in any finance charge or other charge.

Periodic rates – The creditor must disclose each periodic rate that may be used to compute the finance charge, the range of balances to which it is applicable, and corresponding annual percentage rate. If a variable rate plan is involved, the creditor shall disclose the fact that the periodic rate will vary. If different periodic rates apply to different types of transactions, the types of transactions to which the periodic rates apply shall also be disclosed.

Balance on which finance charge computed – The periodic statement must include the amount of the balance tothat balance was determined. When a balance is determined without first deducting all credits and payments made during the billing cycle, that fact and the amount of the credits and payments shall be disclosed.

Amount of finance charge – The creditor must disclose the amount of any finance charge debited or added to the account charge. The components of the finance charge shall be individually itemized and identified to show the amount(s) due to the application of any periodic rates and the amount(s) of any other type of finance charge. If there is more than one periodic rate, the amount of the finance charge attributable to each rate need not be separately itemized and identified.

Annual percentage rate – When a finance charge is imposed during the billing cycle, the annual percentage rates

Other charges – The periodic statement must include the amounts, itemized and identified by type, of any charges other than finance charges debited to the acc


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Closing date of billing cycle; new balance – The closing date of the billing cycle and the account balance outstanding on that date must be disclosed in each periodic statement.

Free-ride period – The c reditor must disclose the date by which or the time period within

SubBeyond re statement and the periodic statements, Regulation Z imposes a number of subsequent disclosure requirements, including the following:

g rights – A statement of billing rights must be mailed or

ent of billing rights must

is mailed or delivered

tice of the change to each consumer who may be

PrompTILA g egulation Z’s implementation of rules regarding prompt crediting of payments. Regulation Z specifically provides:

l credit a payment to the consumer’s account as of the date

the creditor shall credit the payment

which the new balance or any portion of the new balance must be paid to avoid additional finance charges. Even if such a time period is provided, a creditor may, at itsoption and without disclosure, impose no finance charge when payment is received after the time period’s expiration.

Address for notice of billing errors – The address to be used for notice of billing errors. Alternatively, the address may be provided on the billing rights statement described later in these materials.

sequent disclosure requirements the initial disclosu

Furnishing statement of billindelivered to the consumer at least once per calendar year, at intervals of not less than six (6) months nor more than eighteen (18) months. The statembe mailed either to all consumers or to each consumer entitled to receive a periodic statement. Alternatively, the creditor may mail or deliver on or with each periodic statement a form statement disclosing billing rights substantially similar to that in Appendix G of Regulation Z. (See the subsection “Billing Error Resolution” later in these materials for a copy of the sample Appendix G statements.)

Disclosures for supplemental credit devices and additional features – The same finance charge disclosures required in the Initial Disclosure Statement must be sent to the consumer whenever a credit feature is added or a credit device and the finance charge terms for the feature or device differ from the disclosures previously delivered to the consumer.

Change in terms – Whenever any term required to be disclosed in the initial disclosure statement is changed or the required minimum periodic payment is increased, the creditor must mail or deliver written noaffected. In most cases, the notice must be mailed or delivered at least fifteen (15) days prior to the effective date of the change.

t Crediting of Payments overns open-end credit, in part, through R

General rule – A creditor shalof receipt, except when a delay in crediting does not result in a finance charge or other charge or except as provided in the next paragraph.

Specific requirements for payments – If a creditor specifies, on or with the periodic statement, requirements for the consumer to follow in making payments, but accepts a payment that does not conform to the requirements, within five (5) days of receipt.

Adjustment of account – If a creditor fails to credit a payment in time to avoid the imposition of finance or other charges, the creditor shall adjust the consumer’s account


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so that the charges imposed are credited to the consumer’s account during the next billing cycle.

sult of these Regulation Z requirements, a creditor will be deemed in violation of TILA if ditor does no

As a rethe cre t appropriately credit the consumer’s payment. This provides important

er crediting of payments, Regulation Z contains it balances where the consumer is owed money by the

creditor in excess of the total balance due on an account, through rebates of

business days from

y part of the credit balance remaining in

Billingement must include a statement describing the

ubsequent disclosures regarding billing rights are also required,

consumer protection by creating an actionable TILA claim in the event that a creditor inappropriately handles a consumer’s payment.

Treatment of Credit Balances In addition to protecting consumers from impropspecial provisions relating to credcreditor.

When a credit balance in excess of $1 is created on a credit account (through transmittal of funds to aunearned finance charges or insurance premiums, or through amounts otherwise owed or held for the benefit of a consumer), the creditor shall do all of the following:

Credit the amount of the credit balance to the consumer’s account.

Refund any part of the remaining credit balance within seven (7)receipt of a written request from the consumer.

Make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, anthe account for more than six (6) months. No further action is required if the consumer’s current location is not known to the creditor and cannot be traced through the consumer’s last known address or telephone number.

Error Resolution As described above, the Initial Disclosure Statconsumer’s billing rights. Seither annually or with each periodic statement Regulation Z details these consumer rights, and Appendix G to Regulation Z includes sample forms of disclosure which describe the consumer’s billing rights. The first sample form may be used with the Initial Disclosure Statement and as an annual disclosure, or, at the creditor’s option, with each periodic statement. The second sample form may be used with each periodic statement, if the creditor desires. Here are copies of the Appendix G samples:


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G-3--LONG FORM BILLING ERROR RIGHTS MODEL FORMYOUR BILLING RIGHTS KEEP THIS NOTICE FOR FUTURE USE This notice contains important information about your rights and our responsibilities under the Fair Credit Billing Act. Notify Us In Case of Errors or Questions About Your Bill If you think your bill is wrong, or if you need more information about a transaction on your bill, write us [on a separate sheet] at [address] [the address listed on your bill]. Write to us as soon as possible. We must hear from you no later than 60 days after we sent you the first bill on which the error or problem appeared. You can telephone us, but doing so will not preserve your rights. In your letter, give us the following information:

• Your name and account number. • The dollar amount of the suspected error. • Describe the error and explain, if you can, why you believe there is an error. If you

need more information, describe the item you are not sure about. If you have authorized us to pay your credit card bill automatically from your savings or checking account, you can stop the payment on any amount you think is wrong. To stop the payment your letter must reach us three business days before the automatic payment is scheduled to occur. Your Rights and Our Responsibilities After We Receive Your Written Notice We must acknowledge your letter within 30 days, unless we have corrected the error by then. Within 90 days, we must either correct the error or explain why we believe the bill was correct. After we receive your letter, we cannot try to collect any amount you question, or report you as delinquent. We can continue to bill you for the amount you question, including finance charges, and we can apply any unpaid amount against your credit limit. You do not have to pay any questioned amount while we are investigating, but you are still obligated to pay the parts of your bill that are not in question. If we find that we made a mistake on your bill, you will not have to pay any finance charges related to any questioned amount. If we didn't make a mistake, you may have to pay finance charges, and you will have to make up any missed payments on the questioned amount. In either case, we will send you a statement of the amount you owe and the date that it is due. If you fail to pay the amount that we think you owe, we may report you as delinquent. However, if our explanation does not satisfy you and you write to us within ten days telling us that you still refuse to pay, we must tell anyone we report you to that you have a question about your bill. And, we must tell you the name of anyone we reported you to. We must tell anyone we report you to that the matter has been settled between us when it finally is. If we don't follow these rules, we can't collect the first $50 of the questioned amount, even if your bill was correct. Special Rule for Credit Card Purchases If you have a problem with the quality of property or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the property or services. There are two limitations on this right: (a) You must have made the purchase in your home state or, if not within your home state, within 100 miles of your current mailing address; and (b) The purchase price must have been more than $50. These limitations do not apply if we own or operate the merchant, or if we mailed you the advertisement for the property or services.


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G-4--ALTERNATIVE BILLING ERROR RIGHTS MODEL FORMBILLING RIGHTS SUMMARY In Case of Errors or Questions About Your Bill If you think your bill is wrong, or if you need more information about a transaction on your bill, write us [on a separate sheet] at [address] [the address shown on your bill] as soon as possible. We must hear from you no later than 60 days after we sent you the first bill on which the error or problem appeared. You can telephone us, but doing so will not preserve your rights. In your letter, give us the following information:

o Your name and account number. o The dollar amount of the suspected error. o Describe the error and explain, if you can, why you believe there is an error. If you

need more information, describe the item you are unsure about. You do not have to pay any amount in question while we are investigating, but you are still obligated to pay the parts of your bill that are not in question. While we investigate your question, we cannot report you as delinquent or take any action to collect the amount you question. Special Rule for Credit Card Purchases If you have a problem with the quality of goods or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may not have to pay the remaining amount due on the goods or services. You have this protection only when the purchase price was more than $50 and the purchase was made in your home state or within 100 miles of your mailing address. (If we own or operate the merchant, or if we mailed you the advertisement for the property or services, all purchases are covered regardless of amount or location of purchase.)

Both of the above sample disclosure forms provide the consumer straightforward explanations of the consumer’s billing rights and the creditor’s related obligations. Proper delivery of this disclosure should help to minimize consumer confusion regarding billing practices and challenges of errors.

Home Equity Plans Home equity plans are open-end credit plans secured by the consumer’s dwelling.

Regulation Z requires that home equity plan creditors must provide certain disclosures to consumers. The creditor (and parties other than the creditor, such as a mortgage broker, who provide applications to consumers for home equity plans) must provide the home equity brochure published by the Board of Governors of the Federal Reserve System, or a suitable substitute for that brochure. The home equity brochure presents certain consumer protection information warning the consumer to shop and investigate the terms of credit prior to entering into a home equity plan arrangement.

The following pages present a copy of the current home equity brochure published by the Board of Governors of the Federal Reserve System.


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14


15


16


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In addition to the home equity brochure shown on the preceding pages, home equity plan creditors must provide the following disclosures, as applicable:

Retention of information – A statement that the consumer should make or otherwise retain a copy of the disclosures.

Conditions for disclosed terms –

• A statement of the time by which the consumer must submit an application to obtain specific terms disclosed and an identification of any disclosed term that is subject to change prior to opening the plan.

• A statement that, if a disclosed term changes prior to opening the plan and the consumer therefore elects not to open the plan, the consumer may receive a refund of all fees paid in connection with the application. (This does not apply to index fluctuations for a variable-rate plan.)

Security interest and risk to home – A statement that the creditor will acquire a security interest in the consumer’s dwelling and that loss of the dwelling may occur in the event of default.

Possible actions by creditor –

• A statement that, under certain conditions, the creditor may terminate the plan and require payment of the outstanding balance in full in a single payment and impose fees upon termination, prohibit additional extensions of credit or reduce the credit limit, and, as specified in the initial agreement, implement certain changes in the plan.

• A statement that the consumer may receive, upon request, information about the conditions under which such actions may occur. (Alternatively, the creditor may include information regarding those conditions in the disclosure.)

Payment terms – The payment terms of the home equity plan, including:

• The length of the draw period and any repayment period.

• An explanation of how the minimum periodic payment will be determined and the timing of the payments. If paying only the minimum periodic payments may not repay any of the principal or may repay less than the outstanding balance, a statement of this fact, as well as a statement that a balloon payment may result.

• The disclosure must include an example, based on a $10,000 outstanding balance and a recent annual percentage rate, showing the minimum periodic payment, any balloon payment, and the time it would take to repay the $10,000 outstanding balance if the consumer made only those payments and obtained no additional extensions of credit.

If different payment terms may apply to the draw and any repayment period, or if different payment terms may apply within either period, the disclosures shall reflect the different payment terms.

Annual percentage rate – For fixed-rate home equity plans, a recent annual percentage rate imposed under the plan and a statement that the rate does not include costs other than interest.

Fees imposed by creditor – An itemization of any fees imposed by the creditor to open, use, or maintain the plan, stated as a dollar amount or percentage, and when such fees are payable.


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Fees imposed by third parties to open a home equity plan – A good faith estimate, stated as a single dollar amount or range, of any fees that may be imposed by persons other than the creditor to open the plan, as well as a statement that the consumer may

nd minimum draw requirements, stated as dollar amounts or

r variable rate plans – For a plan in which the annual percentage rate is

ent or term may change due to

de costs other than

• rate adjustments and a source of information about the

• nation of how the annual percentage rate will be determined, including

• ment that the consumer should ask about the current index value, margin,

•

• es in the payment amount, including for example, an

r the

receive, upon request, a good faith itemization of such fees. In lieu of the statement, the itemization of such fees may be provided.

Negative amortization – A statement that negative amortization may occur and that negative amortization increases the principal balance and reduces the consumer’s equity in the dwelling.

Transaction requirements – Any limitations on the number of extensions of credit and the amount of credit that may be obtained during any time period, as well as any minimum outstanding balance apercentages.

Tax implications – A statement that the consumer should consult a tax advisor regarding the deductibility of interest and charges under the plan.

Disclosures fovariable, the following disclosures must be provided, as applicable:

• The fact that the annual percentage rate, paymthe variable-rate feature.

• A statement that the annual percentage rate does not incluinterest.

The index used in makingindex.

An explaan explanation of how the index is adjusted, such as by the addition of a margin.

A statediscount or premium, and annual percentage rate.

A statement that the initial annual percentage rate is not based on the index andmargin used to make later rate adjustments, and the period of time such initial rate will be in effect.

• The frequency of changes in the annual percentage rate.

Any rules relating to changes in the index value and the annual percentage rate and resulting changexplanation of payment limitations and rate carryover.

• A statement of any annual or more frequent periodic limitations on changes in the annual percentage rate (or a statement that no annual limitation exists), as well as a statement of the maximum annual percentage rate that may be imposed under each payment option.

• The minimum periodic payment required when the maximum annual percentage rate for each payment option is in effect, for a $10,000 outstanding balance, and a statement of the earliest date or time the maximum rate may be imposed.

• A historical example, based on a $10,000 extension of credit, illustrating how annual percentage rates and payments would have been affected by index value changes implemented according to the terms of the plan. The historical example shall be based on the most recent 15 years of index values (selected fo


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same time period each year) and shall reflect all significant plan terms, such as negative amortization, rate carryover, rate discounts and rate and payment limitations, that would have been affected by the index movement during the period.

A statement that rate information will be provided on or with each statement.

the extensive litany of disclosures required for home equity plans, Regulation Z

•

In addition to also imposes certain limitations on creditors extending home equity credit. Specifically, no home equi

public.

nce in advance of t o of the following is t

or any right of the creditor in such security.

ically requires that as a condition of the plan the credit

Cha e

•

lso may provide in the initial agreement specified event takes place (for example,

•

ially similar to the rate in effect at the time the

•

•

• Prohibit additional extensions of credit or reduce the credit limit applicable to an agreement during any period in which:

ty creditor may, by contract or otherwise:

Change the annual percentage rate unless each of the following is true:

• Such change is based on an index that is not under the creditor’s control.

• Such index is available to the general

Terminate a plan and demand repayment of the entire outstanding balahe riginal term (except for certain reverse mortgage transactions) unless one

rue:

• There is fraud or material misrepresentation by the consumer in connection with the plan.

• The consumer fails to meet the repayment terms of the agreement for any outstanding balance.

• Any action or inaction by the consumer adversely affects the creditor’s security for the plan,

• Federal law dealing with credit extended by a depository institution to its executive officers specifshall become due and payable on demand, provided that the creditor includes such a provision in the initial agreement.

ng any term, except that a creditor may:

Provide in the initial agreement that it may prohibit additional extensions of credit or reduce the credit limit during any period in which the maximum annual percentage rate is reached. A creditor athat specified changes will occur if a that the annual percentage rate will increase a specified amount if the consumer leaves the creditor’s employment).

Change the index and margin used under the plan if the original index is no longer available, the new index has a historical movement substantially similar to that of the original index, and the new index and margin would have resulted in an annual percentage rate substantoriginal index becomes unavailable.

Make a specified change if the consumer specifically agrees to it in writing at that time.

Make a change that will unequivocally benefit the consumer throughout the remainder of the plan.

• Make an insignificant change to terms.


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The value of the dwelling that secures the plan declines significantly below the dwelling’s appraised value for purposes of the plan.

that the consumer will be unable to fulfill

terest is adversely affected by

For reverse mortgage tterminate athe original ter

• In the case

• If the c g the note.

In additio s any lender or mortgage broker from imposing a nonrefunda e n until three (3) business da s described above. Anhome equity p sed term (other than a change due to fluctuations in the index in a variab a lan is opened.

“right of rescission” described in

The plan when the plan is opened.

nsion made under the credit plan other than an extension made in

n is increased.

The creditor reasonably believesthe repayment obligations under the plan because of a material change in the consumer’s financial circumstances.

The consumer is in default of any material obligation under the agreement.

The creditor is precluded by government action from imposing the annual percentage rate provided for in the agreement.

The priority of the creditor’s security ingovernment action to the extent that the value of the security interest is less than 120 percent of the credit line.

The creditor is notified by its regulatory agency that continued advances constitute an unsafe and unsound practice.

ransactions that are subject to Regulation Z, no creditor may plan and demand repayment of the entire outstanding balance in advance of

m except in one of the following circumstances:

of default.

onsumer transfers title to the property securin

• If the consumer ceases using the property securing the note as the primary dwelling.

• Upon the consumer’s death.

n, Regulation Z prohibitbl fee in connection with an application for a home equity plays after the consumer receives the disclosures and brochure required a

y fees paid by the consumer shall be refunded if the consumer elects not to open the lan because a disclo

le-r te plan) changes before the p

Each mortgage professional offering home equity plans to consumers should become familiar with all of these unique disclosure requirements and other responsibilities in order to comply with TILA and Regulation Z.

Right of Rescission One of TILA’s most recognizable requirements is the Regulation Z. For any open-end credit plan in which a security interest will be acquired in a consumer’s principal dwelling, each consumer whose ownership interest will be subject to the security interest shall have the right to rescind:

Each credit exteaccordance with a previously established credit limit for the plan.

A security interest when added or increased to secure an existing plan.

An increase when a credit limit on the pla


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Not es not apply to a residential mortgage transaction to finagiveobtaine In addition, the right of res n with the initial con On the other hand, the right of resc ith the consumer’s home. The

ining) a security interest in the consumer’s

sion period expires.

Appendix G to Regulation Z sets forth a number of model forms which may be used by a cremod

e, however, that the right to rescind donce the acquisition or initial construction of the dwelling for which the security interest is n to the creditor. For example, the right of rescission does not apply to any mortgage loan

d in connection with the initial purchase of a consumer’s home. cission does not apply to a construction mortgage loan taken in connectiostruction of a home on land already owned by the consumer.ission will apply to any refinance transaction in connection w

right of rescission will also apply to the opening of a home equity line of credit secured by a residence already owned by the consumer.

Each time the right of rescission arises, the creditor must deliver to the consumer two (2) copies of a notice describing and explaining the right to rescind. (If the creditor delivers notices by electronic communication, then the creditor may only deliver one (1) copy of the notice.) The notice shall identify the transaction or occurrence which gives rise to the right to rescind, and must clearly and conspicuously disclose each of the following:

The fact that the creditor is acquiring (or retaprincipal dwelling.

The consumer’s right to rescind.

An explanation of how to exercise the right to rescind, with a form for that purpose, designating the address of the creditor’s place of business.

The effects of rescission.

The date the rescis

ditor for sending notice of the right of rescission. The following pages present each of these el forms (G-5 through G-9).


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G-5--RESCISSION MODEL FORM (WHEN OPENING AN ACCOUNT) NOTICE OF RIGHT TO CANCEL 1. Your Right to Cancel. We have agreed to establish an open-end credit account for you, and you have agreed to give us a [mortgage/lien/security interest] [on/in] your home as security for the account. You have a legal right under federal law to cancel the account, without cost, within three business days after the latest of the following events: (1) the opening date of your account which is __________; or (2) the date you received your Truth-in-Lending disclosures; or (3) the date you received this notice of your right to cancel the account. If you cancel the account, the [mortgage/lien/security interest] [on/in] your home is also cancelled. Within 20 days of receiving your notice, we must take the necessary steps to reflect the fact that the [mortgage/lien/security interest] [on/in] your home has been cancelled. We must return to you any money or property you have given to us or to anyone else in connection with the account. You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property, if it is impractical or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address shown below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation. 2. How to Cancel. If you decide to cancel the account, you may do so by notifying us, in writing, at (creditor's name and business address). You may use any written statement that is signed and dated by you and states your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice no matter how you notify us because it contains important information about your rights. If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I WISH TO CANCEL. ______________________________________ _______________ Consumer's Signature Date


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G-6--RESCISSION MODEL FORM (FOR EACH TRANSACTION) NOTICE OF RIGHT TO CANCEL 1. Your Right to Cancel. We have extended credit to you under your open-end credit account. This extension of credit will increase the amount you owe on your account. We already have a [ mortgage/lien/security interest] [on/in] your home as security for your account. You have a legal right under federal law to cancel the extension of credit, without cost, within three business days after the latest of the following events: (1) the date of the additional extension of credit which is ________; or (2) the date you received your Truth-in-Lending disclosures; or (3) the date you received this notice of your right to cancel the additional extension of credit. If you cancel the additional extension of credit, your cancellation will only apply to the additional amount and to any increase in the [mortgage/lien/security interest] that resulted because of the additional amount. It will not affect the amount you presently owe, and it will not affect the [mortgage/lien/security interest] we already have [on/in] your home. Within 20 calendar days after we receive your notice of cancellation, we must take the necessary steps to reflect the fact that any increase in the [mortgage/lien/security interest] [on/in] your home has been cancelled. We must also return to you any money or property you have given to us or to anyone else in connection with this extension of credit. You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impractical or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address shown below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation. 2. How to Cancel. If you decide to cancel the additional extension of credit, you may do so by notifying us, in writing, at (creditor's name and business address). You may use any written statement that is signed and dated by you and states your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice no matter how you notify us because it contains important information about your rights. If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I WISH TO CANCEL. _____________________________________________ __________________ Consumer's Signature Date


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G-7--RESCISSION MODEL FORM (WHEN INCREASING THE CREDIT LIMIT) NOTICE OF RIGHT TO CANCEL 1. Your Right to Cancel. We have agreed to increase the credit limit on your open-end credit account. We have a [mortgage/lien/security interest] [on/in] your home as security for your account. Increasing the credit limit will increase the amount of the [mortgage/lien/security interest] [on/in] your home. You have a legal right under federal law to cancel the increase in your credit limit, without cost, within three business days after the latest of the following events: (1) the date of the increase in your credit limit which is ________; or (2) the date you received your Truth-in-Lending disclosures; or (3) the date you received this notice of your right to cancel the increase in your credit limit. If you cancel, your cancellation will apply only to the increase in your credit limit and to the [mortgage/lien/security interest] that resulted from the increase in your credit limit. It will not affect the amount you presently owe, and it will not affect the [mortgage/lien/security interest] we already have [on/in] your home. Within 20 calendar days after we receive your notice of cancellation, we must take the necessary steps to reflect the fact that any increase in the [mortgage/lien/security interest] [on/in] your home has been cancelled. We must also return to you any money or property you have given to us or to anyone else in connection with this increase. You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impractical or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address shown below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation. 2. How to Cancel. If you decide to cancel the increase in your credit limit, you may do so by notifying us, in writing, at (creditor's name and business address). You may use any written statement that is signed and dated by you and states your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice no matter how you notify us because it contains important information about your rights. If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I WISH TO CANCEL. ______________________________________ _______________________ Consumer's Signature Date


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G-8--RESCISSION MODEL FORM (WHEN ADDING A SECURITY INTEREST) NOTICE OF RIGHT TO CANCEL 1. Your Right to Cancel. You have agreed to give us a [mortgage/lien/security interest] [on/in] your home as security for your existing open-end credit account. You have a legal right under federal law to cancel the [mortgage/lien/security interest], without cost, within three business days after the latest of the following events: (1) the date of the [mortgage/lien/security interest] which is _____; or (2) the date you received your Truth-in-Lending disclosures; or (3) the date you received this notice of your right to cancel the [mortgage/lien/security interest]. If you cancel the [mortgage/lien/security interest], your cancellation will apply only to the [mortgage/lien/security interest]. It will not affect the amount you owe on your account. Within 20 calendar days after we receive your notice of cancellation, we must take the necessary steps to reflect that any [mortgage/lien/security interest] [on/in] your home has been cancelled. We must also return to you any money or property you have given to us or to anyone else in connection with this increase. You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impractical or unfair for you to return the property, you must offer its reasonable value. You may make the offer at your home or at the location of the property. Money must be returned to the address shown below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation. 2. How to Cancel. If you decide to cancel the [mortgage/lien/security interest], you may do so by notifying us, in writing, at (creditor's name and business address). You may use any written statement that is signed and dated by you and states your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice no matter how you notify us because it contains important information about your rights. If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I WISH TO CANCEL. ____________________________ _______ Consumer's Signature Date


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G-9--RESCISSION MODEL FORM (WHEN INCREASING THE SECURITY) NOTICE OF RIGHT TO CANCEL 1. Your Right to Cancel. You have agreed to increase the amount of the [mortgage/lien/security interest] [on/in] your home that we hold as security for your open-end credit account. You have a legal right under federal law to cancel the increase, without cost, within three business days after the latest of the following events: (1) the date of the increase in the security which is ________; or (2) the date you received your Truth-in-Lending disclosures; or (3) the date you received this notice of your right to cancel the increase in the security. If you cancel the increase in the security, your cancellation will apply only to the increase in the amount of the [mortgage/lien/security interest]. It will not affect the amount you presently owe on your account, and it will not affect the [mortgage/lien/security interest] we already have [on/in] your home. Within 20 calendar days after we receive your notice of cancellation, we must take the necessary steps to reflect that any increase in the [mortgage/lien/security interest] [on/in] your home has been cancelled. We must also return to you any money or property you have given to us or to anyone else in connection with this increase. Your may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impractical or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address shown below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation. 2. How to Cancel. If you decide to cancel the increase in security, you may do so by notifying us, in writing, at (creditor's name and business address). You may use any written statement that is signed and dated by you and states your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice no matter how you notify us because it contains important information about your rights. If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I WISH TO CANCEL. _______________________________ ________ Consumer's Signature Date


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The consumer may exercise the right to rescind until midnight of the third business day following the last to occur of:

The actual event which gave rise to the right of rescission (for example, the opening of a plan, or the increase in a credit limit).

Delivery of the required creditor’s notice describing and explaining the right to rescind (as described above).

Delivery of all material Regulation Z disclosures that are relevant to the open-end credit plan.

For purposes of calculating the time permitted to exercise the right of rescission, “business day” means all calendar days except Sundays and federal holidays: New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday (President’s Day), Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.

If the required notice and material disclosures are not delivered, the right to rescind shall expire three (3) years after the event giving rise to the right of rescission, or upon transfer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first.

A consumer must exercise the right of rescission by delivering written notice to the creditor within the permitted three (3) business days (or such longer time, if the disclosures and notice of right of rescission have not been delivered to the consumer). Written notice is considered given when mailed, or when filed for telegraphic transmission, or, if sent by another means, when delivered to the creditor’s designated place of business.

As an example of the calculation of the three business day period, if an open-end credit account is opened on Friday, June 1, and all material disclosures and notice of the right of rescission have been delivered to the consumer on Thursday, May 31, then the rescission period will expire at midnight of the third business day following June 1 – at the end of the day of Tuesday, June 5. (The three business days after Friday, June 1 would be Saturday, June 2, Monday, June 4, and Tuesday, June 5.)

The right of rescission may only be waived or modified by the consumer if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency before the end of the rescission period. To waive or modify the right to rescind, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the right to rescind, and bears the signature of all the consumers entitled to rescind (for example, a husband and wife). Printed forms may not be used for this purpose.

Unless a consumer has waived the right to rescind due to emergency circumstances as described above, no money will be disbursed to the consumer until after the rescission period has expired and the creditor is satisfied that the consumer has not rescinded. The consumer must wait to receive funds until the day following the final day of the rescission period. Under our above example, the consumer would be permitted to receive funds on Wednesday, June 6.

If a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void, and the consumer shall not be liable for any amount, including any finance charge. Within twenty (20) calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the rescinded transaction, including application fees. Within such time, the creditor shall also cause the termination of the security interest in the consumer’s dwelling.

By rescinding a transaction, the consumer only rescinds the specific event giving rise to the most recent right of rescission. For example, a consumer may determine to rescind an increase


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in the credit limit for an existing line of credit. While the consumer may rescind that credit limit increase and an intended draw within the required three (3) business day period, the rescission does not terminate the creditor’s security interest with respect credit to previously extended under the credit line. The rescission only affects the most recent credit limit increase.

Mortgage professionals must learn the notice and timing requirements regarding the TILA right of rescission. Borrowers will expect the mortgage professional to explain the meaning of the right of rescission and the related notices, and the professional can enhance his or her relationship with the borrower by possessing a complete understanding of the right of rescission.

Advertising Another method of TILA’s regulation of open-end credit is implemented through Regulation Z’s requirements and restrictions regarding the advertising of open-end credit:

Actually available terms – If an advertisement for credit states specific credit terms, it shall state only those terms that actually are or will be arranged or offered by the creditor.

Advertisement of terms that require additional disclosures – If any of the terms required to be disclosed in the Initial Disclosure Statement is set forth in an advertisement, the advertisement shall also clearly and conspicuously set forth the following:

• Any minimum, fixed, transaction, activity or similar charge that could be imposed.

• Any periodic rate that may be applied expressed as an annual percentage rate as determined under Regulation Z. If the plan provides for a variable periodic rate, that fact shall be disclosed.

• Any membership or participation fee that could be imposed.

Catalogs or other multiple page advertisements; electronic advertisements –

• If a catalog or other multiple-page advertisement, or an advertisement using electronic communication, gives information in a table or schedule in sufficient detail to permit determination of the disclosures required by paragraph (b) of this section, it shall be considered a single advertisement if:

The table or schedule is clearly and conspicuously set forth.

Any statement of terms set forth in the Initial Disclosure Statement appearing anywhere else in the catalog or advertisement clearly refers to the page or location where the table or schedule begins.

• A catalog or other multiple-page advertisement or an advertisement using electronic communication complies with this paragraph if the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered.

Additional requirements for home equity plans –

• Advertisement of terms that require additional disclosures – If any of the terms required to be disclosed under Regulation Z or the payment terms of the plans are set forth, affirmatively or negatively, in an advertisement for a home equity plan subject to the requirements of Regulation Z, the advertisement also shall clearly and conspicuously set forth the following:


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Any loan fee that is a percentage of the credit limit under the plan and an estimate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range.

Any periodic rate used to compute the finance charge, expressed as an annual percentage rate.

The maximum annual percentage rate that may be imposed in a variable-rate plan.

• Discounted and premium rates – If an advertisement states an initial annual percentage rate that is not based on the index and margin used to make later rate adjustments in a variable-rate plan, the advertisement also shall state the period of time such rate will be in effect, and, with equal prominence to the initial rate, a reasonably current annual percentage rate that would have been in effect using the index and margin.

• Balloon payment – If an advertisement contains a statement about any minimum periodic payment, the advertisement also shall state, if applicable, that a balloon payment may result.

• Tax implications – An advertisement that states that any interest expense incurred under the home equity plan is or may be tax deductible may not be misleading in this regard.

• Misleading terms – An advertisement may not refer to a home equity plan as “free money” or contain a similarly misleading term.

Summary – Open-End Credit TILA establishes an extensive framework of governance over open-end credit plans. Through its disclosure requirements and other rules, Regulation Z implements TILA’s regulatory scheme.

Mortgage professionals dealing with open-end credit, such as home equity plans, must become familiar with the specific disclosure requirements in order to competently prepare and deliver those disclosures. In addition, each professional must understand the right of rescission, including the circumstances under which that right arises and the process and timing for the consumer’s exercise of the right.

As an added bonus, an understanding of Regulation Z’s provisions regarding open-end credit plans will help the mortgage professionals who may be interested in migrating toward a position involving other types of consumer credit finance. In any event, the importance of these provisions cannot be overstated.

Closed-End Credit Subpart C of Regulation Z implements TILA’s requirements regarding closed-end credit. Closed-end credit includes all consumer credit which is not open-end credit.

Many mortgage professionals deal exclusively with closed-end credit, such as purchase money mortgage transactions or refinance mortgage transactions. Unlike open-end credit (for example, home equity plans), these closed-end credit products do not permit additional borrowing by consumer. While the closed-end credit plan may provide for a series of advances, the borrower will not be entitled to re-borrow an amount after that amount is paid off.

Regulation Z governs closed-end credit through each of the following methods, some of which also are methods used for governing open-end credit:


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Disclosure requirements.

Rules regarding residential mortgage and variable-rate transactions.

Rules regarding treatment of credit balances.

Rules regarding determination and accuracy of the annual percentage rate.

Implementation of consumer right of rescission.

Rules regarding advertising of closed-end credit.

Disclosure Requirements As with the disclosures required for open-end credit, disclosures for closed-end credit must be made clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related to the required disclosures.

For closed-end credit, the creditor shall make the required disclosures before consummation (funding) of the transaction. If a disclosure becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of Regulation Z, although new disclosures may be required. In particular, for “regular” transactions, new disclosures will be required prior to consummation of the transaction if the annual percentage rate at the time of consummation varies from the annual percentage rate disclosed earlier by more than 1/8 of 1 percentage point. In “irregular” transactions (such as transactions with multiple advances, irregular payment periods or irregular payment amounts), new disclosures will be required prior to consummation of the transaction if the annual percentage rate at the time of consummation varies from the annual percentage rate disclosed earlier by more than 1/4 of 1 percentage point.

Pursuant to Regulation Z, for each transaction, the creditor shall disclose the following information, as applicable:

Creditor – The identity of the creditor making the disclosures.

Amount financed – The “amount financed,” using that term, and a brief description such as “the amount of credit provided to you or on your behalf.” The amount financed is calculated by:

• Determining the principal loan amount or the cash price (subtracting any down payment).

• Adding any other amounts that are financed by the creditor and are not part of the finance charge.

• Subtracting any prepaid finance charge.

Itemization of amount financed –

• A separate written itemization of the amount financed, including:

The amount of any proceeds distributed directly to the consumer.

The amount credited to the consumer’s account with the creditor.

Any amounts paid to other persons by the creditor on the consumer’s behalf. The creditor shall identify those persons.

Note that good faith estimates of settlement costs provided for transactions subject to RESPA may be substituted for these disclosures.


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• The creditor need not comply with the prior paragraph if the creditor provides a statement that the consumer has the right to receive a written itemization of the amount financed, together with a space for the consumer to indicate whether it is desired, and the consumer does not request it.

Finance charge – The “finance charge,” using that term, and a brief description such as “the dollar amount the credit will cost you.”

• Mortgage loans – In a transaction secured by real property or a dwelling, the disclosed finance charge and other disclosures affected by the disclosed finance charge (including the amount financed and the annual percentage rate) shall be treated as accurate if the amount disclosed as the finance charge is either:

understated by no more than $100.

greater than the amount required to be disclosed.

• Other credit – In any other transaction, the amount disclosed as the finance charge shall be treated as accurate if, in a transaction involving an amount financed of $1,000 or less, it is not more than $5 above or below the amount required to be disclosed; or, in a transaction involving an amount financed of more than $1,000, it is not more than $10 above or below the amount required to be disclosed.

Annual percentage rate – The “annual percentage rate,” using that term, and a brief description such as “the cost of your credit as a yearly rate.” Note that for any transaction involving a finance charge of $5 or less on an amount financed of $75 or less, or a finance charge of $7.50 or less on an amount financed of more than $75, the creditor need not disclose the annual percentage rate.

Variable rate –

• If the annual percentage rate may increase after consummation in a transaction not secured by the consumer’s principal dwelling or in a transaction secured by the consumer’s principal dwelling with a term of one year or less, the creditor must make the following disclosures:

The circumstances under which the rate may increase.

Any limitations on the increase.

The effect of an increase.

An example of the payment terms that would result from an increase.

• If the annual percentage rate may increase after consummation in a transaction secured by the consumer’s principal dwelling with a term greater than one year, the creditor must make the following disclosures:

The fact that the transaction contains a variable-rate feature.

A statement that variable-rate disclosures have been provided earlier.

Payment schedule – The number, amounts, and timing of payments scheduled to repay the obligation.

• In a demand obligation with no alternate maturity date, the creditor may comply with this paragraph by disclosing the due dates or payment periods of any scheduled interest payments for the first year.


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• In a transaction in which a series of payments varies because a finance charge is applied to the unpaid principal balance, the creditor may comply with this paragraph by disclosing the following information:

The dollar amounts of the largest and smallest payments in the series.

A reference to the variations in the other payments in the series.

Total of payments – The “total of payments,” using that term, and a descriptive explanation such as “the amount you will have paid when you have made all scheduled payments.” In any transaction involving a single payment, the creditor need not disclose the total of payments.

Demand Feature – If the obligation has a demand feature, that fact shall be disclosed. When the disclosures are based on an assumed maturity of one year, that fact shall also be disclosed.

Total sale price – In a credit sale, the “total sale price,” using that term, and a descriptive explanation (including the amount of any down payment) such as “the total price of your purchase on credit, including your down payment of $____.” The total sale price is the sum of the cash price, the finance charge and other amounts financed by the creditor which are not part of the finance charge.

Prepayment –

• When an obligation includes a finance charge computed from time to time by application of a rate to the unpaid principal balance, a statement indicating whether or not a penalty may be imposed if the obligation is prepaid in full.

• When an obligation includes a finance charge other than the finance charge described in the preceding paragraph, a statement indicating whether or not the consumer is entitled to a rebate of any finance charge if the obligation is prepaid in full.

Late payment – Any dollar or percentage charge that may be imposed before maturity due to a late payment, other than a deferral or extension charge.

Security interest – The fact that the creditor has or will acquire a security interest in the property purchased as part of the transaction, or in other property identified by item or type.

Insurance and debt cancellation – The items required in order to exclude certain insurance premiums and debt cancellation fees from the finance charge.

Certain security interest charges – The disclosures required in order to exclude from the finance charge certain fees prescribed by law or certain premiums for insurance in lieu of perfecting a security interest.

Contract reference – A statement that the consumer should refer to the appropriate contract document for information about nonpayment, default, the right to accelerate the maturity of the obligation, and prepayment rebates and penalties. At the creditor’s option, the statement may also include a reference to the contract for further information about security interests and, in a residential mortgage transaction, about the creditor’s policy regarding assumption of the obligation.

Assumption policy – In a residential mortgage transaction, a statement whether or not a subsequent purchaser of the dwelling from the consumer may be permitted to assume the remaining obligation on its original terms.


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Required deposit – If the creditor requires the consumer to maintain a deposit as a condition of the specific transaction, a statement that the annual percentage rate does not reflect the effect of the required deposit.

In addition to all of the initial disclosures described above, Regulation Z imposes certain subsequent disclosure for refinancing transactions. A refinancing occurs when an existing obligation that was subject to the closed-end credit provisions of Regulation Z is satisfied and replaced by a new obligation undertaken by the same consumer. A refinancing is a new transaction requiring new disclosures to the consumer. The new finance charge shall include any unearned portion of the old finance charge that is not credited to the existing obligation.

Special Rules Regarding Certain Residential Mortgage and Variable-Rate Transactions In addition to the general disclosure requirements described above, Regulation Z sets forth specific rules for certain residential mortgage transactions and variable rate transactions.

With respect to residential mortgage transactions which are subject to RESPA, Regulation Z requires that the creditor shall make good faith estimates of the disclosures required by Regulation Z before consummation (funding) of the transaction, or shall deliver or place them in the mail not later than three (3) business days after the creditor receives the consumer’s written application, whichever is earlier. This requirement aligns the timing of the Regulation Z disclosures with the timing of the good faith estimate required by RESPA.

For variable-rate transactions, Regulation Z requires that if the annual percentage rate may increase after consummation of a transaction secured by the consumer’s principal dwelling with a term greater than one year, the following disclosures must be provided at the time an application form is provided or before the consumer pays a non-refundable fee, whichever is earlier. (These disclosures may be delivered or placed in the mail not later than three (3) business days following receipt of a consumer’s application when the application reaches the creditor by telephone, or through an intermediary agent or broker.)

The booklet titled Consumer Handbook on Adjustable Rate Mortgages published by the Federal Reserve Board and the Federal Home Loan Bank Board, or a suitable substitute. This booklet is commonly referred to as the “CHARM Booklet.” The CHARM Booklet was revised in December, 2006, and creditors may immediately begin distributing the revised booklet, or they may use up stock of the old booklet. Beginning on October 1, 2007, creditors must use the newly revised CHARM Booklet or a suitable substitute in order to comply with Regulation Z.

A loan program disclosure for each variable-rate program in which the consumer expresses an interest. The following disclosures, as applicable, shall be provided:

• The fact that the interest rate, payment, or term of the loan can change.

• The index or formula used in making adjustments, and a source of information about the index or formula.

• An explanation of how the interest rate and payment will be determined, including an explanation of how the index is adjusted, such as by the addition of a margin.

• A statement that the consumer should ask about the current margin value and current interest rate.

• The fact that the interest rate will be discounted, and a statement that the consumer should ask about the amount of the interest rate discount.


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• The frequency of interest rate and payment changes.

• Any rules relating to changes in the index, interest rate, payment amount, and outstanding loan balance including, for example, an explanation of interest rate or payment limitations, negative amortization, and interest rate carryover.

• At the option of the creditor, either of the following:

A historical example, based on a $10,000 loan amount, illustrating how payments and the loan balance would have been affected by interest rate changes implemented according to the terms of the loan program disclosure. The example shall reflect the most recent 15 years of index values. The example shall reflect all significant loan program terms, such as negative amortization, interest rate carryover, interest rate discounts, and interest rate and payment limitations, that would have been affected by the index movement during the period.

The maximum interest rate and payment for a $10,000 loan originated at the original interest rate (index value plus margin, adjusted by the amount of any discount or premium) in effect as of an identified month and year for the loan program disclosure assuming the maximum periodic increases in rates and payments under the program; and the initial interest rate and payment for that loan and a statement that the periodic payment may increase or decrease substantially depending on changes in the rate.

• An explanation of how the consumer may calculate the payments for the loan amount to be borrowed based on either:

The most recent payment shown in the historical example set forth above.

The initial interest rate used to calculate the maximum interest rate and payment as described above.

• The fact that the loan program contains a demand feature.

• The type of information that will be provided in notices of adjustments and the timing of such notices.

• A statement that disclosure forms are available for the creditor’s other variable-rate loan programs.

The CHARM Booklet is particularly helpful to consumers, as it carefully explains Adjustable Rate Mortgages in lay terms. The following pages present a complete copy of the revised CHARM Booklet which must be delivered to consumers in variable rate transactions secured by the consumer’s principal dwelling.


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In addition to the initial disclosure rules for residential mortgage transactions and variable-rate transactions, Regulation Z imposes the following subsequent disclosure requirements for particular circumstances:

Assumptions – An assumption occurs when a creditor expressly agrees in writing with a subsequent consumer to accept that consumer as a primary obligor on an existing residential mortgage transaction. Before the assumption occurs, the creditor shall make new disclosures to the subsequent consumer, based on the remaining obligation.

Variable-Rate Adjustments – An adjustment to the interest rate with or without a corresponding adjustment to the payment in a variable-rate transaction is an event requiring new disclosures to the consumer. At least once each year during which an interest rate adjustment is implemented without an accompanying payment change, and at least 25, but no more than 120, calendar days before a payment at a new level is due, the following disclosures, as applicable, must be delivered or placed in the mail:

• The current and prior interest rates.

• The index values upon which the current and prior interest rates are based.

• The extent to which the creditor has foregone any increase in the interest rate.

• The contractual effects of the adjustment, including the payment due after the adjustment is made, and a statement of the loan balance.

• The payment that would be required to fully amortize the loan at the new interest rate over the remainder of the loan term.

Rules Regarding Treatment of Credit Balances Regulation Z’s rules regarding closed-end credit specifically provide that when a credit balance in excess of One Dollar ($1) is created in connection with a transaction (whether through transmittal of funds to a creditor in excess of the total balance due on an account, through rebates of unearned finance charges or insurance premiums, or through amounts otherwise owed or held for the benefit of a consumer), the creditor shall do all of the following:

Credit the amount of the credit balance to the consumer’s account.

Refund any part of the remaining credit balance, upon the written request of the consumer.

Make a good faith effort to refund to the consumer by cash, check, money order, or credit to a deposit account of the consumer, any part of the credit balance remaining in the account for more than six (6) months, except that no further action is required if the consumer’s current location is not known to the creditor and cannot be traced through the consumer’s last known address or telephone number.

Rules Regarding Determination and Accuracy of Annual Percentage Rate As discussed earlier in these materials, the annual percentage rate (APR) is a measure of the cost of credit, expressed as a yearly rate. The annual percentage rate relates the amount and timing of value received by the consumer to the amount and timing of payments made.

As a general rule, when disclosed in connection with a closed-end credit transaction, the annual percentage rate shall be considered accurate if it is not more than 1/8 of 1 percentage point above or below the properly calculated annual percentage rate. In “irregular” transactions (such


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as transactions with multiple advances, irregular payment periods or irregular payment amounts), the annual percentage rate shall be considered accurate if it is not more than 1/4 of 1 percentage point above or below the properly calculated annual percentage rate. Regulation Z provides formulas and tables which may be used to correctly calculate the annual percentage rate. Most mortgage professionals rely on computer programs which calculate the correct annual percentage rate based upon the finance charge components input by the professional.

Right of Rescission Regulation Z implements a consumer right of rescission for closed-end credit transactions. In fact, Regulation Z’s provisions regarding the consumer’s right to rescind a closed-end credit transaction are very similar to the regulation’s provisions regarding the consumer’s right to rescind an open-end credit transaction.

In a closed-end credit transaction in which a security interest is acquired in a consumer’s principal dwelling, each consumer whose ownership is subject to the security interest shall have the right to rescind the transaction. As with open-end credit transactions, the right to rescind does not apply to a closed-end residential mortgage transaction to finance the acquisition or initial construction of the dwelling. In addition, the right to rescind does not apply to a refinancing or consolidation of the same creditor of an extension of closed-end credit already secured by the consumer’s principal dwelling. (The right to rescind shall apply, however, to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt and amounts attributed solely to the costs of the refinancing or consolidation.)

In a closed-end transaction subject to rescission, a creditor must deliver to the consumer two (2) copies of the notice of the right to rescind to the consumers entitled to rescind. (Only one (1) copy need be delivered if by electronic communication.) The notice shall be on a separate document that identifies the transaction and shall clearly and conspicuously disclose the following:

The retention or acquisition of a security interest in the consumer’s principal dwelling.

The consumer’s right to rescind the transaction.

An explanation of how to exercise the right to rescind, with a form for that purpose, designating the address of the creditor’s place of business.

The effects of rescission.

The date the rescission period expires.

Appendix H to Regulation Z sets forth two (2) model forms which may be used by a creditor for sending notice of the right of rescission. The first form is a general form, while the second form may be used for refinancings. The following pages present copies of both of the model forms (H-8 and H-9).


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H–8—RESCISSION MODEL FORM (GENERAL)

NOTICE OF RIGHT TO CANCEL

Your Right to Cancel

You are entering into a transaction that will result in a [mortgage/lien/security interest] [on/in] your home. You have a legal right under federal law to cancel this transaction, without cost, within three business days from whichever of the following events occurs last:

(1) the date of the transaction, which is _______ ; or

(2) the date you received your Truth in Lending disclosures; or

(3) the date you received this notice of your right to cancel.

If you cancel the transaction, the [mortgage/lien/security interest] is also cancelled. Within 20 calendar days after we receive your notice, we must take the steps necessary to reflect the fact that the [mortgage/lien/security interest] [on/in] your home has been cancelled, and we must return to you any money or property you have given to us or to anyone else in connection with this transaction.

You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impractical or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation.

How to Cancel

If you decide to cancel this transaction, you may do so by notifying us in writing, at

(creditor's name and business address).

You may use any written statement that is signed and dated by you and states your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice because it contains important information about your rights.

If you cancel by mail or telegram, you must send the notice no later than midnight of __________ (date) (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time.

I WISH TO CANCEL

____________________________ _______ Consumer's Signature Date


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H–9—RESCISSION MODEL FORM (REFINANCING WITH ORIGINAL CREDITOR)

NOTICE OF RIGHT TO CANCEL

Your Right to Cancel

You are entering into a new transaction to increase the amount of credit previously provided to you. Your home is the security for this new transaction. You have a legal right under federal law to cancel this new transaction, without cost, within three business days from whichever of the following events occurs last:

(1) the date of this new transaction, which is _______ ; or

(2) the date you received your new Truth in Lending disclosures; or

(3) the date you received this notice of your right to cancel.

If you cancel this new transaction, it will not affect any amount that you presently owe. Your home is the security for that amount. Within 20 calendar days after we receive your notice of cancellation of this new transaction, we must take the steps necessary to reflect the fact that your home does not secure the increase of credit. We must also return any money you have given to us or anyone else in connection with this new transaction.

You may keep any money we have given you in this new transaction until we have done the things mentioned above, but you must then offer to return the money at the address below.

If we do not take possession of the money within 20 calendar days of your offer, you may keep it without further obligation.

How To Cancel

If you decide to cancel this new transaction, you may do so by notifying us in writing, at

_________________________________________ (Creditor's name and business address).

You may use any written statement that is signed and dated by you and state your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice because it contains important information about your rights.

If you cancel by mail or telegram, you must send the notice no later than midnight of

___________ (Date) (or midnight of the third business day following the latest of the three events listed above).

If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time.

I WISH TO CANCEL

__________________________________ __________ Consumer's Signature Date

For closed-end credit transactions, the consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice of rescission, or delivery of all material disclosures, whichever occurs last. “Business days” are calculated in the same manner as calculated for open-end credit transactions.

If the required notice of rescission or material disclosures are not delivered, the right to rescind shall expire three (3) years after consummation, upon transfer of all of the consumer’s interest in the subject dwelling, or upon sale of the dwelling, whichever occurs first.

The consumer’s ability to waive the right of rescission is the same for closed-end credit transactions as for open-end credit transactions. Similarly, the effect of the consumer’s rescission is the same for both open-end and closed-end credit transactions.

Advertising Regulation Z provides specific requirements and restrictions regarding the advertising of closed-end credit which differ slightly from its requirements regarding advertising of open-end credit:

Actually available terms – If an advertisement for credit states specific credit terms, it shall state only those terms that actually are or will be arranged or offered by the creditor.

Advertisement of rate of finance charge – If an advertisement states a rate of finance charge, it shall state the rate as an “annual percentage rate,” using that term. If the annual percentage rate may be increased after consummation, the advertisement shall state that fact. The advertisement shall not state any other rate, except that a simple annual rate or periodic rate that is applied to an unpaid balance may be stated in conjunction with, but not more conspicuously than, the annual percentage rate.

Advertisement of terms that require additional disclosures – If any of the following terms (sometimes referred to as “trigger terms”) is set forth in an advertisement:

• The amount or percentage of any down payment.

• The number of payments or period of repayment.

• The amount of any payment.

• The amount of any finance charge.

then the advertisement also must state all of the following terms:

• The amount or percentage of the down payment.

• The terms of repayment.

• The annual percentage rate, using that term, and, if the rate may be increased after consummation, that fact.

Catalogs or other multiple-page advertisements; electronic advertisements –

• If a catalog or other multiple-page advertisement, or an advertisement using electronic communication, gives information in a table or schedule in sufficient detail to permit determination of the three (3) disclosures required above, it shall be considered a single advertisement if:

The table or schedule is clearly and conspicuously set forth.


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Any statement of terms of the “trigger terms” appearing anywhere else in the catalog or advertisement clearly refers to the page or location where the table or schedule begins.

• A catalog or other multiple-page advertisement or an advertisement using electronic communication complies with Regulation Z if the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered.

Summary – Closed-End Credit TILA’s provisions regarding closed-end credit affect every mortgage professional. The professional must comply with all of Regulation Z’s rules regarding closed-end credit, including disclosure, the right of rescission and advertising. The forms and booklets included in these materials can be valuable resources to assist compliance with these laws and regulations.

Miscellaneous Provisions Subpart D of Regulation Z contains some miscellaneous provisions which affect both open-end credit and closed-end credit transactions:

Record Retention – As a general rule, a creditor shall retain evidence of compliance with Regulation Z for two (2) years after the date disclosures are required to be made or action is required to be taken. The creditor shall retain evidence that it performed actions required by Regulation Z, as well as evidence that the creditor made required disclosures. Evidence of compliance does not necessarily mean actual paper copies of disclosure statements or other business records. Computer reproduction of information is also acceptable.

Oral Disclosures of Annual Percentage Rate – In an oral response to a consumer’s inquiry about the cost of open-end credit, only the annual percentage rate or rates shall be stated, except that the periodic rate or rates also may be stated. If the annual percentage rate cannot be determined in advance because there are finance charges other than a periodic rate, the corresponding annual percentage rate shall be stated, and other cost information may be given.

In an oral response to a consumer’s inquiry about the cost of closed-end credit, only the annual percentage rate shall be stated, except that a simple annual rate or periodic rate also may be stated if it is applied to an unpaid balance. If the annual percentage rate cannot be determined in advance, the annual percentage rate for a sample transaction shall be stated, and other cost information for the consumer’s specific transaction may be given.

Limitation on rates – A creditor shall include in any consumer credit contract secured by a dwelling and subject to TILA and Regulation Z the maximum interest rate that may be imposed during the term of the obligation when either:

• In the case of open-end credit, the annual percentage rate may increase during the plan.

• In the case of closed-end credit, the annual percentage rate may increase after consummation.


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Special Rules for Certain Home Mortgage Transactions The Home Ownership and Equity Protection Act of 1994 (HOEPA) amended TILA and Regulation Z by adding a new framework of regulation for certain home mortgage transactions. The requirements and limitations with respect to these home mortgage transactions are in addition to and not in lieu of those contained in other portions of TILA and Regulation Z.

Subpart E of Regulation Z implements the original HOEPA provisions and more recent amendments to HOEPA.

HOEPA was implemented in order to provide consumers additional protection against certain predatory lending practices. While HOEPA does not attempt to regulate all forms of potential predatory lending, the law requires additional disclosures and imposes restrictions on certain forms of mortgage lending which are particularly likely to attract predatory intentions: (1) high cost home mortgage loans and (2) reverse mortgages. Among other factors, these loan products attract predatory lenders (and brokers) because the profits may be very high and the consumer may be in too weak of a position to shop the product. The consumer’s inability to shop the product may arise out of desperation to obtain a loan, or as a result of the consumer’s demographic (for example, elderly).

The two distinct classes of home mortgage transactions addressed by HOEPA, and which are extremely susceptible to predatory lending, are discussed below.

Section 32 Mortgages “Section 32 Mortgages” are high cost home mortgage loans which earn their name from the provisions found in Section 226.32 of Regulation Z. A Section 32 Mortgage transaction is a closed-end consumer credit transaction that is secured by the consumer’s principal dwelling, and in which either:

The annual percentage rate at consummation (funding of the loan) will exceed the yield on certain United States Treasury securities by more than either:

• Eight (8) percentage points for first lien-loans.

• Ten (10) percentage points for subordinate-lien loans.

For this comparison, we use the United States Treasury securities having comparable periods of maturity to the mortgage loan maturity, based upon the yield as of the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor.

-or-

The total points and fees payable by the consumer at or before loan closing will exceed the greater of eight percent (8%) of the total loan amount, or, for 2005, $510. (The $510 figure is adjusted annually on January 1 by the annual percentage change in the Consumer Price Index reported the preceding June 1.) “Points and fees” includes: all components of the finance charge (except interest); all compensation paid to mortgage brokers; many closing costs which may not be part of the finance charge; and premiums or other charges for credit life, accident, health or loss-of-income insurance, or debt-cancellation coverage paid by the consumer in connection with the credit transaction.

Section 32 Mortgage transactions do not include any of the following:

Residential mortgage transactions to finance the acquisition or initial construction of the dwelling for which the security interest is given to the creditor.


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Reverse mortgage transactions.

Open-end credit plans, including any home equity line of credit. On the other hand, closed-end home equity installment loans are considered Section 32 Mortgage transactions. Under the home equity installment loan, multiple advances may be made to the consumer, but the consumer is never entitled to re-borrow any principal amount which it pays off during repayment of the loan. The home equity line of credit, on the other hand, permits re-borrowing of principal amounts in accordance with the terms of the plan.

Disclosures for Section 32 Mortgages In addition to other disclosures required by Regulation Z, in any Section 32 Mortgage transaction the creditor shall disclose the following in conspicuous type size:

Notices – The following statement: “You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.”

Annual percentage rate – The annual percentage rate.

Regular payment; balloon payment – The amount of the regular monthly (or other periodic) payment and the amount of any balloon payment.

Variable-rate – For variable-rate transactions, a statement that the interest rate and monthly payment may increase, and the amount of the single maximum monthly payment, based on the maximum interest rate required to be disclosed.

Amount borrowed – For a mortgage refinancing, the total amount the consumer will borrow, as reflected by the face amount of the note; and where the amount borrowed includes premiums or other charges for optional credit insurance or debt-cancellation coverage, that fact shall be stated, grouped together with the disclosure of the amount borrowed. The disclosure of the amount borrowed shall be treated as accurate if it is not more than $100 above or below the amount required to be disclosed.

Each of the above disclosures must be furnished to the consumer at least three (3) business days prior to consummation of the mortgage transaction. If the creditor later changes any term that makes the disclosures inaccurate, new disclosures shall be provided to the consumer. A creditor may provide the new disclosures by telephone if the consumer initiates the change in terms and if, at consummation, the creditor provides new written disclosures and the consumer and creditor sign a statement indicating that the new disclosures were provided by telephone at least three (3) days prior to the consummation of the transaction.

The three day waiting period for the above disclosures may only be modified or waived by the consumer in the event of a bona fide personal emergency. In that case, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the three (3) day waiting period, and bears the signature of all the consumers entitled to the waiting period. Printed forms for this purpose are prohibited.

Limitations on Section 32 Mortgages A Section 32 Mortgage shall not include any of the following terms:

Balloon Payment – For a loan with a term of less than five (5) years, a payment schedule with regular periodic payments that when aggregated do not fully amortize the


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outstanding principal balance. This limitation on balloon payments does not apply to: (i) loans with terms of five (5) years or greater or (ii) loans with maturities of less than one year, if the purpose of the loan is a “bridge” loan connected with the acquisition or construction of a dwelling intended to become the consumer’s principal dwelling.

Negative Amortization – A payment schedule with regular period payments that cause the principal balance to increase.

Advance Payments – A payment schedule that consolidates more than two periodic payments and pays them in advance from the proceeds.

Increased Interest Rate – An increase in the interest rate after default.

Rebates – A refund calculated by a method less favorable than the federally-approved actuarial method for rebates of interest arising from a loan acceleration due to default.

Prepayment Penalties – A penalty for paying all or part of the principal before the date on which the principal is due. Note, however, that a Section 32 Mortgage transaction may provide for a prepayment penalty if all of the following are true:

• The penalty can be exercised only for the first five (5) years following consummation.

• The source of the prepayment funds is not a refinancing by the creditor or an affiliate of the creditor.

• At consummation, the consumer’s total monthly debts (including amounts owed under the mortgage) do not exceed 50% of the consumer’s monthly gross income, as verified by the consumer’s signed financial statement, a credit report, and payment records for employment income.

Due-on-Demand Clause – A demand feature that permits the creditor to terminate the loan in advance of the original maturity date and to demand repayment of the entire outstanding balance, except in one of the following circumstances:

• There is fraud or material misrepresentation by the consumer in connection with the loan.

• The consumer fails to meet the repayment terms of the agreement for any outstanding balance.

• There is any action or inaction by the consumer that adversely affects the creditor’s security for the loan, or any right of the creditor in such security.

Prohibited Acts by Creditors in Connection with Section 32 Mortgages A creditor extending credit under any Section 32 Mortgage shall not do any of the following:

Home Improvement Contracts – The creditor shall not pay a contractor under a home improvement contract from the proceeds of a Section 32 Mortgage, other than either:

• By an instrument payable to the consumer, or jointly to the consumer and the contractor.

• At the election of the consumer, through a third-party escrow agent in accordance with terms established in a written agreement signed by the consumer, the creditor, and the contractor prior to the disbursement.

Notice to Assignee – The creditor shall not sell or otherwise assign a Section 32 Mortgage without furnishing the following statement to the purchaser or assignee:


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s and

hall not refinance the loan into another Section 32 Mortgage to the same

teral without

evade the requirements applicable to Section 32 Mortgages. For

ReverA reverse mortgage transaction is a non-recourse consumer credit obligation in which both of

, interest, or shared appreciation or equity is due and payable (other than in

s to occupy the dwelling or principal dwelling

Most often onsumer to provide a lender a security interest in a home in e a e death of the

g disclosures:

“Notice: This is a mortgage subject to special rules under the federal Truth in Lending Act. Purchasers or assignees of this mortgage could be liable for all claimdefenses with respect to the mortgage that the borrower could assert against the creditor.”

Loan Flipping – Within one year of having extended credit for a Section 32 Mortgage, the creditor sborrower, unless the refinancing is in the borrower’s interest. Similarly, an assignee holding or servicing the Section 32 Mortgage loan shall not, for the remainder of the one-year period following the date of origination of the loan, refinance the loan into another Section 32 Mortgage to the same borrower, unless the refinancing is in the borrower’s interest. These types of practices are commonly referred to as “Loan Flipping.” A creditor (or assignee) is prohibited from engaging in acts or practices to evade this provision, including a pattern or practice of arranging for the refinancing of its own loans by affiliated or unaffiliated creditors, or modifying a loan agreement (whether or not the existing loan is satisfied and replaced by the new loan) and charging a fee.

Repayment Ability – The creditor shall not engage in a pattern or practice of making Section 32 Mortgage loans to consumers based on the consumers’ collaregard to the consumer’s repayment ability, including the consumer’s current and expected income, current obligations, and employment. There is a presumption that a creditor has violated this prohibition if the creditor engages in a pattern or practice of making Section 32 Mortgage loans without verifying and documenting consumers’ repayment ability.

False Loan Structuring – The creditor shall not structure a home-secured loan as an open-end plan to example, a creditor may not structure a high cost loan as a home equity line of credit if the consumer does not intend to take additional draws typical of a home equity line of credit. Such a false loan structure will not avoid the HOEPA requirements for high cost Section 32 Mortgages.

se Mortgages

the following occur:

A security interest is created in the consumer’s principal dwelling.

Any principalthe case of default) only after one of the following events:

• The consumer dies

• The dwelling is transferred

• The consumer cease

, reverse mortgages require a cxch nge for a stream of payments. Upon the sale of the home or th

consumer, the lender requires repayment. Reverse mortgages may be attractive to retired individuals seeking to convert home equity into a liquid source of funds.

HOEPA requires that for reverse mortgage transactions, in addition to the other disclosures required by TILA and Regulation Z, the creditor must provide the followin


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Notice – A statement that the consumer is not obligated to complete the reverse mortgage transaction merely because the consumer has received the required

le of “total annual

praised property value.

SuRegulation Z implements HOEPA’s framework attempting to address predatory lending in high

y to loans with extremely

e between products significantly lowers the

laws and regulations which build upon

lending and improve consumers’ knowledge about

TILA and Regulation Z may be enforced through private actions by consumers and by ncies

l damages to the consumer and the cost of

osed-end credit

oth.

or penalties described above. These potential penalties highlight the impact of incorrect disclosures or

disclosures or has signed an application for a reverse mortgage loan.

Total annual loan cost rates – A good-faith projection of the total cost of the credit, determined in accordance with Regulation Z and expressed as a tabloan cost rates,” using that term.

Itemization of pertinent information – An itemization of loan terms, charges, the age of the youngest borrower and the ap

Explanation of table – An explanation of the table of total annual loan cost rates.

mmary – Special Rules for Certain Home Mortgage Transactions

cost Section 32 Mortgage loans and reverse mortgage transactions.

HOEPA’s regulations covering Section 32 Mortgages have been criticized as a weak approach to predatory lending, since the disclosures and restrictions only applhigh rates or fees. Predatory lenders may still prey upon consumers by keeping interest rates just below the HOEPA thresholds, as HOEPA’s disclosures and restrictions (such as limitations on loan flipping) would not apply to those loans.

HOEPA’s strengths include additional disclosures which help promote consumers’ ability to shop for loan products. The ability to chooslikelihood that a consumer will be forced to accept a harmful mortgage product. In addition, the educational value of the disclosures helps make the consumer aware that he/she is able to shop between various products with different rates and fees.

Numerous parties have called for further federal regulation addressing predatory lending. In addition, many states have passed high cost lending HOEPA’s framework for predatory lending.

Mortgage professionals should expect continuing reform in coming years, as the federal and state governments seek to curb predatory the mortgage industry and their ability to successfully shop for all forms of loan products.

TILA Enforcement and Penalties

administrative action by federal regulatory age

In general, if a creditor fails to comply with any requirements of TILA or Regulation Z, the creditor may be held liable to the consumer for actuaany legal action together with reasonable attorneys fees in a successful action.

In certain cases, the creditor may also be held liable for twice the amount of the finance charge involved, but not less than $100 or more than $1,000. In the case of cltransactions secured by the consumer’s dwelling, the creditor may be liable for twice the amount of the finance charge involved, but not less than $200 or more than $2,000.

In addition, anyone who willingly and knowingly fails to comply with any requirement of TILA may be fined not more than $5,000 or imprisoned not more than one year, or b

Mortgage professionals must recognize that the above remedies are cumulative, so the creditor may be liable for both the actual damages and legal costs plus the additional fines


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failure to otherwise comply with TILA and Regulation Z. The mortgage professional’s livelihood depends on proper compliance with TILA and Regulation Z.

Conclusion TILA is one of the landmark federal laws affecting the mortgage industry. TILA and Regulation

the mortgage professional’s daily activities, whether the professional engages -end credit, closed-end credit, or both.

Z affect many of in extending open

Mortgage professional who understand TILA’s and Regulation Z’s requirements will be able to properly comply with this important law and educate the consumer regarding the benefits of disclosure and shopping for the best loan product.


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FLORIDA LAW Introduction Chapter 494 of the Florida Statutes regulates individuals and companies involved in the businesses of mortgage brokerage and mortgage lending in the State of Florida. Throughout these materials we refer to Chapter 494 as “the statute.”

The statute is divided into five general topic areas. The first section includes the general provisions which set forth the intent, definitions, and practices for oversight of the mortgage lending business. The second section establishes specifics governing the practices of mortgage brokers and the third covers mortgage lenders. The forth and fifth sections specifically address the Florida Fair Lending Act and loans made under the Florida Uniform Land Sales Practices Law.

The statute is supplemented by Chapter 69V-40 of the Florida Administrative Code, which sets forth rules regulating mortgage brokers and mortgage lenders in order to further implement the intent of the statute.

In this course we will review a number of the points addressed in the statute and the rules, emphasizing those portions most relevant to day-to-day practice. In an effort to simplify and make the law more understandable, we discuss the statute and include many of the exact provisions; but, we have not reprinted the law in its entirety. The information given to you here should alert you to sensitive areas of practice; however, before making any judgment regarding the specifics of any particular method of practice, you should reference the entire law and seek competent legal advice.

Definitions The statute begins with a section of definitions clarifying the meanings of terms used throughout the statute. Similarly, the first portion of our study will look at the definitions required to understand the statute and the obligations of the mortgage loan professional.

“Act as a correspondent mortgage lender” means to make a mortgage loan.

“Act as a loan originator” means being employed by a mortgage lender or correspondent mortgage lender, for compensation or gain or in the expectation of compensation or gain, to negotiate, offer to negotiate or assist any licensed or exempt entity in negotiating the making of a mortgage loan, including but not limited to structuring a loan or discussing terms and conditions necessary for the delivery of a loan product. A natural person whose activities are ministerial and clerical, which may include quoting available interest rates, is not acting as a loan originator.

“Act as a mortgage broker” means, for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, accepting or offering to accept an application for a mortgage loan, soliciting or offering to solicit a mortgage loan on behalf of a borrower, negotiating or offering to negotiate the terms or conditions of a mortgage loan on behalf of a lender, or negotiating or offering to negotiate the sale of an existing mortgage loan to a noninstitutional investor. An employee whose activities are ministerial and clerical, which may include quoting available interest rates or loan terms and conditions, is not acting as a mortgage broker.


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“Act as a mortgage lender” means to make a mortgage loan or to service a mortgage loan for others or, for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, to sell or offer to sell a mortgage loan to a noninstitutional investor.

“Associate” means a person required to be licensed as a mortgage broker under the statute who is employed by or acting as an independent contractor for a mortgage brokerage business or a person acting as an independent contractor for a mortgage lender or correspondent mortgage lender.

“Branch broker” means the licensee in charge of, and responsible for, the operation of a branch office of a mortgage brokerage business.

“Branch office” means a location, other than a licensee's principal place of business, for which one of the following is true:

The address of the location appears on business cards, stationery, or advertising used by the licensee in connection with business conducted under the statute.

The licensee's name, advertising or promotional materials, or signage suggest that mortgage loans are originated, negotiated, funded, or serviced at the location.

Due to the actions of any employee or associate of the licensee, the location may be construed by the public as a branch office of the licensee where mortgage loans are originated, negotiated, funded, or serviced.

“Commission” means the Financial Services Commission. The Commission is sometimes referred to as the “Department of Financial Services” or the “Department.”

“Control Person” means an individual, partnership, corporation or other organization with the power to direct a company’s management or policies, whether that power comes from ownership of securities, via a contract or some other source. A person controls a company under the following circumstances:

The person is a director, general partner, officer or similar authority figure who exercises executive responsibility or performs similar functions.

The person may directly or indirectly vote 10 percent or more of a class of voting securities or sell or direct the sale of 10 percent or more of a class of voting securities.

The person has contributed 10 percent or more of the capital in the case of a partnership or may receive 10 percent or more of the capital upon dissolution of a partnership.

“Employed” means engaged in the service of another for salary or wages subject to withholding, FICA, or other lawful deductions by the employer as a condition of employment.

“Employee” means a natural person who is employed and who is subject to the right of the employer to direct and control the actions of the employee.

“Good standing” means that the registrant or licensee, or a subsidiary or affiliate thereof, is not, at the time of application, being penalized for one or more of the following disciplinary actions by a licensing authority of any state, territory, or country:

Revocation of a license or registration.

Suspension of a license or registration.

Probation of a license or registration for an offense involving fraud, dishonest dealing, or an act of moral turpitude.


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“Institutional investor” means a state or national bank, state or federal savings and loan association or savings bank, real estate investment trust, insurance company, real estate company, accredited investor, business licensed under the statute, or other business entity that invests in mortgage loans, including a secondary mortgage market institution including, without limitation, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Government National Mortgage Association, conduits, investment bankers, and any subsidiary of such entities.

“Loan commitment” or “Commitment” means a statement by the lender setting forth the terms and conditions upon which the lender is willing to make a particular mortgage loan to a particular borrower.

“Lock-in agreement” means an agreement whereby the lender guarantees for a specified number of days or until a specified date the availability of a specified rate of interest or specified formula by which the rate of interest will be determined and/or specific number of discount points, if the loan is approved and closed within the stated period of time.

“Make a mortgage loan” means to close a mortgage loan in a person's name or to advance funds, offer to advance funds, or make a commitment to advance funds to an applicant for a mortgage loan.

“Mortgage brokerage fee” means the total compensation to be received by a mortgage brokerage business for acting as a mortgage broker.

“Mortgage brokerage business” means a person acting as a mortgage broker.

“Mortgage loan” means any one of the following:

A residential mortgage loan.

A loan on commercial real property if the borrower is a natural person or the lender is a noninstitutional investor.

A loan on improved real property consisting of five or more dwelling units if the borrower is a natural person or the lender is a noninstitutional investor.

“Mortgage loan application” means a submission of a borrower's financial information in anticipation of a credit decision, whether written or computer-generated, relating to a mortgage loan. If the submission does not state or identify a specific property, the submission is an application for a prequalification and not an application for a mortgage loan. The subsequent addition of an identified property to the submission converts the submission to an application for a mortgage loan.

“Net worth” means total assets minus total liabilities pursuant to generally accepted accounting principles.

“Noninstitutional investor” means an investor other than an institutional investor.

“Nonresidential mortgage loan” means a mortgage loan other than a residential mortgage loan.

“Office” means the Office of Financial Regulation of the Commission.

“Person” means an individual, partnership, corporation, association, or other group, however organized.

“Principal broker” means a licensee in charge of, and responsible for, the operation of the principal place of business and all branch brokers.


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“Principal place of business” means a licensee's primary business office the street address or physical location of which is designated on the application for licensure or any amendment to such application.

“Principal representative” means an individual who operates the business operations of a Mortgage Lender licensee.

“Residential mortgage loan” means any mortgage or other security instrument secured by improved real property consisting of no more than four dwelling units.

“Service a mortgage loan” means to do the following for another person; receive installment payments of principal, interest, or other payments pursuant to a mortgage loan, cause payments to be received, or cause payments to be transferred.

“Substantial fault of the borrower” means that the borrower did one of the following:

Failed to provide information or documentation required by the lender or broker in a timely manner.

Provided information, in the application or subsequently, which upon verification proved to be significantly inaccurate, causing the need for review or further investigation by the lender or broker.

Failed to produce no later than the date specified by the lender all documentation specified in the commitment or closing instructions as being required for closing.

Failed to be ready, willing, or able to close the loan no later than the date specified by the lender or broker.

For purposes of this definition, a borrower is considered to have provided information or documentation in a timely manner if such information and documentation was received by the lender within seven (7) days after the borrower received a request for same, and information is considered significantly inaccurate if the correct information materially affects the eligibility of the borrower for the loan for which application is made.

“Ultimate equitable owner” means a natural person who, directly or indirectly, owns or controls an ownership interest in a corporation, a foreign corporation, an alien business organization, or any other form of business organization, regardless of whether such natural person owns or controls such ownership interest through one or more natural persons or one or more proxies, powers of attorney, nominees, corporations, associations, partnerships, trusts, joint stock companies, or other entities or devices, or any combination thereof.


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General Provisions

Financial Services Commission and Office of Financial Regulation The Office of Financial Regulation is responsible for the administration and enforcement of the laws and rules governing mortgage lenders and mortgage brokers.

The Office has numerous powers, duties, and responsibilities including the ability to do each of the following:

Require electronic submission of any forms, documents or fees required by the statute.

Set requirements and create procedures regarding exemptions to mandatory electronic submissions.

Accept certification of compliance with requirements of the statute in lieu of requiring submission of documents.

Oversee the deposit of all fees, charges, and fines collected pursuant to the statute in the State Treasury.

Issue and serve subpoenas and compel the attendance of witnesses and the production of all books, accounts, records, and other documents and materials relevant to an examination or investigation or ask a court to issue and serve such subpoenas.

Seek injunction or appointment of a receiver in instances of noncompliance with subpoenas.

Seek a writ of attachment from the court having jurisdiction over any person who has refused to obey a subpoena, who has refused to give testimony, or who has refused to produce the matters described in the subpoena.

Investigations, Complaints, and Examinations The Office may conduct an investigation of any person whenever the Office has reason to believe, either upon complaint or otherwise, that any violation of the statute has been committed or is about to be committed.

Any person having reason to believe that a provision of the statute has been violated may file a written complaint with the Office setting forth details of the alleged violation.

The Office may, at intermittent periods, conduct examinations of any licensee or other person under its jurisdiction.

The Office shall conduct all examinations at a convenient location within the state of Florida unless the Office determines that it is more effective or cost-efficient to perform an examination at the licensee's out-of-state location.

For an examination performed at the licensee's out-of-state location, the licensee shall pay the travel expense and per diem subsistence at the rate provided by law for up to thirty (30) 8-hour days per year for each Office examiner who participates in such an examination. However, if the examination involves or reveals fraudulent conduct by the licensee, the licensee shall pay the travel expense and per diem subsistence provided by law, without limitation, for each participating examiner.

In any hearing in which the financial examiner acting under authority of the Office is available for cross-examination, any official written report, worksheet, or other related paper, or a duly certified copy thereof, compiled, prepared, drafted, or otherwise made


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by the financial examiner, after being duly authenticated by the examiner, may be admitted as competent evidence.

Information relative to an investigation or examination by the Office including any consumer complaint received by the Office or the Department of Financial Services, is confidential until the investigation or examination is completed or ceases to be active.

The information compiled by the Office in such an investigation or examination shall remain confidential after the Office's investigation or examination is completed or ceases to be active if the Office submits the information to any law enforcement or administrative agency for further investigation.

Except as necessary for the Office to enforce the provisions of the statute, a consumer complaint and other information relative to an investigation or examination shall remain confidential after the investigation or examination is completed or ceases to be active to the extent disclosure would do any of the following:

Jeopardize the integrity of another active investigation or examination.

Reveal the name, address, telephone number, social security number, or any other identifying number or information of any complainant, customer, or account holder.

Disclose the identity of a confidential source.

Disclose investigative techniques or procedures.

Reveal a trade secret.

The Office may bring action to enjoin a person from continuing in or engaging in any act in furtherance of the violation. This can be achieved by petitioning the court to issue an injunction or the appointment of a receiver to take over the day-to-day conduct of the offender’s business.

The Office can use a number of other remedies including cease and desist orders and refund orders.

The Office may use cease and desist orders, to take corrective action whenever it has reason to believe the person is violating, has violated, or is about to violate any provision of the statute, rule, or any written agreement between the person and the Office.

The Office has the power to order the refund of any fee directly or indirectly assessed and charged on a mortgage loan transaction which is unauthorized or exceeds the maximum fee specifically authorized under the statute.

The Office may prohibit a mortgage broker business, a mortgage lender or correspondent mortgage lender, from associating with or employing any person who has engaged in a pattern of misconduct while an associate of a mortgage brokerage business or an employee of a mortgage lender or correspondent mortgage lender.

The Office may impose upon any person who makes or brokers a loan, or any mortgage business school, a fine for violations of various provisions, rules or orders issued under Chapter 494 in an amount not exceeding $5,000 for each separate count or offense.

Record Keeping Record keeping is an important part of compliance. Licensees, their employees and their associates must be aware of record keeping requirements.


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Each licensee shall maintain, at the principal place of business designated on the license, all books, accounts, records, and documents necessary to determine the licensee's compliance with the statute and rules.

The Office may authorize maintenance of records at a location other than a principal place of business.

The Office may require books, accounts, and records to be produced and available at a reasonable and convenient location in Florida.

All books, accounts, records, documents, and receipts for expenses paid by the licensee on behalf of the borrower, including each closing statement signed by a borrower, shall be preserved and kept available for examination by the Office for at least three (3) years after the date of original entry. The Commission can set rules regarding the destruction of these items after at least three (3) years.

The Commission may prescribe by rule the minimum information to be shown in the books, accounts, records, and documents of licensees so that such records will enable the Office to determine the licensee's compliance with the applicable statutes.

All audited financial statements submitted to the Office are confidential, except that Office employees may have access to such information in the administration and enforcement of the statute and such information may be used by Office personnel in the prosecution of violations.

Prohibited Advertising - Record Requirements Most borrowers are influenced by a mortgage professional for the first time through advertising. False or misleading advertising has been found to be a primary cause of loss to the consumer. To avoid injury to the public, and disciplinary action, licensees must understand and follow Florida’s requirements regarding advertising.

It is a violation of the statute to:

Advertise that an applicant will have unqualified access to credit without disclosing what material limitations on the availability of credit exist. Such material limitations include, but are not limited to, the percentage of down payment required, that a higher rate or points could be required, or that restrictions as to the maximum principal amount of the loan offered could apply.

Advertise a mortgage loan at an expressed interest rate unless the advertisement specifically states that the expressed rate could change or not be available at commitment or closing.

Advertise mortgage loans, including rates, margins, discounts, points, fees, commissions, or other material information, including material limitations on such loans, unless such person is able to make such mortgage loans available to a reasonable number of qualified applicants.

Falsely advertise or misuse names indicating a federal agency.

Each person required to be licensed shall maintain a record of samples of each of its advertisements, including commercial scripts of each radio or television broadcast, for examination by the Office for a period of two (2) years after the date of publication or broadcast.

Penalties Intentional acts which violate most provisions of the statute are treated as felonies of the third degree, punishable as provided by law and each violation constitutes a separate offense.


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However it should be noted that any person convicted of a violation of any provision of the statute, in which the total value of money and property unlawfully obtained exceeds $50,000 and in which there were five or more victims, is guilty of a felony of the first degree and a more severe penalty.

Liability In Case Of Unlawful Transaction If a mortgage transaction is made in violation of any provision of the statute, the person making the transaction and every licensee, director, or officer who participated in making the transaction is jointly and severally liable to every party to the transaction in an action for damages incurred by the party or parties.

A person is not liable under this provision if he can prove that the licensees, officers, and directors who participated in making the transaction acted in good faith and without knowledge of the violation and that with the exercise of due diligence, could not have known of the violation.

Liability to the Public The statute sets no limit on the statutory or common-law right of any person to bring any action in any court for any act related to mortgage business or the right of the state to punish any person for any violation of any law.

Failure to comply with the provisions of the statute does not affect the validity or enforceability of any mortgage loan; and no person acquiring a mortgage loan, as mortgagee or assignee, is required to ascertain whether the assigning party has complied with the provisions of the statute.

Conflicting Interest A licensee may have a conflict of interest if the licensee or any of his or her relatives will benefit from a transaction other than through his direct obvious involvement in making the loan.

The term “relative” means any of the following persons, whether by full or half blood or by adoption:

Such person's spouse, father, mother, children, brothers, and sisters.

The father, mother, brothers, and sisters of such person's spouse.

The spouses of children, brothers, or sisters of such person.

The law specifies a licensee has a conflicting interest if any of the following is true:

The licensee or the licensee's relative provides the borrower with additional products or services.

The licensee or licensee's relative, either directly or indirectly, owns, controls, or holds with power to vote, or holds proxies representing, ten percent (10%) or more of any class of equity securities or other beneficial interest in such person providing the additional products or services.

The person providing the additional products or services, either directly or indirectly, owns, controls, or holds the power to vote, or holds proxies representing, ten percent (10%) or more of any class of equity securities or other beneficial interest in the licensee.

A holding company, either directly or indirectly, owns, controls, or holds with power to vote, or holds proxies representing, ten percent (10%) or more of any class of equity


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securities or other beneficial interest in both the licensee and the person providing the additional products or services.

One or more persons, or such person's relative, sits as an officer or director, or performs similar functions as an officer or director, for both the licensee and the person providing the additional products or services.

The licensee or the licensee's relative sits as an officer or director, or performs similar functions as an officer or director, of the person providing the additional products or services.

If, in a mortgage transaction, a licensee has a conflicting interest as specified above:

The type of conflicting interest shall be fully and fairly disclosed.

The licensee shall inform the borrower in writing that a financial benefit may be received by the licensee as a result of the conflicting interest.

The borrower shall be informed that alternative sources may be chosen by the borrower to provide any required services. The following language must be contained in 12-point type in any agreement between a mortgage broker, mortgage lender, or correspondent mortgage lender and a borrower in substantially this form:

“You are not required to purchase additional products or services from any person or entity suggested or recommended by (Broker/Lender/Correspondent Lender). However, the (Broker/Lender/Correspondent Lender) hereby reserves the right to approve the entity selected by the borrower, which approval may not be unreasonably withheld.”

Waiver Unless otherwise indicated in the statute, any waiver of a provision of the statute by the public is unenforceable and void.

Prohibited Practices It is unlawful for any person:

To act as a mortgage lender in the State of Florida without a current, active license issued by the Office.

To act as a correspondent mortgage lender in the State of Florida without a current, active license issued by the Office.

To act as a mortgage broker in the State of Florida without a current, active license issued by the Office.

In any practice or transaction or course of business relating to the sale, purchase, negotiation, promotion, advertisement, or hypothecation of mortgage transactions, directly or indirectly:

• To knowingly or willingly employ any device, scheme, or artifice to defraud.

• To engage in any transaction, practice, or course of business which operates as a fraud upon any person in connection with the purchase or sale of any mortgage loan.

• To obtain property by fraud, willful misrepresentation of a future act, or false promise.


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In any matter within the jurisdiction of the Office, to knowingly and willfully falsify, conceal, or cover up by a trick, scheme, or device a material fact, make any false or fraudulent statement or representation, or make or use any false writing or document, knowing the same to contain any false or fraudulent statement or entry.

Unless the person is a financial institution, to transact business under any name or title that contains the works “bank,” “banker,” “banking,” “trust company,” “savings and loan association,” “savings bank,” or “credit union,” or words of similar import, in any context or in any manner. “Financial institution” means a state or federal association, bank, trust company, international bank agency, or credit union.

A person failing to report to the Office their failure to meet the net worth requirements of the statute within forty-eight (48) hours after the person's knowledge of such failure or within forty-eight (48) hours after the person should have known of such failure.

To pay a fee or commission in any mortgage loan transaction to any person or entity other than a mortgage brokerage business, mortgage lender, or correspondent mortgage lender, operating under an active license, or a person exempt from licensure under the statute.

To record a mortgage brokerage agreement or any other document, not rendered by a court of competent jurisdiction, which purports to enforce the terms of the mortgage brokerage agreement.

To use the name or logo of a financial institution, or its affiliates or subsidiaries when marketing or soliciting existing or prospective customers if such marketing materials are used without the written consent of the financial institution and in a manner that would lead a reasonable person to believe that the material or solicitation originated from, was endorsed by, or is related to or the responsibility of the financial institution or its affiliates or subsidiaries.

Disposition of Insurance Proceeds The terms of mortgage loans generally require that the borrower purchase insurance in an amount at least equal to the amount of the loan, to be paid in the event of a fire or other loss. The mortgagee also requires the proceeds of any loss reimbursement to be made payable jointly to the borrower and the mortgagee. This protects the lender. Since the insurance check can only be cashed when signed by both the borrower and the mortgagee the lender can investigate and take precautions to be sure the property has been repaired or that the proceeds will be used to repair the property. In some instances the mortgagee will hold the proceeds and distribute them to the tradesmen as work is completed at the property.

The statute sets forth rules for the licensee to follow when the mortgagee disburses insurance proceeds. The following provisions apply to mortgage loans held by a mortgagee or assignee that is subject to the statute.

The mortgagee or assignee must promptly endorse a check, draft, or other negotiable instrument payable jointly to the mortgagee or assignee and the insured by the insurance company. However, the mortgagee or assignee is not required to endorse such instrument if the insured or a payee who is not subject to the statute refuses to endorse the instrument.

Insurance proceeds received by a mortgagee or assignee that relate to compensation for damage to property or contents insurance coverage in which the mortgagee or assignee has a security interest must be promptly deposited by the mortgagee or assignee into a segregated account of a federally insured financial institution.


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Insurance proceeds received by a mortgagee or assignee that relate to contents insurance coverage in which the mortgagee or assignee does not have a security interest in the contents must be promptly distributed to the insured by the mortgagee or assignee.

Insurance proceeds received by a mortgagee or assignee that relate to additional living expenses must be promptly distributed to the insured by the mortgagee or assignee.

The mortgagee or assignee is not required to remit the portion of the proceeds relating to additional living expenses and contents insurance if the mortgagee or assignee is not able to determine which part of the proceeds relates to additional living expenses and contents insurance.

Nothing in this portion of the statute shall be construed to prevent an insurance company from paying the insured directly for additional living expenses or paying the insured directly for contents insurance coverage if the mortgagee or assignee does not have a security interest in the contents.

Arbitration The statute sets certain standards regarding the use of arbitration by parties to a mortgage transaction. The rules apply to any mortgage brokerage agreement, servicing agreement, loan application, or purchase agreement which provides for arbitration between:

A noninstitutional investor and a mortgage lender or correspondent mortgage lender to service a mortgage loan.

A borrower and a mortgage brokerage business, mortgage lender, or correspondent mortgage lender to obtain a mortgage loan.

A noninstitutional investor and a mortgage brokerage business, mortgage lender, or correspondent mortgage lender to fund or purchase a mortgage loan.

The statute states that agreements subject to the statute shall provide the following:

At the voluntary election of the noninstitutional investor or borrower, that disputes shall be handled by either a court of competent jurisdiction or by binding arbitration.

The noninstitutional investor or borrower shall have the option to elect arbitration before the American Arbitration Association or another independent nonindustry arbitration forum.

At the election of the noninstitutional investor or borrower, that venue shall be in the county in which the noninstitutional investor or borrower entered into the agreement or at a business location of the mortgage brokerage business, mortgage lender, or correspondent lender.

Any fees or charges shall be made as provided in the rules of the American Arbitration Association or other approved nonindustry arbitration forum and shall not be set in the agreement.

Any election regarding arbitration shall be irrevocable.

The statute shall not be construed to require any agreement to contain an arbitration clause. The statute merely imposes requirements on those agreements which do, in fact, contain an arbitration clause.


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Mortgage Business Schools The statute sets forth rules for the approval and oversight of schools offering courses required under the statute. It is important for a licensee and its employees to investigate to the extent necessary to determine that the educational programs taken for credit are offered by approved schools. We will not, however, examine the details of school approval or oversight in this program.

Professional Education Requirements Mortgage brokers, and the principal representatives and loan originators of a mortgage lender or correspondent mortgage lender must certify to the Office at the time of renewal that during the two (2) years prior to an application for license renewal, they have successfully completed at least fourteen (14) hours of professional education programs covering primary and subordinate mortgage financing transactions and the provisions of the statute. A minimum of four (4) of those fourteen (14) hours shall cover the provisions of the statute and related rules. Licensees shall maintain records documenting compliance with these education requirements for a period of four (4) years. These education requirements do not apply to a mortgage broker who has completed a 24-hour pre-licensing course within 90 days of the biennial period after the person became licensed as a broker. The requirements are also waived for the principal representative of a mortgage lender or a correspondent mortgage lender during the biennial period in which the person completed 24 hours of class work and passed a written test in order to become a principal representative.

Professional education programs must contribute directly to the professional competency of the participants, may only be offered by permitted mortgage business schools, the Office, or entities specifically exempted from being approved as mortgage business schools, and may include electronically transmitted or distance education courses.

The Commission has adopted rules necessary to administer these requirements, including rules governing qualifying hours for professional education programs and standards for electronically transmitted or distance education courses, including course completion requirements.


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Mortgage Broker Requirements The statute provides separate requirements for mortgage brokers (and mortgage brokerage businesses) compared to mortgage lenders. In this section of the materials, we examine the provisions specifically applicable to mortgage brokers and mortgage brokerage businesses.

Who Needs a License? The following definition from the statute sets forth who is required to be licensed as a mortgage broker.

“Act as a mortgage broker” means, for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, accepting or offering to accept an application for a mortgage loan, soliciting or offering to solicit a mortgage loan on behalf of a borrower, negotiating or offering to negotiate the terms or conditions of a mortgage loan on behalf of a lender, or negotiating or offering to negotiate the sale of an existing mortgage loan to a noninstitutional investor.

The statute also sets forth a number of individuals who are exempt from the license requirement.

A bank, bank holding company, trust company, savings and loan association, savings bank, credit union, or consumer finance company licensed under Florida law.

A wholly owned bank holding company subsidiary or a wholly owned savings and loan association holding company subsidiary that is approved or certified by the Department of Housing and Urban Development (HUD), the Veterans Administration (VA), the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), or the Federal Home Loan Mortgage Corporation (Freddie Mac).

Fannie Mae; Freddie Mac; any agency of the Federal Government; any state, county, or municipal government; or any quasi-governmental agency that acts in such capacity under the specific authority of the laws of any state or the United States.

Any person licensed to practice law in Florida, not actively and principally engaged in the business of negotiating loans secured by real property, when such person renders services in the course of her or his practice as an attorney at law.

An insurance company duly licensed in Florida when dealing with its clients in the normal course of its insurance business.

A federally licensed small business investment company.

A securities dealer registered under Florida law, when dealing with its corporate or individual clients in the normal course of its securities business.

Any person acting in a fiduciary capacity conferred by authority of any court.

A wholly owned subsidiary of a bank or savings and loan association the sole activity of which is to distribute the lending programs of such bank or savings and loan association to persons who arrange loans for, or make loans to, borrowers.

The statute places the burden of proof that an individual fits the exemption on the individual seeking the exemption.


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Mortgage Broker's License An individual who “acts as a mortgage broker” or acts as an associate for a mortgage lender or correspondent mortgage lender must meet the following criteria in order to obtain a Florida license:

To act as a mortgage broker, an individual must be an associate of a mortgage brokerage business, a mortgage lender or a correspondent mortgage lender.

A mortgage broker is prohibited from being an associate of more than one mortgage brokerage business, mortgage lender or correspondent mortgage lender.

The initial application for a mortgage broker's license must be completed by the applicant in the form prescribed by rule of the Commission. The Commission may require each applicant to provide any information reasonably necessary to make a determination of the applicant's eligibility for licensure.

The Office shall issue an initial license to any natural person who satisfies each of the following:

The person is at least 18 years of age.

The person has a high school diploma or its equivalent.

The person has passed a written test adopted and administered by the Office or an electronic test adopted and administered by the Office or a third party approved by the Office which is designed to determine competency in primary and subordinate mortgage financing transactions as well as to test knowledge of the statute and related rules. The commission may prescribe by rule an additional fee that may not exceed $100 for the electronic version of the mortgage broker test. The commission may waive by rule the examination requirement for any person who has passed a test approved by the Conference of State Bank Supervisors, the American Association of Residential Mortgage Regulators, or the United States Department of Housing and Urban Development if the test covers primary and subordinate mortgage financing transactions.

The person has submitted a completed application, a nonrefundable application fee and any additional fees required by law.

The person has filed a complete set of fingerprints and paid a related processing fee. The commission may require by rule information concerning any such applicant or person, including, but not limited to, his or her full name and any other names by which he or she may have been known, age, social security number, qualifications and educational and business history, and disciplinary and criminal history.

The statute also requires that all applicants must have completed twenty-four (24) hours of classroom education on primary and subordinate financing transactions and the statute and rules to be eligible for licensure.

An applicant may be denied a license if the applicant has committed any violation specified in the statute or has pending against her or him any criminal prosecution or administrative enforcement action, in any jurisdiction, which involves fraud, dishonest dealing, or any other act of moral turpitude.

An initial mortgage broker's license is valid for the remainder of the biennium (two-year period) in which the license is issued.

The statute also discusses issues which may cause the Office to cancel a license. A mortgage broker license may be canceled if it was issued through mistake or inadvertence of the Office.


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If such an event occurs, a notice of cancellation must be issued by the Office within ninety (90) after the issuance of the license. The notice of cancellation shall provide the applicant with notification of the right to request a hearing within twenty-one (21) days after the applicant's receipt of the notice of cancellation. A license shall be reinstated if the applicant can demonstrate that the requirements for obtaining the license have been satisfied.

Renewal of Mortgage Broker's License The following rules regarding the process of renewal of a mortgage broker’s license are specified in the statute:

The Office shall renew a mortgage broker license upon receipt of the completed renewal form, certification of compliance with continuing education requirements, and payment of a nonrefundable renewal fee.

The Commission has adopted rules establishing the procedure for the biennial renewal of mortgage broker licenses. The Commission has prescribed the form of the renewal application and requires an update of information since the licensee's last renewal.

The biennial renewal of each mortgage broker’s license is required on or before August 31 of each odd-numbered year.

A license that is not renewed by the end of the prescribed biennium shall revert from active to inactive status. An inactive license may be reactivated within two (2) years after becoming inactive by filing a completed reactivation form with the Office, payment of the renewal fee, and payment of a nonrefundable reactivation fee. A license that is not renewed within two (2) years after becoming inactive automatically expires.

Principal Broker and Branch Broker Requirements Each mortgage brokerage business must have a principal broker operate the business under his or her full charge, control, and supervision. The principal broker must have been a licensed mortgage broker for at least one (1) year prior to being designated as a principal broker, or shall demonstrate to the satisfaction of the Office that such principal broker has been actively engaged in a mortgage-related business for at least one (1) year prior to being designated as a principal broker.

Each mortgage brokerage business shall maintain a form as prescribed by the Commission indicating the business's designation of principal broker and the individual's acceptance of such responsibility. If the form is unavailable, inaccurate, or incomplete, the Office will presume that the business was operated in the full charge, control, and supervision of each officer, director, or ultimate equitable owner of a ten percent (10%) or greater interest in the mortgage brokerage business, or any other person in a similar capacity.

Each branch office of a mortgage brokerage business must have a designated branch broker who will operate the business under his full charge, control, and supervision. The designated branch broker must be a licensed mortgage broker. Each branch office shall maintain a form as prescribed by the Commission logging the branch's designation of a branch broker and the individual's acceptance of such responsibility. If the form is unavailable, inaccurate, or incomplete, it is deemed that the branch was operated in the full charge, control, and supervision of each officer, director, or ultimate equitable owner of a ten percent (10%) or greater interest in the mortgage brokerage business, or any other person in a similar capacity.


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Licensure as a Mortgage Brokerage Business Applicants for licensure as a mortgage brokerage business must meet set standards and follow a specific licensing procedure.

The statute states that the Office will only issue a mortgage brokerage business license to an individual submitting a completed application form, a nonrefundable application fee, and any other fee required by law; the individual must qualify as a principal broker under the statute.

The Commission has the power to require each applicant to provide any information it deems reasonably necessary to determine a person’s eligibility for a license. The Commission specifically requires that each officer, director, control person, member, partner or joint venturer of the applicant and each ultimate equitable owner of a ten percent (10%) or greater interest in the mortgage brokerage business submit a complete set of fingerprints prior to application for licensure as a mortgage brokerage business.

The Office is permitted to deny licensure if the applicant, designated principal mortgage broker; any officer, director, control person, member, partner, or joint venturer, or any natural person who is the ultimate equitable owner of a ten percent (10%) or greater interest in the mortgage brokerage business has committed any violation specified in the statute or has pending against him or her any criminal prosecution or administrative enforcement action, in any jurisdiction, which involves fraud, dishonest dealing, or any other act of moral turpitude.

A mortgage brokerage business or branch office license may be canceled if it was issued through mistake or inadvertence of the Office. A notice of cancellation must be issued by the Office within ninety (90) days after the issuance of the license. A notice of cancellation shall be effective upon receipt. The notice of cancellation shall provide the applicant with notification of the right to request a hearing within twenty-one (21) days after the applicant's receipt of the notice of cancellation. A license shall be reinstated if the applicant can demonstrate that it has satisfied the requirements for obtaining the license.

Renewal of Mortgage Brokerage Business License or Branch Office License The process for renewal is specified in the statute as follows:

The Office shall renew a mortgage brokerage business license upon receipt of a completed renewal form and payment of a nonrefundable renewal fee. At the time of renewal each licensee must also pay a nonrefundable renewal fee for the renewal of each branch office license.

The Commission has adopted rules establishing a procedure for the biennial renewal of mortgage brokerage business licenses and branch office licenses. The Commission has prescribed the form for renewal and requires an update of all information provided in the licensee's initial application.

The biennial renewal of each mortgage brokerage business license is required on or before August 31 of each even-numbered year.

A mortgage brokerage business or branch office license that is not renewed by the end of the prescribed biennium shall revert from active to inactive status. An inactive license may be reactivated within six (6) months after becoming inactive by filing a completed reactivation form with the Office, payment of the renewal fee, and payment of a nonrefundable reactivation fee. A license that is not renewed within six (6) months after the end of the biennial period automatically expires.


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Mortgage Brokerage Business Branch Offices A mortgage brokerage business branch office license is required for each branch office maintained by a mortgage brokerage business.

The Office issues a mortgage brokerage business branch office license only upon receipt of a completed application on the required form and payment of an initial nonrefundable branch office license fee.

Branch office licenses must be renewed in conjunction with the renewal of the mortgage brokerage business license on or before August 31 of each even-numbered year. The branch office license is issued in the name of the mortgage brokerage business that maintains the branch office.

Mortgage Brokerage Agreements and Mortgage Broker Disclosures A person may not receive a mortgage brokerage fee except pursuant to a written mortgage brokerage agreement between the mortgage brokerage business and the borrower which is signed and dated by the business and the borrower.

The written mortgage brokerage agreement must describe the services to be provided by the mortgage brokerage business and specify the amount and terms of the mortgage brokerage fee that the mortgage brokerage business is to receive. The written mortgage brokerage agreement must be executed within 3 business days after a mortgage loan application is accepted if the borrower is present when the application is accepted. If the borrower is not present when such an application is accepted, the licensee shall forward the written mortgage brokerage agreement to the borrower within 3 business days after the licensee's acceptance of the application and the licensee bears the burden of proving that the borrower received and approved the written mortgage brokerage agreement.

If the mortgage brokerage business is to receive any payment of any kind from the lender, the maximum total dollar amount of the payment must be disclosed to the borrower in the written mortgage brokerage agreement. The commission may prescribe by rule an acceptable form for disclosure of brokerage fees received from the lender. The mortgage brokerage agreement must state the nature of the relationship with the lender, describe how compensation is paid by the lender, and describe how the mortgage interest rate affects the compensation paid to the mortgage brokerage business.

The exact amount of any payment of any kind by the lender to the mortgage brokerage business must be disclosed in writing to the borrower within 3 business days after the mortgage brokerage business is made aware of the exact amount of the payment from the lender but not less than 3 business days before the execution of the closing or settlement statement. The licensee bears the burden of proving such notification was provided to the borrower.

At the time a written agreement is executed by the borrower or at the time the mortgage brokerage business accepts an application fee, credit report fee, property appraisal fee, or any other third-party fee, but not less than 3 business days before execution of the closing or settlement statement, the mortgage brokerage business shall disclose in writing to any applicant for a mortgage loan the following information:

That such mortgage brokerage business may not make mortgage loans or commitments. The mortgage brokerage business may make a commitment and may furnish a lock-in of the rate and program on behalf of the lender when the mortgage brokerage business has obtained a written commitment or lock-in for the loan from the lender on behalf of the borrower for the loan. The commitment must be in the same form and substance as issued by the lender.


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That such mortgage brokerage business cannot guarantee acceptance into any particular loan program or promise any specific loan terms or conditions.

A good faith estimate, signed and dated by the borrower, which discloses the total amount of each of the fees which the borrower may reasonably expect to pay if the loan is closed, including, but not limited to, fees earned by the mortgage brokerage business, lender fees, third-party fees, and official fees, together with the terms and conditions for obtaining a refund of such fees, if any. Any amount collected in excess of the actual cost shall be returned within 60 days after rejection, withdrawal, or closing. The good faith estimate must identify the recipient of all payments charged the borrower and, except for all fees to be received by the mortgage brokerage business, may be disclosed in generic terms, such as, but not limited to, paid to lender, appraiser, officials, title company, or any other third-party service provider. This requirement does not supplant or is not a substitute for the written mortgage brokerage agreement.

The above disclosures must be furnished in writing at the time an adjustable rate mortgage loan is offered to the borrower and whenever the terms of the adjustable rate mortgage loan offered materially change prior to closing. The licensee bears the burden of proving such disclosures were provided to the borrower.

If the mortgage brokerage agreement includes a nonrefundable application fee, the following requirements are applicable:

The amount of the application fee, which must be clearly denominated as such, shall be clearly disclosed.

The specific services that will be performed in consideration for the application fee shall be disclosed.

The application fee must be reasonably related to the services to be performed and may not be based upon a percentage of the principal amount of the loan or the amount financed.

A mortgage brokerage business may not accept any fee in connection with a mortgage loan other than an application fee, credit report fee, property appraisal fee, or other third-party fee prior to obtaining a written commitment from a qualified lender.

Any third-party fee entrusted to a mortgage brokerage business shall immediately, upon receipt, be placed into a segregated account with a financial institution located in the State of Florida, the accounts of which are insured by the federal government. Such funds shall be held in trust for the party depositing the funds and shall be kept in the account until disbursement. Such funds may be placed in one account if adequate accounting measures are taken to identify the source of the funds.

The statute does not prohibit a mortgage brokerage business from offering products and services, in addition to those offered in conjunction with the loan origination process, for a fee or commission.

Principal Place of Business Requirements Each mortgage brokerage business licensee shall maintain and transact business from a principal place of business.

Requirements of Licensees Each mortgage broker or mortgage brokerage business licensee shall report to the Office, in writing, any conviction of, or plea of nolo contendere to, regardless of adjudication, any crime or


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administrative violation that involves fraud, dishonest dealing, or any other act of moral turpitude, in any jurisdiction, by the licensee or any designated principal mortgage broker; any officer, director, control person, member, partner, or joint venturer of the applicant; or any individual who is the ultimate equitable owner of a ten percent (10%) or greater interest in the mortgage brokerage business not later than thirty (30) days after the date of conviction, entry of a plea of nolo contendere, or final administrative action.

Each mortgage broker or mortgage brokerage business licensee shall report any conviction of, or plea of nolo contendere to, regardless of whether adjudication is withheld, any felony committed by the licensee or any natural person as listed in the above paragraph, not later than thirty (30) days after the date of conviction or the date the plea of nolo contendere is entered.

Each mortgage broker or mortgage brokerage business licensee shall report any action in bankruptcy, voluntary or involuntary, to the Office not later than seven (7) business days after the action is instituted.

Each mortgage broker or mortgage brokerage business licensee shall report any change to the information contained in any initial application form or any amendment to the application not later than thirty (30) days after the change is effective.

Each licensee shall report any change in the principal broker, partners, officers, members, joint venturers, directors, control persons of any licensee, or any individual who is the ultimate equitable owner of a ten percent (10%) or greater interest in the licensee, or any change in the form of business organization.

In any case in which a person or a group of persons, directly or indirectly or acting by or through one or more persons, proposes to purchase or acquire a controlling interest in a licensee, such person or group shall submit an initial application for licensure as a mortgage brokerage business before such purchase or acquisition and at the time and in the form the commission prescribes by rule. A "controlling interest" means possession of the power to direct or cause the direction of the management or policies of a company whether through ownership of securities, by contract, or otherwise. Any person who directly or indirectly has the right to vote twenty-five percent (25%) or more of the voting securities of a company or is entitled to twenty-five percent (25%) or more of the company's profits is presumed to possess a controlling interest.

A mortgage broker or mortgage brokerage business license is not transferable or assignable.

Each mortgage brokerage business shall file an initial report and thereafter a quarterly report (only if a person became an associate or ceased to be an associate of the mortgage brokerage business during the immediate preceding quarter). Such report shall be filed within thirty (30) days after the last day of each calendar quarter and shall contain the name, social security number, date of birth, mortgage broker license number, date of hire and, if applicable, the date of termination of each person who became or ceased to be an associate of the mortgage brokerage business during the immediately preceding quarter.

In every mortgage loan transaction, each licensee shall notify a borrower of any material changes in the terms of a mortgage loan previously offered to the borrower within 3 business days after being made aware of such changes by the lender but not less than 3 business days before the signing of the settlement or closing statement. The licensee bears the burden of proving such notification was provided and accepted by the borrower.

A borrower may waive the right to receive notice of a material change if the borrower determines that the extension of credit is needed to meet a bona fide personal financial emergency and the right to receive notice would delay the closing of the mortgage loan. The imminent sale of the borrower's home at foreclosure during the 3-day period before the signing


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of the settlement or closing statement constitutes an example of a bona fide personal financial emergency. In order to waive the borrower's right to receive notice not less than 3 business days before the signing of the settlement or closing statement of any such material change, the borrower must provide the licensee with a dated written statement that describes the personal financial emergency, waives the right to receive the notice, bears the borrower's signature, and is not on a printed form prepared by the licensee for the purpose of such a waiver.

Mortgage Brokerage Files Each mortgage brokerage business shall maintain a file for each mortgage brokerage transaction. The files shall be maintained in a central location and in an alphabetical or numerical sequence. Each file shall contain at least the following:

Mortgage brokerage agreement.

Copy of signed closing statement or documentation of denial or cancellation of the loan application.

A copy of the good faith estimate of costs delivered to the borrower.

Supporting documentation shall be maintained for all expenses or fees paid by the licensee on behalf of the client indicating the amount and the date paid. A cancelled check maintained in a separate file shall be considered proof of payment of fees and expenses.

If the mortgage brokerage business brokers loans to any non-institutional investor, the file must also contain evidence of satisfaction of the statute’s disclosure and waiver requirements related to such brokered loans.

If the mortgage brokerage business issues to the client a written commitment for the loan on behalf of the lender then each of the following must be maintained in the file:

A copy of the written commitment issued by the mortgage brokerage business.

A copy of the written commitment provided by the lender.

If the mortgage brokerage business issues to the client a written lock-in for the loan on behalf of the lender then each of the following must be maintained in the file:

A copy of the written lock-in issued by the mortgage brokerage business.

A copy of the written lock-in provided by the lender.

If the mortgage brokerage business receives a mortgage loan application, then the mortgage brokerage business shall maintain a copy in the file.

In addition to all of the specific documentation required above, all documentation originated, received, or related to the mortgage loan from the application through the final disposition must be maintained for three (3) years from the date of the original entry. “Original entry” means the date the documentation was originated by the mortgage brokerage business or received by the mortgage brokerage business. For each brokerage transaction, files and documentation shall be maintained and remain complete for three (3) years from the date of “original entry” of the last document in the file.

The licensee is subject to monetary penalties for failure to maintain files and required documentation.


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Mortgage Brokerage and Lending Transaction Journal Each mortgage brokerage business and lender acting in the capacity of a mortgage brokerage business shall maintain a journal of mortgage brokerage transactions, which shall include, at least the following information:

Name of applicant.

Date applicant applied for the mortgage loan.

Name of lender, if applicable.

Disposition of the mortgage loan application. The Mortgage Brokerage and Lending Transaction Journal shall indicate the result of the brokerage transaction. The disposition of the case shall be categorized as one of the following:

• Loan funded.

• Loan denied.

• Application withdrawn.

• Other (with explanation).

The Mortgage Brokerage and Lending Transaction Journal shall be maintained in a format which is substantially similar to the form provided by the Office. The journal shall be maintained in the principal office or in each branch office where mortgage brokerage transactions are originated. The journal shall be kept current. Failure to initiate an entry into the journal within seven (7) business days from the date the brokerage transaction is entered into shall be deemed to be a failure to keep the journal current.

The licensee shall be subject to penalties for failure to keep the Mortgage Brokerage and Lending Transaction Journal current.

Administrative Penalties and Fines; License Violations Whenever the Office finds a person in violation of the section of the statute regarding mortgage brokers and mortgage brokerage business, it may enter an order imposing one or more of the following penalties against the person:


Suspension of a license or registration subject to reinstatement upon satisfying all reasonable conditions that the Office specifies.

Placement of the licensee, registrant, or applicant on probation for a period of time and subject to all reasonable conditions that the Office specifies.

Issuance of a reprimand.

Imposition of a fine in an amount not exceeding $5,000 for each count or separate offense.

Denial of a license or registration.

Each of the following acts by a mortgage broker constitutes a ground for which the disciplinary actions specified in the general provisions of the statute may be taken:

Pleading nolo contendere to, or having been convicted or found guilty of, regardless of whether adjudication was withheld, a crime involving fraud, dishonest dealing, or any act of moral turpitude.


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Fraud, misrepresentation, deceit, negligence, or incompetence, in any mortgage financing transaction.

A material misstatement of fact on an initial or renewal application.

Disbursement, or an act which has caused or will cause disbursement, to any person in any amount from the Regulatory Trust Fund, the Securities Guaranty Fund, or the Florida Real Estate Recovery Fund, regardless of any repayment or restitution to the disbursed fund by the licensee or any person acting on behalf of the licensee or registrant.

Failure to place immediately upon receipt, and maintain until authorized to disburse, any money entrusted to her or him by a person dealing with her or him as a mortgage broker in a segregated account of a federally insured financial institution in the State of Florida.

Failure to account or deliver to any person any property that has come into her or his hands and that is not her or his property or that she or he is not in law or equity entitled to retain, under the circumstances and at the time which has been agreed upon or is required by law or, in the absence of a fixed time, upon demand of the person entitled to such accounting and delivery.

Failure to disburse funds in accordance with agreements.

Any misuse, misapplication, or misappropriation of personal property entrusted to her or his care to which she or he had no current property right at the time of entrustment.

Having a license, or the equivalent, to practice any profession or occupation revoked, suspended, or otherwise acted against, including the denial of licensure by a licensing authority of the State of Florida or another state, territory, or country for fraud, dishonest dealing, or any other act of moral turpitude.

Failure to comply with any order or rule made or issued under the statute.

Acting as a mortgage broker or mortgage brokerage business without a current, active license issued under the statute.

Failure to timely pay any fee, charge, or fine under the statute.

Failure to maintain, preserve, and keep available for examination all books, accounts, or other documents required under the statute and the rules of the Commission.

Refusal to permit an investigation or examination of books and records, or refusal to comply with an Office subpoena.

Consistently and materially underestimating maximum closing costs.

Failure to comply with, or violation of, any other provision of the statute.

Commission of fraud, misrepresentation, concealment, dishonest dealing by trick, scheme, or device, culpable negligence, or breach of trust in any business transaction in any state, nation, or territory; or aiding, assisting, or conspiring with any other person engaged in any such misconduct and in furtherance thereof.

Failure to timely pay any fee, charge, or fine imposed or assessed pursuant to the statute or rules adopted under the statute.

Payment to the Office for a license or permit with a check or electronic transmission of funds that is dishonored by the applicant's or licensee's financial institution.


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Having a final judgment entered against the applicant or licensee in a civil action upon grounds of fraud, embezzlement, misrepresentation, or deceit.

Having been the subject of any decision, finding, injunction, suspension, prohibition, revocation, denial, judgment, or administrative order by any court of competent jurisdiction, administrative law judge, state or federal agency, national securities exchange, national commodities exchange, national option exchange, national securities association, national commodities association, or national option association involving a violation of any federal or state securities or commodities law or rule or regulation adopted under such law or involving a violation of any rule or regulation of any national securities, commodities, or options exchange or association.

Having been the subject of any injunction or adverse administrative order by a state or federal agency regulating banking, insurance, finance or small loan companies, real estate, mortgage brokers or lenders, money transmitters, or other related or similar industries.

In any mortgage transaction, violating any provision of the federal Real Estate Settlement Procedure Act (RESPA), the federal Truth in Lending Act or any regulations adopted under such acts.

A mortgage brokerage business is subject to the following possible consequences for the above-described violations by any officer, member, director, control person, joint venturer, partner, ultimate equitable owner of a ten percent (10%) or greater interest in the mortgage brokerage business, or associate mortgage broker of the licensee.

Revocation of a license or registration;

Suspension of a license or registration subject to reinstatement upon satisfying all reasonable conditions that the Office specifies;

Placement of the licensee, registrant, or applicant on probation for a period of time and subject to all reasonable conditions that the Office specifies;

Issuance of a reprimand;

Imposition of a fine in an amount not exceeding $5,000 for each count or separate offense; or

Denial of a license or registration;

In addition, a principal mortgage broker is subject to these same possible consequences for the above-described violations by associates in the course of an association with the mortgage brokerage business. However, the principal mortgage broker is only subject to suspension or revocation for associate actions if there is a pattern of repeated violations by associates or if the principal mortgage broker has knowledge of the violations.

A natural person who is associated with a mortgage brokerage business is subject to the same disciplinary actions specified above for any of the same violations specified with respect to an action taken by such person.

Brokerage Fees A mortgage brokerage fee earned by a licensee, pursuant to the statute, is not considered interest or a finance charge under Florida’s’ Uniform Commercial Code governing Investment Securities.


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A person may not charge or exact, directly or indirectly, from the mortgagor a fee or commission in excess of the maximum fee or commission specified in the statute. The maximum fees or commissions that may be charged for mortgage loans are as follows:

On a mortgage loan of $1,000 or less: $250.

On a mortgage loan exceeding $1,000 and not exceeding $2,000: $250 for the first $1,000 of the mortgage loan, plus $10 for each additional $100 of the mortgage loan.

On a mortgage loan exceeding $2,000 and not exceeding $5,000: $350 for the first $2,000 of the mortgage loan, plus $10 for each additional $100 of the mortgage loan.

On a mortgage loan exceeding $5,000: $250 plus ten percent (10%) of the entire mortgage loan.

For the purpose of determining the maximum fee, the amount of the mortgage loan is based on the amount of mortgage loan actually funded exclusive of the authorized maximum fees or commissions.

At the time of accepting a mortgage loan application, a mortgage brokerage business may receive from the borrower a nonrefundable application fee. If the mortgage loan is funded, the nonrefundable application fee shall be credited against the amount owed as a result of the loan being funded. A person may not receive any form of compensation for acting as a mortgage broker other than a nonrefundable application fee, a fee based on the mortgage amount being funded, or a fee which complies with the statutory regulations for fees earned upon obtaining a bona fide commitment.

Fees Earned Upon Obtaining a Bona Fide Commitment Any mortgage brokerage business which contracts to receive from a borrower a mortgage brokerage fee upon obtaining a bona fide commitment shall accurately disclose in the mortgage brokerage agreement:

The gross loan amount.

In the case of a fixed-rate mortgage, the note rate.

In the case of an adjustable rate mortgage:

• The initial note rate.

• The length of time for which the initial note rate is effective.

• The frequency of changes.

• The limitation upon such changes including adjustment to adjustment cap and life cap.

• Whether the loan has any potential for negative amortization.

• Identification of the margin-interest rate differential.

• Identification of a nationally recognized index which index must be free from control of the mortgage broker or mortgage brokerage business.

The estimated net proceeds to be paid directly to the borrower.

“Estimated net proceeds” means the cash to be received by the borrower after payment of any fees, charges, debts, liens, or encumbrances to perfect the lien of the new mortgage and establish the agreed-upon priority of the new mortgage.


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The lien priority of the new proposed mortgage.

The number of calendar days, which are mutually agreed upon, within which the mortgage brokerage business shall obtain a bona fide mortgage commitment.

The following statement, in no less than 12-point boldface type immediately above the signature lines for the borrowers:

“You are entering into a contract with a mortgage brokerage business to obtain a bona fide mortgage loan commitment under the same terms and conditions as stated hereinabove or in a separate executed good faith estimate form. If the mortgage brokerage business obtains a bona fide commitment under the same terms and conditions, you will be obligated to pay the mortgage brokerage business fees, including, but not limited to, a mortgage brokerage fee, even if you choose not to complete the loan transaction. If the provisions of s. 494.00421, Florida Statutes, are not met, the mortgage brokerage fee can only be earned upon the funding of the mortgage loan. The borrower may contact the Department of Financial Services, Tallahassee, Florida, regarding any complaints that the borrower may have against the mortgage broker or the mortgage brokerage business. The telephone number of the department is: [insert telephone number].”

The above paragraph does not apply to nonresidential mortgage loan commitments in excess of $1 million.

The mortgage brokerage agreement must also set forth any other disclosure required of mortgage brokers pursuant to statute.

Requirements for Brokering Loans to Noninstitutional Investors The statute provides specific rules for brokering loans to individuals who are not involved in the business as institutional investors. While most portions of the statute are designed to protect borrowers, the legislature believes these rules protecting investors are necessary due to a history of certain unscrupulous brokers taking advantage of unsophisticated investors by inducing them to invest in risky loans in which a more informed investor would not have invested.

A mortgage broker, when arranging a mortgage loan for a noninstitutional investor, shall:

Before any payment of money by a noninstitutional investor, provide an opinion of value from an appraiser stating the value of the security property unless the opinion is waived in writing. The opinion must state the value of the property as it exists on the date of the opinion. If any relationship exists between the broker and the appraiser, that relationship shall be disclosed to the investor.

Provide to the noninstitutional investor a mortgagee's title insurance policy or an opinion of title by an attorney licensed to practice law in Florida.

• If a title insurance policy is issued, it must insure the noninstitutional investor against the unmarketability of the mortgagee's interest in such title. It shall also specify any superior liens that exist against the property. If an opinion of title is issued by an attorney licensed to practice law in the State of Florida, the opinion must include a statement as to the marketability of the title to the property described in the mortgage and specify the priority of the insured mortgage.

• If the title insurance policy or opinion of title is not available at the time of purchase, the licensee shall provide a binder of the title insurance or conditional opinion of title. This binder or opinion must include any conditions or


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requirements needed to be corrected prior to the issuance of the final title policy or opinion of title. The binder or opinion must also include information concerning the requirements specified in the above paragraph. Any conditions must be eliminated or waived in writing by the investor prior to delivery to the noninstitutional investor. The policy or opinion, or a copy thereof, shall be delivered to the investor within a reasonable period of time, not exceeding six (6) months, after closing.

• The title requirements of this paragraph may be waived in writing. If the requirements are waived by the noninstitutional investor, the waiver must include the following wording:

“The noninstitutional investor acknowledges that the mortgage broker or mortgage lender brokering this mortgage loan is not providing a title insurance policy or opinion of title issued by an attorney who is licensed to practice law in the State of Florida. Any requirement for title insurance or for a legal opinion of title is the sole responsibility of the noninstitutional mortgage investor.”

Provide, if the loan is other than a first mortgage, a statement showing the balance owed by the mortgagor on any existing mortgages prior to the current transaction and the status of such existing mortgages.

Provide a disclosure if the licensee is directly or indirectly acting as a borrower or principal in the transaction.

Each mortgage, or other instrument securing a note or assignment thereof, shall be recorded before being delivered to the noninstitutional investor. A mortgage broker shall cause the properly endorsed original note to be delivered to the noninstitutional investor.

Each mortgage and assignment shall be recorded as soon as practical, but no later than 30 business days after the date of closing.

Any money from a noninstitutional investor for disbursement at a mortgage loan closing shall be deposited with and disbursed by an attorney duly licensed in the State of Florida or by a title company duly licensed in State of Florida. A person acting as a mortgage broker may not have control of any money from a noninstitutional investor.

The statute does not prohibit a licensee from receiving a mortgage brokerage fee upon the closing of the mortgage loan funded by the noninstitutional investor.


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Mortgage Lender Requirements Now we move on to the statutory requirements specifically applicable to mortgage lenders.

Who Needs a License? The following definition from the statute sets forth who is required to be licensed as a mortgage lender.

“Act as a mortgage lender” means to make a mortgage loan or to service a mortgage loan for others or, for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, to sell or offer to sell a mortgage loan to a noninstitutional investor.

The statute also sets forth a number of individuals who are exempt from the license requirement:

A bank, bank holding company, trust company, savings and loan association, savings bank, credit union, or insurance company if the insurance company is duly licensed in the State of Florida.

Any person acting in a fiduciary capacity conferred by authority of any court.

A wholly owned bank holding company subsidiary or a wholly owned savings and loan association holding company subsidiary that is approved or certified by HUD the VA, Ginnie Mae, Fannie Mae, or Freddie Mac.

Any person who, as a seller of his or her own real property, receives one or more mortgages in a purchase money transaction.

Any person who receives a mortgage as security for an obligation arising out of materials furnished or as services rendered by the person in the improvement of the real property.

Any person who makes only nonresidential mortgage loans and sells loans only to institutional investors.

Fannie Mae; Freddie Mac; an agency of the Federal Government; any state, county, or municipal government; or any quasi-governmental agency that acts in such capacity under the specific authority of the laws of any state or the United States.

A consumer finance company licensed pursuant to Florida law as of October 1, 1991.

Any person making or acquiring a mortgage loan with his or her own funds for his or her own investment, and who does not hold himself or herself out to the public, in any manner, as being in the mortgage lending business.

Any person selling a mortgage that was made or purchased with that person's funds for his or her own investment, and who does not hold himself or herself out to the public, in any manner, as being in the mortgage lending business.

Any person who acts solely under contract and as an agent for federal, state, or municipal agencies in the servicing of mortgage loans.

A natural person employed by a mortgage lender or correspondent mortgage lender licensed under the statute is exempt from the licensure requirements when acting within the scope of employment with the licensee.


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A corporation in existence on October 1, 1991, and that is a wholly owned subsidiary of a consumer finance company licensed pursuant to Florida consumer finance law on October 1, 1991, is not required to be licensed under the statute in order to act as a mortgage lender or a correspondent mortgage lender.

This statute places the burden of proof that an individual fits the exemption on the individual seeking the exemption.

Mortgage Lender's License Requirements The Commission or Office may require an applicant for a mortgage lender license to provide any information reasonably necessary to make a determination of the applicant's eligibility for licensure. The Office shall issue an initial mortgage lender license to any person that submits each of the following:

A completed application form.

A nonrefundable application fee.

Audited financial statements prepared by an independent certified public accountant, which documents disclose that the applicant has a bona fide and verifiable net worth, pursuant to generally accepted accounting principles, of at least $250,000, which must be continuously maintained as a condition of licensure.

A surety bond in the amount of $10,000, payable to the State of Florida and conditioned upon compliance with the statute, which inures to the Office and which must be continuously maintained thereafter in full force.

Documentation that the applicant is duly incorporated, registered, or otherwise formed as a general partnership, limited partnership, limited liability company, or other lawful entity under the laws of the State of Florida or another state of the United States.

Proof that the applicant's principal representative has completed twenty-four (24) hours of classroom instruction in primary and subordinate financing transactions and in the provisions of the statute and rules adopted under the statute. This requirement is satisfied if the principal representative has continuously served in the capacity of a principal representative for a licensed entity for at least 1 year and has not had a lapse in designation as a principal representative of more than 2 years before the date of the submission of the application or amendment in the case of a change in the principal representative. This requirement is also satisfied if the principal representative currently holds an active license as a mortgage broker in Florida.

It is a ground for denial of licensure if the applicant, designated principal representative, any principal officer, director, control person, member, partner or joint venturer of the applicant, any natural person owning a ten percent (10%) or greater interest in the applicant, or any natural person who is the ultimate equitable owner of a ten percent (10%) or greater interest in the applicant has committed any violation specified in the statute, or has pending against her or him any criminal prosecution or administrative enforcement action, in any jurisdiction, which involves fraud, dishonest dealing, or any act of moral turpitude.

Each initial application for a mortgage lender's license must be in the form prescribed by the Commission. The Commission or Office may require each applicant to provide any information reasonably necessary to make a determination of the applicant's eligibility for licensure. The Commission requires that the chief executive officer, each director, and each ultimate equitable owner of a ten percent (10%) or greater interest in the mortgage lender applicant submit a


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complete set of fingerprints and a biographical summary. This is not required if an individual already holds a mortgage broker’s license in Florida.

A person required to be licensed under the statute, or an agent or employee thereof, is deemed to have consented to the venue of courts of competent jurisdiction in the State of Florida regarding any matter within the authority of the statute regardless of where an act or violation was committed.

A mortgage lender’s license issued in accordance with the statute is not transferable or assignable.

A mortgage lender or branch office license may be canceled if it was issued through mistake or inadvertence of the Office. A notice of cancellation must be issued by the Office within ninety (90) days after the issuance of the license. A notice of cancellation shall be effective upon receipt. The notice of cancellation shall provide the applicant with notification of the right to request a hearing within twenty-one (21) days after the applicant's receipt of the notice of cancellation. A license shall be reinstated if the applicant can demonstrate that the requirements for obtaining the license pursuant to the statute have been satisfied.

Each lender, regardless of the number of branches it operates, shall designate a principal representative who exercises control of the licensee's business and shall maintain a form prescribed by the Commission designating the principal representative. If the form is not accurately maintained, the business is considered to be operated by each officer, director, or equitable owner of a ten percent (10%) or greater interest in the business. The form is called the “Principal Representative Designation,” and it requires the designated individual to accept his or her responsibilities as a principal representative.

An applicant's principal representative also must pass a written test prescribed by the Commission or an electronic test prescribed by the Commission and administered by the Office or a third party approved by the Office, which covers primary and subordinate mortgage financing transactions and the provisions and rules adopted under the statute. This requirement is satisfied if the principal representative has continuously served in the capacity of a principal representative for a licensed entity for at least 1 year and has not had a lapse in designation as a principal representative of more than 2 years before the date of the submission of the application or amendment in the case of a change in the principal representative. This requirement is also satisfied if the principal representative currently holds an active license as a mortgage broker in Florida. The commission may waive by rule the examination requirement for any person who has passed a test approved by the Conference of State Bank Supervisors, the American Association of Residential Mortgage Regulators, or the United States Department of Housing and Urban Development if the test covers primary and subordinate mortgage financing transactions.

A lender shall notify the Office of the name and address of any change in the designation of its principal representative within 30 days after the change is effective and shall document that the person has completed the educational and testing requirements of the statute within 90 days of the designation of a new principal representative. This requirement is satisfied if the principal representative has continuously served in the capacity of a principal representative for a licensed entity for at least 1 year and has not had a lapse in designation as a principal representative of more than 2 years before the date of the submission of the application or amendment in the case of a change in the principal representative. This requirement is also satisfied if the principal representative holds an active license as a mortgage broker in Florida.


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Correspondent Mortgage Lender's License Requirements The Office shall issue an initial correspondent mortgage lender license to any person who submits each of the following:

A completed application form.

A nonrefundable application fee.

Audited financial statements, which document that the application has a bona fide and verifiable net worth pursuant to generally accepted accounting principles of $25,000 or more, which must be continuously maintained as a condition of licensure.

A surety bond in the amount of $10,000, payable to the State of Florida and conditioned upon compliance with the statute, which inures to the Office and which must be continuously maintained, thereafter, in full force.

Documentation that the applicant is duly incorporated, registered, or otherwise formed as a general partnership, limited partnership, limited liability company, or other lawful entity under the laws of the State of Florida or another state of the United States.

Proof that the applicant's principal representative has completed twenty-four (24) hours of classroom instruction in primary and subordinate financing transactions and in the provisions and rules enacted under the statute. This requirement is satisfied if the principal representative has continuously served in the capacity of a principal representative for a licensed entity for at least 1 year and has not had a lapse in designation as a principal representative of more than 2 years before the date of the submission of the application or amendment in the case of a change in the principal representative. This requirement is also satisfied if the principal representative currently holds an active license as a mortgage broker in Florida.

It is a ground for denial of licensure if the applicant, any designated principal representative, any principal officer, director, control person, member, partner or joint venturer of the applicant, or any natural person who is the ultimate equitable owner of a ten percent (10%) or greater interest in the applicant has committed any violation specified in the statute, or has pending against her or him any criminal prosecution or administrative enforcement action, in any jurisdiction, which involves fraud, dishonest dealing, or any act of moral turpitude.

Each initial application for a correspondent mortgage lender's license must be in the form prescribed by the Commission. The Commission or Office may require each applicant to provide any information reasonably necessary to make a determination of the applicant's eligibility for licensure. The Commission requires that any designated principal representative, any principal officer, director, control person, member, partner or joint venturer of the applicant, or any natural person who is the ultimate equitable owner of a ten percent (10%) or greater interest in the applicant submit a complete set of fingerprints taken by an authorized law enforcement officer.

Each license is valid for the remainder of the prescribed biennial period in which the license is issued.

A person licensed as a correspondent mortgage lender may make mortgage loans, but may not service a mortgage loan for more than four (4) months after the date the mortgage loan was made or acquired by the correspondent mortgage lender.

A correspondent mortgage lender licensee, or an agent or employee thereof, is deemed to have consented to the venue of courts of competent jurisdiction in the State of Florida regarding any matter within the authority of the statute regardless of where an act or violation was committed.


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A correspondent mortgage lender is subject to the same requirements and restrictions as a licensed mortgage lender unless otherwise described herein.

A correspondent mortgage lender license is not transferable or assignable.

A correspondent mortgage lender or branch office license may be canceled if it was issued through mistake or inadvertence of the Office. A notice of cancellation must be issued by the Office within ninety (90) days after the issuance of the license. A notice of cancellation shall be effective upon receipt. The notice of cancellation shall provide the applicant with notification of the right to request a hearing within twenty-one (21) days after the applicant's receipt of the notice of cancellation. A license shall be reinstated if the applicant can demonstrate that the requirements for obtaining the license pursuant to the statute have been satisfied.

Each correspondent lender shall designate a principal representative who exercises control over the business and shall maintain the form prescribed by the Commission designating the principal representative. If the form is not accurately maintained, the business is considered to be operated by each officer, director, or equitable owner of a ten percent (10%) or greater interest in the business.

An applicant's principal representative must pass a written test prescribed by the Commission or an electronic test prescribed by the Commission and administered by the Office or a third party approved by the Office, which covers primary and subordinate mortgage financing transactions and the provisions of the statute and rules adopted under the statute. This requirement is satisfied if the principal representative has continuously served in the capacity of a principal representative for a licensed entity for at least 1 year and has not had a lapse in designation as a principal representative of more than 2 years before the date of the submission of the application or amendment in the case of a change in the principal representative. The commission may waive by rule the examination requirement for any person who has passed a test approved by the Conference of State Bank Supervisors, the American Association of Residential Mortgage Regulators, or the United States Department of Housing and Urban Development if the test covers primary and subordinate mortgage financing transactions. This requirement is also satisfied if the principal representative currently holds an active license as a mortgage broker in Florida.

A correspondent lender shall notify the Office of the name and address of any change in the designation of its principal representative within 30 days after the change is effective and shall document that the person has completed the educational and testing requirements of the statute within 90 days of the designation of a new principal representative. This requirement is satisfied if the principal representative has continuously served in the capacity of a principal representative for a licensed entity for at least 1 year and has not had a lapse in designation as a principal representative of more than 2 years before the date of the submission of the application or amendment in the case of a change in the principal representative. This requirement is also satisfied if the principal representative holds an active license as a mortgage broker in Florida.

Renewal of Mortgage Lender's License; Branch Office License Renewal Renewal of a mortgage lender license requires that the Office receive a completed renewal form and the nonrefundable renewal fee. Renewal of a mortgage correspondent lender license requires that the Office receive a completed renewal form and the nonrefundable renewal fee. Each licensee shall pay at the time of renewal a nonrefundable fee for the renewal of each branch office license.


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A licensee shall also submit, as part of the renewal form, certification that during the preceding two (2) years the licensee's principal representative and loan originators have completed their professional education requirements, whether pre-license or continuing education.

The Commission has adopted rules establishing procedures for the biennial renewal of mortgage lender's licenses, correspondent lender's licenses, and branch office permits no later than August 31 of each even-numbered year. The Commission has prescribed the form for renewal and requires an update of all information provided in the licensee's initial application.

The license of a mortgage lender, correspondent mortgage lender, or branch office that is not renewed by the end of the biennial period automatically reverts to inactive status. An inactive license may be reactivated within six (6) months after becoming inactive by filing a completed reactivation form with the Office, payment of the appropriate renewal fee, and payment of a nonrefundable reactivation fee. A license that is not renewed within six (6) months after the end of the biennial period automatically expires.

The Commission has adopted rules stating that upon renewal, in lieu of audited financial statements, a licensee may certify by written statement that it continues to satisfy the net worth requirements required at the time of licensure.

Branch Offices A branch office license is required for each branch office maintained by a mortgage lender or correspondent mortgage lender.

The Office shall issue a branch office license upon receipt of a completed application form as prescribed by rule by the Commission and an initial nonrefundable branch office license fee. The branch office application must include the name and license number of the licensee under the statute, the name of the licensee's employee in charge of the branch office, and the address of the branch office. The branch office license shall be issued in the name of the licensee under the statute and must be renewed in conjunction with the license renewal.

Requirements of Mortgage Lender Licensees Each licensee under the statute which makes mortgage loans on real estate in the State of Florida shall transact business from a principal place of business. Each principal place of business and each branch office shall be operated under the full charge, control, and supervision of the licensee under the statute.

A mortgage lender or correspondent mortgage lender license is not transferable or assignable.

The Office requires each licensee to report any change in the information contained in an initial application form not later than thirty (30) business days after the change is effective.

Each mortgage lender or correspondent mortgage lender licensee shall report to the Office any indictment, information, charge, conviction, plea of nolo contendere, or plea of guilty to any crime or administrative violation that involves fraud, dishonest dealing, or any other act of moral turpitude, in any jurisdiction, by the licensee under the statute or any principal officer, director, or ultimate equitable owner of ten percent (10%) or more of the licensed corporation, not later than thirty (30) business days after the indictment, information, charge, conviction, or final administrative action.

Each mortgage lender or correspondent mortgage lender licensee shall report any action in bankruptcy, voluntary or involuntary, to the Office, not later than seven (7) business days after the action is instituted.


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Each licensee under the statute shall designate a registered agent in Florida for service of process.

Each mortgage lender or correspondent mortgage lender licensee shall provide an applicant for a mortgage loan a good faith estimate of the costs the applicant can reasonably expect to pay in obtaining a mortgage loan. The good faith estimate of costs shall be mailed or delivered to the applicant within a reasonable time after the licensee receives a written loan application from the applicant. The estimate of costs may be provided to the applicant by a person other than the licensee making the loan. The good faith estimate must identify the recipient of all payments charged to the borrower and, except for all fees to be received by the mortgage brokerage business and the mortgage lender or correspondent mortgage lender, may be disclosed in generic terms, such as, but not limited to, paid to appraiser, officials, title company, or any other third-party service provider. The licensee bears the burden of proving such disclosures were provided to the borrower.

A mortgage lender or correspondent mortgage lender must file a report which includes only those persons who became or ceased to be a loan originator or an associate of the mortgage lender or correspondent mortgage lender during the immediate preceding quarter. Such report shall be filed within thirty (30) days after the last day of each calendar quarter and shall contain the full legal name, residential address, social security number, date of birth, date of hire and, if applicable, the mortgage broker license number and date of termination of each person who became or ceased to be a loan originator or an associate of the mortgage lender or correspondent mortgage lender during the immediate preceding quarter. The Commission shall prescribe, by rule, the procedures for filing these reports.

Each mortgage lender or correspondent mortgage lender licensee shall require the principal representative and all loan originators not currently licensed as mortgage brokers who perform services for the licensee to complete fourteen (14) hours of professional education during each biennial license period. The education shall cover primary and subordinate mortgage financing transactions and the provisions of the statute.

The licensee shall maintain records of such training for a period of four (4) years, including records of the content of and hours designated for each program and the date and location of the program.

Evidence of completion of such programs shall be included with the licensee's renewal application.

Disclosures must be furnished in writing at the time an adjustable rate mortgage loan is offered to the borrower and whenever the terms of the adjustable rate mortgage loan offered have a material change prior to closing. The licensee bears the burden of proving such disclosures were provided to the borrower.

In every mortgage loan transaction, each licensee shall notify a borrower of any material changes in the terms of a mortgage loan previously offered to the borrower within 3 business days after being made aware of such changes by the lender but not less than 3 business days before the signing of the settlement or closing statement. The licensee bears the burden of proving such notification was provided and accepted by the borrower. A borrower may waive the right to receive notice of a material change if the borrower determines that the extension of credit is needed to meet a bona fide personal financial emergency and the right to receive notice would delay the closing of the mortgage loan. The imminent sale of the borrower's home at foreclosure during the 3-day period before the signing of the settlement or closing statement constitutes an example of a bona fide personal financial emergency.


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Mortgage Lender Files Each mortgage lender or correspondent mortgage lender shall maintain a file for each mortgage loan application received. The files shall be maintained in a central location and in an alphabetical or numerical sequence. Each file shall contain at least the following:

A copy of the good faith estimate.

The original mortgage loan application, or a copy thereof, containing all required disclosures.

A copy of the closing statement or documentation demonstrating that the loan application was cancelled or denied.

A copy of any written lock-in agreement, if issued.

A copy of any written commitment, if issued.

A copy of written disclosures of any conflict of interest, as required by the statute.

Supporting documentation shall be maintained for all expenses or fees paid by the mortgage lender or correspondent mortgage lender. The supporting documentation shall indicate the name and address of the person paid, the amount and date of the payment, and a description of the products or services purchased. A cancelled check maintained in a separate file shall be considered proof of payment of fees and expenses.

If the mortgage lender or correspondent mortgage lender sells a mortgage loan to a non-institutional investor, then the file must contain each of the required disclosure and waiver documents related to such loan.

A mortgage lender which services a mortgage loan for a noninstitutional investor shall enter into a written servicing agreement with the noninstitutional investor prior to servicing the mortgage loan. The mortgage lender may enter into a master servicing agreement with the investor, and that master agreement may be maintained in one central location. The master agreement is not required to be copied and placed in each individual loan file.

If the mortgage lender or correspondent mortgage lender acts as a mortgage brokerage business, then it must satisfy all of the file requirements for mortgage brokerage businesses, in addition to the file requirements discussed in this section.

In addition to all of the specific documentation required above, all documentation originated or received by a mortgage lender or correspondent mortgage lender must be maintained for three (3) years from the date of the original entry. “Original entry” means the date the documentation was originated or received by the licensee For each brokerage transaction, files and documentation shall be maintained and remain complete for three (3) years from the date of “original entry” of the last document in the file.

The licensee is subject to monetary penalties for failure to maintain files and required documentation.

Mortgage Brokerage and Lending Transaction Journal Each mortgage lender or correspondent mortgage lender shall maintain a journal of mortgage brokerage transactions, which shall include, at least the following information:

Name of applicant.

Date applicant applied for the mortgage loan.

Name of lender, if applicable.


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Disposition of the mortgage loan application. The Mortgage Brokerage and Lending Transaction Journal shall indicate the result of the lending transaction. The disposition of the case shall be categorized as one of the following:

• Loan funded.

• Loan denied.

• Application withdrawn.

The Mortgage Brokerage and Lending Transaction Journal shall be maintained in a format which is substantially similar to the form provided by the Office. The journal shall be maintained in the principal office or in each branch office where mortgage lender transactions are originated. The journal shall be kept current. Failure to initiate an entry into the journal within seven (7) business days from the date the brokerage transaction is entered into shall be deemed to be a failure to keep the journal current.

The licensee shall be subject to penalties for failure to keep the Mortgage Brokerage and Lending Transaction Journal current.

Loan Application Process Before accepting an application fee in whole or in part, a credit report fee, an appraisal fee, or a fee charged as reimbursement for third-party charges, a lender shall make a written disclosure to the borrower, which disclosure may be contained in the application, setting forth:

Whether all or any part of such fees or charges is refundable.

The terms and conditions for the refund, if all or any part of the fees or charges is refundable.

A realistic estimate of the number of days required to issue a commitment following receipt of the application by the lender.

The name or title of a person within the lender's organization to whom the borrower may address written questions, comments, or complaints and who is required to promptly respond to such inquiries.

These disclosures must be acknowledged in writing by the borrower and maintained by the lender, and a copy of such acknowledgment shall be given to the borrower.

The borrower may, without penalty or responsibility for paying additional fees and charges, withdraw an application at any time prior to acceptance of commitment. Upon such withdrawal, the lender is responsible for refunding to the borrower only those fees and charges to which the borrower may be entitled pursuant to the terms set forth in the required written disclosure except that:

If the lender failed to provide the borrower with the written disclosure as required above, the lender shall promptly refund to the borrower all funds paid to the lender.

If the lender failed to make a good faith effort to approve the loan, the lender shall promptly refund to the borrower all funds paid to the lender.

The application fee must be reasonably related to the services to be performed and may not be based upon a percentage of the principal amount of the loan or the amount financed.

For the purposes of this section, the term “application fee” means any moneys advanced by the borrower upon filing an application with a mortgage lender to offset the lender's expenses for


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determining whether the borrower is qualified for the mortgage loan or whether the mortgage loan should be funded.

Lock-In Agreement A lender may enter into an agreement with a borrower to “lock-in” for a specified period of time a specified interest rate or discount points. For purposes of this section, the term “lock-in fee” means any moneys advanced by the borrower to lock in for the specified period of time the specified interest rate or discount points.

Pursuant to the statute, each lock-in agreement must be in writing and must contain each of the following:

The expiration date of the lock-in, if any.

The interest rate locked in, if any.

The discount points locked in, if any.

The commitment fee locked in, if any.

The lock-in fee, if any.

A statement advising of the provisions of the statute regarding lock-in agreements. The following statement satisfies this requirement:

“(1) Florida law requires that the lender shall make a good faith effort to process the mortgage loan application and stand ready to fulfill the terms of its lock-in agreement before the expiration date of the lock-in agreement or any extension thereof.

(2) Any lock-in agreement received by the lender by mail or through a broker must be signed by the lender in order to become effective. The borrower may rescind any lock-in agreement until a written confirmation of the agreement has been signed by the lender and mailed to the borrower or to the brokerage business pursuant to its contractual relationship with the borrower. If a borrower elects to so rescind, the lender shall promptly refund any lock-in fee paid.

(3) If the loan does not close before the expiration date of the lock-in agreement thorough no substantial fault of the borrower, the borrower may withdraw the application, whereupon the lender shall promptly refund to the borrower any lock-in fee paid by the borrower.”

The mortgage lender or correspondent mortgage lender shall make a good faith effort to process the mortgage loan application and stand ready to fulfill the terms of its commitment before the expiration date of the lock-in agreement or any extension thereof.

Any correspondent mortgage lender or mortgage lender must have the ability to timely advance funds on all mortgage loans for which rate lock-in agreements have been issued prior to issuing a mortgage loan rate lock-in agreement. The phrase, “ability to timely advance funds” means having sufficient liquid assets or a line of credit necessary to cover all rate lock-in agreements issued with respect to which a lock-in fee is collected.

A correspondent mortgage lender or mortgage lender that does not have the ability to timely advance funds on all mortgage loans for which rate lock-in agreements are issued may issue mortgage rate lock-in agreements only if, prior to the issuance, the correspondent mortgage lender or mortgage lender has received one of the following:


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A written rate lock-in agreement from a correspondent mortgage lender or mortgage lender that complies with the above rules

A written rate lock-in agreement from an institutional investor or an agency of the Federal Government or the state or local government that will be funding, making, or purchasing the mortgage loan.

All rate lock-in fees collected by a mortgage lender or correspondent mortgage lender who is not in compliance with the statute must be deposited into an escrow account in a federally insured financial institution, and such fees shall not be removed from such escrow account until one of the following occurs:

The mortgage loan closes and is funded.

The applicant cancels the loan application or the loan application is rejected.

The mortgage lender or correspondent mortgage lender is required to forward a portion of the lock-in fee to another correspondent mortgage lender, mortgage lender, institutional investor, or agency that will be funding, making, or purchasing the loan. The mortgage lender or correspondent mortgage lender may remove only the amount of the lock-in fee actually paid to another mortgage lender, correspondent mortgage lender, institutional investor, or agency.

Commitment Process If a commitment is issued, the lender shall disclose each of the following in writing:

The expiration date of the commitment.

The mortgage amount, meaning the face amount of credit provided to the borrower or in the borrower's behalf.

If the interest rate or other terms are subject to change before expiration of the commitment, one of the following:

• The basis, index, or method, if any, which will be used to determine the rate at closing. Such basis, index, or method shall be established and disclosed with direct reference to the movement of an interest rate index or of a national or regional index that is available to and verifiable by the borrower and beyond the control of the lender.

• The following statement, in at least 10-point bold type: “The interest rate will be the rate established by the lender in its discretion as its prevailing rate ____ days before closing.”

The amount of the commitment fee, if any, and whether and under what circumstances the commitment fee is refundable.

The time, if any, within which the commitment must be accepted by the borrower.

The provisions of a commitment cannot be changed prior to expiration of the specified period within which the borrower must accept it. If any information necessary for an accurate disclosure of any of the items listed above is unknown to the lender at the time disclosure is required, the lender shall make the disclosure based upon the best information reasonably available to it and shall state that the disclosure is an estimate.

A commitment fee is refundable if:


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The commitment is contingent upon approval by parties to whom the lender seeks to sell the loan.

The loan purchaser's requirements are not met due to circumstances beyond the borrower's control.

The borrower is willing but unable to comply with the loan purchaser's requirements.

Expiration of Lock-In Agreement or Commitment If a lock-in agreement has been executed and the loan does not close before the expiration date of either the lock-in agreement or any commitment issued consistent therewith through no substantial fault of the borrower, the borrower may withdraw the application or reject or terminate any commitment, whereupon the mortgage lender or correspondent mortgage lender shall promptly refund to the borrower any lock-in fee and any commitment fee paid by the borrower.

Administrative Penalties and Fines; License Violations Whenever the Office finds a person in violation of an act specified below, it may enter an order imposing one or more of the following penalties against that person:


Suspension of a license or registration, subject to reinstatement upon satisfying all reasonable conditions that the Office specifies.

Placement of the licensee or applicant on probation for a period of time and subject to all reasonable conditions that the Office specifies.

Issuance of a reprimand.

Imposition of a fine in an amount not exceeding $5,000 for each count or separate offense.

Denial of a license or registration.

Each of the following acts constitutes a basis for which one of the above disciplinary actions may be taken:

Pleading nolo contendere to, or having been convicted or found guilty of, regardless of whether adjudication was withheld, a crime involving fraud, dishonest dealing, or any act of moral turpitude.

Fraud, misrepresentation, deceit, negligence, or incompetence in any mortgage financing transaction.

A material misstatement of fact on an initial or renewal application.

Disbursement, or an act which has caused or will cause disbursement, to any person in any amount from the Regulatory Trust Fund, the Securities Guaranty Fund, or the Florida Real Estate Recovery Fund, regardless of any repayment or restitution to the disbursed fund by the licensee or any person acting on behalf of the licensee.

Failure to place immediately upon receipt, and maintain until authorized to disburse, any money entrusted to him or her by a person dealing with him or her as a lender in a segregated account in a federally insured financial institution;

Failure to account for or deliver to any person any personal property that has come into his or her hands and that is not his or her property or that he or she is not in law or


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equity entitled to retain, under the circumstances and at the time which has been agreed upon or is required by law or, in the absence of a fixed time, upon demand of the person entitled to such accounting and delivery.

Failure to disburse funds in accordance with agreements.

Any misuse, misapplication, or misappropriation of personal property entrusted to his or her care to which he or she had no current property right at the time of entrustment.

Having a license, or the equivalent, to practice any profession or occupation revoked, suspended, or otherwise acted against, including the denial of licensure by a licensing authority of the State of Florida or another state, territory, or country for fraud, dishonest dealing, or any other act of moral turpitude.

Failure to comply with any order or rule made or issued under the provisions of the statute.

Acting as a mortgage lender or correspondent mortgage lender without a current, active license issued under the statute.

Failure to timely pay any fee, charge, or fine imposed under the statute.

Failure to maintain, preserve, and keep available for examination all books, accounts, or other documents required by the statute or the rules of the Commission.

Refusal to permit an investigation or examination of books and records, or refusal to comply with an Office subpoena.

Consistently and materially underestimating the closing costs.

Failure to comply with, or violations of, any other provision of the statute.

Commission of fraud, misrepresentation, concealment, dishonest dealing by trick, scheme, or device, culpable negligence, or breach of trust in any business transaction in any state, nation, or territory; or aiding, assisting, or conspiring with any other person engaged in any such misconduct and in furtherance thereof.

Failure to timely pay any fee, charge, or fine imposed or assessed pursuant to the statute or rules adopted the statute.

In any mortgage transaction, violating any provision of the federal Real Estate Settlement Procedure Act, the federal Truth in Lending Act or any regulations adopted under such acts.

A mortgage lender or correspondent mortgage lender is subject to the disciplinary actions specified here if any officer, director, or ultimate equitable owner of a ten percent (10%) or greater interest in the mortgage lender or correspondent mortgage lender, associate, or employee of the mortgage lender or correspondent mortgage lender violates any provision listed above.

A natural person who is an associate of or employed by a mortgage lender or correspondent mortgage lender is subject to the disciplinary actions specified in specified here if such person violates any provision listed above.

A principal representative of a mortgage lender or correspondent mortgage lender is subject to disciplinary actions for violations by associates or employees in the course of an association or employment with the correspondent mortgage lender or the mortgage lender. The principal representative is only subject to suspension or revocation for associate or employee actions if


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there is a pattern of repeated violations by associates or employees or if the principal broker or principal representative had knowledge of the violations.

Net Worth The net worth requirements required by statute shall be continually maintained as a condition of licensure.

If a mortgage lender or correspondent mortgage lender fails to satisfy the net worth requirements, the mortgage lender or correspondent mortgage lender shall immediately cease taking any new mortgage loan applications. Thereafter, the mortgage lender or correspondent mortgage lender shall have up to sixty (60) days within which to satisfy the net worth requirements. If the licensee makes the Office aware, prior to an examination, that the licensee no longer meets the net worth requirements, the mortgage lender or correspondent mortgage lender shall have one hundred twenty (120) days within which to satisfy the net worth requirements. A mortgage lender or correspondent mortgage lender shall not resume acting as a mortgage lender or correspondent mortgage lender without written authorization from the Office, which authorization shall be granted if the mortgage lender or correspondent mortgage lender provides the Office with documentation which satisfies the applicable requirements of the statute.

If the mortgage lender or correspondent mortgage lender does not satisfy the net worth requirements within the 120-day period, the license of the mortgage lender or correspondent mortgage lender shall be deemed to be relinquished and canceled and all servicing contracts shall be disposed of in a timely manner by the mortgage lender or correspondent mortgage lender.

Mortgage Lender or Correspondent Mortgage Lender When Acting As a Mortgage Brokerage Business The statute does not prohibit a mortgage lender or correspondent mortgage lender from acting as a mortgage brokerage business. However, in mortgage transactions in which a mortgage lender or correspondent mortgage lender acts as a mortgage brokerage business, the provisions of the statute applicable to a mortgage brokerage business apply.

Lender Fees and Charges In a mortgage financing transaction, fees designated as loan origination fees, up to four percent (4%) of the face amount of the loan or line of credit, are not considered interest, or finance charge under Florida usury law.

In a mortgage financing transaction, fees designated as loan origination fees, up to ten percent (10%) of the face amount of the loan or line of credit, are not considered interest, or finance charges under Florida usury law if such licensee sells or assigns the loan to another person within ninety (90) days after the date the loan was funded.

Requirements for Selling Loans to Noninstitutional Investors A mortgage lender, when selling a mortgage loan to a noninstitutional investor, shall:

Before any payment of money by a noninstitutional investor, provide an opinion of value from an appraiser stating the value of the security property unless the opinion is waived in writing. The opinion must state the value of the property as it exists on the date of the opinion. If any relationship exists between the lender and the appraiser, that relationship shall be disclosed.


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Provide to the noninstitutional investor a mortgagee's title insurance policy or an opinion of title by an attorney licensed to practice law in Florida, or a copy thereof:

• If a title insurance policy is issued, it must insure the noninstitutional investor against the unmarketability of the mortgagee's interest in such title. It must also specify any superior liens that exist against the property. If an opinion of title is issued by an attorney licensed to practice law in Florida, the opinion must include a statement as to the marketability of the title to the property described in the mortgage and specify the priority of the mortgage being purchased.

• If the title insurance policy or opinion of title is not available at the time of purchase, the licensee shall provide a binder of the title insurance or conditional opinion of title. This binder or opinion must include any conditions or requirements needed to be corrected prior to the issuance of the final title policy or opinion of title. The binder or opinion must also include information concerning the requirements specified in above. Any conditions must be eliminated or waived in writing by the investor prior to delivery to the noninstitutional investor. The policy or opinion, or a copy thereof, shall be delivered to the investor within a reasonable period of time, not exceeding six (6) months, after purchase.

• The requirements of this paragraph may be waived in writing. If the requirements are waived by the noninstitutional investor, the waiver must include the following wording:

“The noninstitutional investor acknowledges that the mortgage lender selling this mortgage loan is not providing a title insurance policy or opinion of title issued by an attorney who is licensed to practice law in the State of Florida. Any requirement for title insurance or for a legal opinion of title is the sole responsibility of the noninstitutional mortgage purchaser.”

Provide, if the loan is other than a first mortgage, a statement showing the balance owed by the mortgagor on any existing mortgages prior to this investment and the status of such existing mortgages.

Provide a disclosure if the licensee is directly or indirectly acting as a borrower or principal in the transaction.

Each mortgage, or other instrument securing a note or assignment thereof, shall be recorded before being delivered to the noninstitutional investor.

Each mortgage and assignment shall be recorded as soon as practical, but no later than thirty (30) business days after the date of purchase.

If the loan is to be serviced by a licensee under the statute for a noninstitutional investor, there shall be a written servicing agreement.

The mortgage lender shall cause the original note to be properly endorsed showing the assignment of the note to the noninstitutional investor.

Servicing Audits Each licensee under the statute which services mortgage loans shall:

Maintain a segregated set of records for accounts that are serviced by the licensee.

Have a separate, segregated depository account for all receipts relating to servicing.


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Such records and receipts shall be audited annually pursuant to the Uniform Single Audit Program for Mortgage Bankers as approved by the Mortgage Bankers Association of America with the cooperation of the American Institute of Certified Public Accountants. The audited statement shall be maintained at the licensee's place of business.

In lieu of the audit, a person who services an aggregate value of less than $7.5 million in outstanding mortgage loans, excluding mortgage loans serviced under contract as an agent for federal, state, or municipal agencies, may obtain a fidelity bond, financial guaranty bond, fidelity insurance, or other financial guaranty providing protection against theft, loss, or other illegal diversion of funds for any amounts normally held by such person.

Other Products and Services The statute does not prohibit a mortgage lender from offering, for a fee or commission, products and services in addition to those offered in conjunction with a loan.


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Florida Fair Lending Act

High Cost Loans and Predatory Lending Along with the benefits that have come from the expanded availability of credit in the subprime market there is also the evidence of growing abuses. In many neighborhoods abusive practices threaten to erode the enormous progress that has been made over the past several years in revitalizing neighborhoods and expanding home ownership. In many instances the consequences for borrowers have been disastrous, foreclosure in particular.

Although diverse laws apply to home mortgage lending none of the relevant statutes and regulations governing mortgage transactions provides a single universal definition of predatory lending. Public debate about the issue of predatory lending has focused on practices and loan terms that alone, or in combination, are abusive or put borrowers at a high risk of abuse.

In a predatory lending situation, the loan officer initiating the loan often provides misinformation, manipulates the borrower through aggressive sales tactics, and/or takes unfair advantage of the borrower’s lack of information about the loan terms and their consequences. The results are loans with burdensome terms and conditions that the borrower often cannot repay, leading to foreclosure of war to bankruptcy.

The Florida statutes include the Fair Lending Act (the “Act”) which addresses a number of the potential abuses of predatory lenders.

Purpose of the Florida Fair Lending Act The Act begins by setting forth the problems and findings which led to passage of the Act:

Abusive mortgage lending has become a problem in Florida even though most high-cost home loans do not involve abusive mortgage practices. One of the most common forms of abusive lending is the making of loans that are equity-based rather than income-based. The financing of points and fees in these loans provides immediate income to the originator and encourages creditors to repeatedly refinance home loans. As long as there is sufficient equity in the home, an abusive creditor benefits even if the borrower is unable to make the payments and is forced to refinance. The financing of high points and fees causes the loss of equity in each refinancing and often leads to foreclosure.

Abusive lending has threatened the viability of many communities and caused decreases in home ownership. While the marketplace appears to operate effectively for conventional mortgages, too many homeowners find themselves victims of overreaching creditors who provide loans with unnecessarily high costs and terms that are unnecessary to secure repayment of the loan. The Florida legislature found that as competition and self-regulation have not eliminated the abusive terms from home-secured loans, the consumer protection provisions of the Act are necessary to encourage fair lending.

Definitions as Used in the Florida Fair Lending Act: “Affiliate” means any company that controls, is controlled by, or is in common control with

another company.

“Annual percentage rate” means the annual percentage rate for the loan calculated according to the Truth In Lending Act and Regulation Z.

“Borrower” means any natural person obligated to repay a loan, including, but not limited to, a coborrower, cosignor, or guarantor.


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“Bridge loan” means a loan with a maturity of less than eighteen (18) months that only requires the payment of interest until such time as the entire unpaid balance is due and payable.

“High-cost home loan” means a home loan as defined in the federal Homeowners Equity Protection Act (HOEPA), which was incorporated into the Truth In Lending Act and implemented by Regulation Z. HOEPA defines a high-cost home loan as a closed-end consumer credit transaction that is secured by the consumer’s principal dwelling, and in which either:

The annual percentage rate at consummation (funding of the loan) will exceed the yield on certain United States Treasury securities by more than:

• Eight (8) percentage points for first lien-loans; or

• Ten (10) percentage points for subordinate-lien loans.

For this comparison, we use the United States Treasury securities having comparable periods of maturity to the mortgage loan maturity, based upon the yield as of the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor.

-or-

The total points and fees payable by the consumer at or before loan closing will exceed the greater of eight percent (8%) of the total loan amount, or, for 2005, $510. (The $510 figure is adjusted annually on January 1 by the annual percentage change in the Consumer Price Index reported the preceding June 1.) “Points and fees” includes: all components of the finance charge (except interest); all compensation paid to mortgage brokers; many closing costs which may not be part of the finance charge; and premiums or other charges for credit life, accident, health or loss-of-income insurance, or debt-cancellation coverage paid by the consumer in connection with the credit transaction.

“High-cost home loans” do not include any of the following:

• Residential mortgage transactions to finance the acquisition or initial construction of the dwelling for which the security interest is given to the creditor;

• Reverse mortgage transactions; or

• Open-end credit plans, including any home equity line of credit. On the other hand, closed-end home equity installment loans are considered high cost home loans. Under the home equity installment loan, multiple advances may be made to the consumer, but the consumer is never entitled to re-borrow any principal amount which it pays off during repayment of the loan. The home equity line of credit, on the other hand, permits re-borrowing of principal amounts in accordance with the terms of the plan.

“Lender” means any person who makes a high-cost home loan or acts as a mortgage broker or lender, finance company, or retail installment seller with respect to a high-cost home loan, but shall not include any entity chartered by the United States Congress when engaging in secondary market mortgage transactions as an assignee or otherwise.

Acts Prohibited by the Florida Fair Lending Act Prepayment Penalties –


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• A high-cost home loan may not contain terms that require a borrower to pay a prepayment penalty for paying all or part of the loan principal before the date on which the payment is due.

• Notwithstanding the preceding paragraph, a lender making a high-cost home loan may include in the loan contract a prepayment fee or penalty, for up to the first thirty-six (36) months after the date of consummation of the loan, if:

The borrower has also been offered a choice of another product without a prepayment penalty.

The borrower has been given, at least three (3) business days prior to the loan consummation, a written disclosure of the terms of the prepayment fee or penalty by the lender, including the benefit the borrower will receive for accepting the prepayment fee or penalty through either a reduced interest rate on the loan or reduced points or fees.

Default Interest Rate – A high-cost home loan may not provide for a higher interest rate after default on the loan. However, this prohibition does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan documents, provided the change in interest rate is not triggered by a default or the acceleration of the interest rate.

Balloon Payments – A high-cost home loan having a term of less than ten (10) years may not contain terms under which the aggregate amount of the regular periodic payments would not fully amortize the outstanding principal balance. However, this prohibition does not apply when the payment schedule is adjusted to account for the seasonal or irregular income of the borrower or if the loan is a bridge loan.

Negative Amortization – A high-cost home loan may not contain terms under which the outstanding principal balance will increase at any time over the course of the loan because the regular periodic payments do not cover the full amount of the interest due.

Prepaid Payments – A high-cost home loan may not include terms under which more than two (2) periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower.

Extending Credit Without Regard to the Payment Ability of the Borrower – A lender making a high-cost home loan shall not engage in any pattern or practice of extending high-cost home loans to borrowers based upon the borrowers' collateral without regard to the borrowers' ability to repay the loan, including the borrowers' current and expected income, current obligations, and employment.

Payments to a Home Contractor – A lender shall not make any payments to a contractor under a home improvement contract from amounts of a high-cost home loan other than in one of the following methods:

• In the form of an instrument that is payable to the borrower or jointly to the borrower and the contractor.

• At the election of the borrower by a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender, and the contractor prior to the date of payment.

Due-on-Demand Clause – A high-cost home loan may not contain a provision that permits the lender, in its sole discretion, to call or accelerate the indebtedness. This provision does not prohibit acceleration of the loan due to the borrower's failure to abide


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by the terms of the loan, or due to fraud or material misrepresentation by the consumer in connection with the loan.

Refinancing Within an 18-Month Period –

• A lender, its affiliate, or an assignee shall not refinance any high-cost home loan to the same borrower within the first eighteen (18) months of the loan when the refinancing does not have a reasonable benefit to the borrower considering all of the circumstances, including, but not limited to, the terms of both the new and refinanced loans, the cost of the new loan, and the borrower's circumstances.

• A lender or assignee shall not engage in acts or practices to evade this requirement, including a pattern or practice of arranging for the refinancing of the lender's or assignee's own loans by affiliated or unaffiliated lenders or modifying a loan agreement, whether or not the existing loan is satisfied and replaced by the new loan, and charging a fee.

Open-End Loans – A lender shall not make any loan as an open-ended loan in order to evade the provisions of the Florida Fair Lending Act unless such open-end loans meet the Regulation Z definition of open-end credit:

• The creditor must reasonably contemplate repeated transactions;

• The amount of credit that may be extended to the consumer during the term of the open-end credit plan (up to a limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

Recommendation of Default – A lender shall not recommend or encourage default on an existing loan or other debt prior to and in connection with the closing or planned closing of a high-cost home loan that refinances all or any portion of such existing loan or debt.

Prohibited Door-to-Door Loans – A high-cost home loan may not be made as a direct result of a potential or future lender or its representative offering or selling a high-cost home loan at the residence of a potential borrower without a prearranged appointment with the potential borrower or the expressed invitation of the potential borrower. This does not apply to mail solicitations that may be received by the potential borrower.

Late Payment Fees – A lender may not charge a late payment fee for a high-cost home loan except as follows:

• A late payment fee may not be in excess of five percent (5%) of the amount of the payment past due.

• A late payment fee may only be assessed for a payment past due for fifteen (15) days or more.

• A late payment fee may not be charged more than once with respect to a single late payment. If a late payment fee is deducted from a payment made on the loan and such deduction causes a subsequent default on a subsequent payment, no late payment fee may be imposed for such default. If a late payment fee has been imposed once with respect to a particular late payment, no such fee shall be imposed with respect to any future payment which would have been timely and sufficient, but for the previous default.

Modification or Deferral Fees – A lender may not charge a borrower any fees or other charges to modify, renew, extend, or amend a high-cost home loan or to defer any payment due under the terms of a high-cost home loan on a minimum of one


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modification, renewal, extension, or deferral per each twelve (12) months of the length of the loan.

Disclosures Required For High-Cost Home Loans The Florida Fair Lending Act requires lenders to make certain disclosures in conspicuous type in connection with any high-cost home loan, in addition to other disclosures required by law. The disclosures are as follows:

Notice to borrower – A lender making a high-cost home loan shall provide a notice to a borrower in substantially the following form:

“If you obtain this high-cost home loan, the lender will have a mortgage on your home. You could lose your home and any money you have put into it if you do not meet your obligations under the loan.

Mortgage loan rates and closing costs and fees vary based on many factors, including your particular credit and financial circumstances, your employment history, the loan-to-value requested, and the type of property that will secure your loan. The loan rate and fees could also vary based upon which lender or broker you select. As a borrower, you should shop around and compare loan rates and fees.

You should also consider consulting a qualified independent credit counselor or other experienced financial adviser regarding the rates, fees, and provisions of this mortgage loan before you proceed. You should contact the United States Department of Housing and Urban Development for a list of credit counselors available in your area.

You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application.

Borrowing for the purpose of debt consolidation can be an appropriate financial management tool. However, if you continue to incur significant new credit card charges or other debts after this high-cost home loan is closed and then experience financial difficulties, you could lose your home and any equity you have in it if you do not meet your mortgage loan obligations.

Remember that property taxes and homeowners' insurance are your responsibility. Not all lenders provide escrow services for these payments. You should ask your lender about these services.

Also, your payments on existing debts contribute to your credit rating. You should not accept any advice to ignore your regular payments to your existing creditors.”

Annual percentage rate – A lender making a high-cost home loan shall disclose:

• In the case of a fixed mortgage, the annual percentage rate and the amount of the regular monthly payment.

• In the case of any other credit transaction, the annual percentage rate, the amount of the regular monthly payment and the amount of any balloon payment permitted under the Florida Fair Lending Act, a statement that the interest rate and monthly payment may increase, and the amount of the maximum monthly payment based upon the maximum interest rate allowed pursuant to law.

Notice to purchasers and assignees – All high-cost home loans shall contain the following notice:


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“Notice: This is a mortgage subject to the provisions of the Florida Fair Lending Act. Purchasers and assignees of this mortgage could be liable for all claims and defenses with respect to the mortgage which the borrower could assert against the creditor.”

Each of the above disclosures shall be given not less than three (3) business days prior to the consummation of the high-cost home loan.

New disclosures are required when, after disclosure is made, the lender making the high-cost home loan changes the terms of the extension of credit. A lender may provide new disclosures by telephone, if:

The change is initiated by the borrower.

At the consummation of the high-cost home loan:

• The lender provides the disclosures in writing to the borrower.

• The lender and the borrower certify in writing that the new disclosures were provided by telephone no later than three (3) days prior to the consummation of the high-cost home loan.

A creditor must disclose to any high-cost home loan borrower the rights of the borrower to rescind the high-cost home loan within three (3) business days pursuant to the Truth In Lending Act and shall provide appropriate forms for the borrower to exercise his or her right to rescission. The notice, forms, and provisions thereof must be in accordance with the requirements of the Truth In Lending Act and Regulation Z.

Liability of Purchasers and Assignees Any person who purchases or is otherwise assigned a high-cost home loan shall be subject to all claims and defenses with respect to that mortgage that the borrower could assert against the creditor of the mortgage, to the same extent and subject to the same limitations that a borrower of a high-cost home loan may assert against an assignee or purchaser under federal law.

Rights of Borrowers To Cure Under High-Cost Home Loans Right to Reinstate – For a high-cost home loan, if a lender asserts that grounds for

acceleration exist and requires the payment in full of all sums secured by the security instrument, the borrower, or anyone authorized to act on the borrower's behalf, shall have the right, during the 45-day period described below, to cure the default and reinstate the home loan by tendering the amount or performing as otherwise specified below. However, once a lender has provided two such notices, for two separate incidents, a lender is not thereafter required to provide the notice, and the borrower is not entitled to cure the default, for a third or subsequent incident for which the lender asserts that grounds exist for acceleration of the loan and repayment in full. Cure of default shall reinstate the borrower to the same position as if the default had not occurred and shall nullify, as of the date of the cure, any acceleration of any obligation under the security instrument or note arising from the default.

Grounds for Reinstatement – Before any action filed to foreclose upon the home or other action is taken to seize or transfer ownership of the home, a notice of the right to cure the default must be delivered to the borrower at the address of the property upon which any security exists for the home loan by postage prepaid certified United States mail, return receipt requested, which notice is effective upon deposit in the United States mail, and shall inform the borrower:


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• Of the nature of default claimed on the home loan and of the borrower's right to cure the default by paying the sum of money required to cure the default. If the amount necessary to cure the default will change during the 45-day period after the effective date of the notice due to the application of a daily interest rate or the addition of late payment fees, as allowed by this act, the notice shall give sufficient information to enable the borrower to calculate the amount at any point during the 45-day period.

• Of the date by which the borrower shall cure the default to avoid acceleration and initiation of foreclosure or other action to seize the home, which date shall not be less than 45 days after the date the notice is effective, and the name and address and telephone number of a person to whom the payment or tender shall be made.

• That if the borrower does not cure the default by the date specified, the creditor may take steps to terminate the borrower's ownership of the property by requiring payment in full of the home loan and commencing a foreclosure proceeding or other action to seize the home.

• Of the name and address of the creditor and the telephone number of a representative of the creditor whom the borrower may contact if the borrower disagrees with the creditor's assertion that a default has occurred or the correctness of the creditor's calculation of the amount required to cure the default.

Fees – To cure a default, a borrower shall not be required to pay any charge, fee, or penalty attributable to the exercise of the right to cure a default, other than the fees specifically allowed by the Act. The borrower shall not be liable for any attorney's fees or costs relating to the borrower's default that are incurred by the creditor prior to or during the 45-day period.

Powers and Duties of the Commission and Office The Commission and Office are responsible for the administration and enforcement of the Act. The Commission may adopt rules to implement the Act. The Commission may adopt rules to allow electronic submission of any forms, documents, or fees required by the Act.

The Office may conduct an investigation of any person whenever the Office has reason to believe, upon complaint or otherwise, that any violation of the Act has occurred. Any person having reason to believe that a provision of the Act has been violated may file a written complaint with the Office setting forth the details of the alleged violation. The Office may conduct examinations of any person to determine compliance with the Act.

The Office may bring action, through its own counsel in the name and on behalf of the state of Florida, against any person who has violated or is about to violate any provision of the Act, or any rule or order issued under the Act, to enjoin the person from continuing in or engaging in any act in furtherance of the violation. In any injunctive proceeding, the court may, on due showing by the Office, issue a subpoena or subpoena duces tecum (a subpoena duces tecum requires the presentation of requested documents of evidence) requiring the attendance of any witness and requiring the production of any books, accounts, records, or other documents and materials that appear necessary to the expeditious resolution of the application for injunction.

The Office may issue and serve upon any person an order to cease and desist and to take corrective action whenever the Office has reason to believe the person is violating, has violated,


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or is about to violate any provision of the Act, any rule or order issued under this act, or any written agreement between the person and the Office.

Whenever the Office finds a person in violation of the Act, it may enter an order imposing a fine in an amount not exceeding $5,000 for each count or separate offense, provided that the aggregate fine for all violations of the Act that could have been asserted at the time of the order imposing the fine shall not exceed $500,000.

Enforcement Any person or the agent, officer, or other representative of any person committing a material violation of the provisions of the Act shall forfeit the entire interest charged in the high-cost home loan or contracted to be charged or received, and only the principal sum of such high-cost home loan can be enforced in any court in Florida, either at law or in equity.

A creditor in a home loan who, when acting in good faith, fails to comply with the provisions of the Act shall not be deemed to have violated the Act if the creditor establishes that within sixty (60) days after receiving any notice from the borrower of the compliance failure, which compliance failure was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid such errors, the borrower has been notified of the compliance failure, appropriate restitution has been made to the borrower, and appropriate adjustments are made to the loan. Bona fide errors shall include, but not be limited to, clerical, calculation, computer malfunction and programming, and printing errors. An error of legal judgment with respect to a person's obligations under the Act is not a bona fide error.


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Loans Under Florida Uniform Land Sale Practices Law The final section of the statute provides that no mortgage loan which has a face amount of $35,000 or less and is secured by vacant land registered under the Florida Uniform Land Sales Practices Law shall be sold to a mortgagee, except a financial institution, by any person unless all of the following requirements are met:

Each mortgage securing a note or other obligation sold or offered for sale shall be eligible for recordation as a first mortgage.

Each mortgage negotiated pursuant to this section of the statute must include a mortgagee's title insurance policy or an opinion of title, from an attorney who is licensed to practice law in the state of Florida, on each parcel of land which is described in the mortgage. The policy or opinion shall reflect that there are no other mortgages on the property. A notice stating the priority of the mortgage shall be placed on the face of each mortgage in an amount over $35,000 issued pursuant to this section of the statute.

Contracts to purchase a mortgage loan shall contain, immediately above the purchaser's signature line, the statement in 10-point boldfaced type: “This mortgage is secured by vacant land subject to development at a future time.” This statement shall also be typed or printed in 10-point type on the face of the note and mortgage sold.

The most recent assessment for tax purposes made by the county property appraiser of each parcel of land described in the mortgage shall be furnished to each mortgagee.

The mortgage broker shall record or cause to be recorded all mortgages or other similar documents prior to delivery of the note and mortgage to the mortgagee.

All funds received by the mortgage broker pursuant to this section of the statute shall promptly be deposited in the broker's trust account where they shall remain until the note and mortgage are fully executed and recorded.

Willful failure to comply with any of the above provisions shall subject the person to the penalties provided by statute.

Conclusion Florida mortgage brokers, mortgage lenders and correspondent mortgage lenders, must comply with Florida’s requirements set forth in Chapter 494 of the Florida Statutes and the related administrative rules. Florida mortgage professionals must remain familiar with the statute’s requirements in order to properly comply with the law and rules on a daily basis.


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Appendix A – Final Examination

Below is the Final Examination for this course. You may enroll in this course and complete an online version of this exam at our website:

www.BookmarkEducation.com

Your certificate will be issued immediately upon successful completion of the course.

Know the Rules – Truth in Lending and Florida Compliance

T / F 1. The Truth in Lending Act was enacted in 1979.

T / F 2. The stated purpose of the Truth in Lending Act is to assure a meaningful disclosure of credit terms.

T / F 3. Regulation Z was issued by the Board of Governors of the Federal Reserve System to implement the Truth in Lending Act.

T / F 4. A party “regularly” extends credit if it extended credit more than twenty-five (25) times (or more than five (5) times for transactions secured by a dwelling) in the preceding calendar year.

T / F 5. TILA and Regulation Z apply to any extension of credit primarily for a business, commercial or agricultural purpose.

T / F 6. Subpart B of Regulation Z contains requirements for electronic communications between a creditor and a consumer.

T / F 7. TILA and Regulation Z only apply to open-end credit.

T / F 8. Regulation Z defines “closed-end credit” as all consumer credit other than “open-end credit.”

T / F 9. TILA is specifically organized to separately set forth rules for open-end credit and closed-end credit.

T / F 10. Regulation Z applies to individuals, but not businesses, which extend personal, family or household consumer credit subject to a finance charge.

T / F 11. Regulation Z defines the “finance charge” as the cost of consumer credit as a dollar amount.

T / F 12. In addition to direct charges by the creditor, the finance charge also includes fees and amounts charged by a third party if the creditor retains a portion of the third party charge.

T / F 13. Regulation Z provides special rules relating to closing agent charges and mortgage broker fees.

T / F 14. Appraisal, investigation and credit report fees are charges included in the finance charge.

T / F 15. Finance charges include application fees charged to all applicants for credit, whether or not credit is actually extended.

T / F 16. Subpart D of Regulation Z implements TILA’s requirements regarding open-end credit.

T / F 17. Application and solicitation disclosures are the only disclosures required by Regulation Z.

T / F 18. The Truth in Lending Act requires disclosures must be made clearly and conspicuously in writing in a form which the consumer may keep.

T / F 19. The Annual Percentage Rate (APR) is a measure of the cost of credit, expressed as a yearly rate.


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T / F 20. Regulation Z permits a creditor to provide any written disclosure through electronic communication.

T / F 21. In addition to the Initial Disclosure Statement for open-end credit plans, Regulation Z also requires that the creditor furnish the consumer with a periodic statement disclosing certain items.

T / F 22. For home equity plans each periodic statement must include the account balance outstanding at the beginning of the billing cycle.

T / F 23. If a creditor fails to credit a payment in time to avoid the imposition of finance or other charges, the creditor shall adjust the consumer’s account so that the charges imposed are credited to the consumer’s account during the next billing cycle.

T / F 24. Regulation Z contains special provisions relating to credit balances where the consumer is owed money by the creditor.

T / F 25. The Initial Disclosure Statement for a home equity plan must include a statement describing the consumer’s billing rights.

T / F 26. Home equity plans are closed-end credit plans secured by the consumer’s dwelling.

T / F 27. The Home Equity brochure presents certain consumer protection information warning the consumer to shop and investigate the terms of credit prior to entering into a home equity plan arrangement.

T / F 28. Home equity plan creditors are not required to provide any disclosures other than the Home Equity brochure.

T / F 29. Regulation Z prohibits any lender or mortgage broker from imposing a nonrefundable fee in connection with an application for a home equity plan until three (3) business days after the consumer receives a required brochure and disclosures.

T / F 30. The right of rescission will apply to any refinance transaction in connection with the consumer’s home.

T / F 31. Each time the right of rescission arises, the creditor must deliver to the consumer two (2) copies of a notice describing and explaining the right to rescind.

T / F 32. For purposes of calculating the time permitted to exercise the right of rescission, “business day” means all calendar days including Sundays.

T / F 33. Mortgage professionals must learn the notice and timing requirements regarding the TILA right of rescission.

T / F 34. An advertisement may not refer to a home equity plan as “free money.”

T / F 35. Subpart C of Regulation Z implements TILA’s requirements regarding closed-end credit.

T / F 36. Closed-end credit includes all consumer credit.

T / F 37. Traditional fixed rate loans for home purchases are a type of closed-end credit transaction.

T / F 38. Just like open-end credit, closed-end credit allows additional borrowing by consumers.

T / F 39. While a closed-end credit plan may provide for a series of advances, the borrower will not be entitled to re-borrow an amount after that amount is paid off.

T / F 40. Regulation Z does not govern the advertising of closed-end credit.

T / F 41. For closed-end credit, the creditor must make the required disclosures within 10 days following the consummation (funding) of the transaction.


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T / F 42. If a disclosure becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of Regulation Z.

T / F 43. Transactions with multiple advances, irregular payment periods or irregular payment amounts are considered to be “irregular” transactions.

T / F 44. Disclosures must include the identity of the creditor making the disclosures.

T / F 45. The term “amount financed” should be described to the consumer with words like “the amount of credit provided to you or on your behalf” or other similar wording.

T / F 46. The payment schedule must be disclosed and is made up of the number, amounts, and timing of payments scheduled to repay the obligation.

T / F 47. The total sale price is the sum of the cash price, the finance charge and other amounts financed by the creditor which are not part of the finance charge.

T / F 48. A refinancing is a new transaction requiring new disclosures to the consumer.

T / F 49. Variable rate loans are exempt from the disclosure requirements of Regulation Z.

T / F 50. The booklet titled Consumer Handbook on Adjustable Rate Mortgages is commonly referred to as the CHARM booklet.

T / F 51. Applicants for adjustable rate loans are to receive the CHARM booklet.

T / F 52. The CHARM booklet was revised in December of 2006.

T / F 53. Beginning on October 1, 2007, creditors must use the newly revised CHARM booklet or a suitable substitute that complies with Regulation Z.

T / F 54. An assumption occurs when a creditor expressly agrees in writing with a subsequent consumer to accept that consumer as a primary obligor on an existing residential mortgage transaction.

T / F 55. Regulation Z’s provisions regarding the consumer’s right to rescind a closed-end credit transaction are very similar to the regulation’s provisions regarding the consumer’s right to rescind an open-end credit transaction.

T / F 56. The three (3) day right to rescind applies to a closed-end residential mortgage transaction to finance the acquisition of a dwelling.

T / F 57. Regulation Z provides no formulas and tables which may be used to correctly calculate annual percentage rates.

T / F 58. In both closed-end and open-end credit transactions, the consumer’s ability to waive the right of rescission is the same.

T / F 59. Only certain mortgage professionals are affected by TILA’s provisions regarding closed-end credit.

T / F 60. Subpart D of Regulation Z contains some miscellaneous provisions which affect both open-end and closed-end credit transactions.

T / F 61. As a general rule, a creditor shall retain evidence of compliance with Regulation Z for two (2) years after the date disclosures are required to be made or action is required to be taken.

T / F 62. The Home Ownership and Equity Protection Act (HOEPA) was implemented in order to provide consumers additional protection against certain predatory lending practices.

T / F 63. HOEPA is implemented by Subpart E of Regulation Z.

T / F 64. HOEPA was implemented to provide consumers protection against all forms of sub-prime lending.


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T / F 65. High cost home mortgage loans and reverse mortgages are particularly likely to attract predatory lending practices.

T / F 66. Section 32 Mortgage transactions are open-end credit transactions.

T / F 67. Section 32 Mortgage transactions include reverse mortgage transactions.

T / F 68. Home equity lines of credit permit re-borrowing of principal amounts in accordance with the terms of the plan.

T / F 69. High cost home mortgage loans are not allowed to include a balloon payment.

T / F 70. Loan flipping is one way the borrower can benefit from a high cost home mortgage loan.

T / F 71. A reverse mortgage transaction is a non-recourse consumer credit obligation.

T / F 72. Most often, reverse mortgages require a consumer to provide a lender a security interest in a home in exchange for a stream of payments.

T / F 73. HOEPA eliminated the need for disclosures by lenders making reverse mortgage loans.

T / F 74. In general, if a creditor fails to comply with any requirements of TILA or Regulation Z, the creditor may be held liable to the consumer for actual damages to the consumer and the cost of any legal action together with reasonable attorneys fees in a successful action.

T / F 75. The mortgage professional’s livelihood depends on proper compliance with TILA and Regulation Z.

T / F 76. Any person having reason to believe that a provision of Florida’s mortgage brokerage and lending statute has been violated may file a written complaint with the Office of Financial Regulation setting forth details of the alleged violation.

T / F 77. It is a violation of Florida’s mortgage brokerage and mortgage lending statute to advertise a mortgage loan at an expressed interest rate unless the advertisement specifically states that the expressed rate could change or not be available at commitment or closing.

T / F 78. The Florida mortgage brokerage and mortgage lending statute specifies that a licensee has a conflicting interest if a relative of the licensee provides the borrower with additional products or services.

T / F 79. A license is not required when acting as a correspondent mortgage lender in the State of Florida.

T / F 80. To act as a Florida mortgage broker, an individual must be an associate of a mortgage brokerage business, a mortgage lender or a correspondent mortgage lender.

T / F 81. Under Florida law, a mortgage broker is prohibited from being an associate of more than one mortgage brokerage business.

T / F 82. The biennial renewal of each mortgage broker’s license is required on or before August 31 of each odd-numbered year.

T / F 83. An inactive mortgage broker license may be reactivated within two (2) years after becoming inactive by filing a completed reactivation form with the Office, payment of the renewal fee, and payment of a nonrefundable reactivation fee.

T / F 84. Each Florida mortgage brokerage business must have a principal broker operate the business under his or her full charge, control, and supervision.

T / F 85. The biennial renewal of each mortgage brokerage business license is required on or before August 31 of each even-numbered year.

T / F 86. If the mortgage brokerage agreement includes a nonrefundable application fee, the fee may be based upon a percentage of the principal amount of the loan or the amount financed.


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T / F 87. Prior to obtaining a written commitment from a qualified lender, a Florida mortgage brokerage business may not accept any fee in connection with a mortgage loan other than an application fee, credit report fee, property appraisal fee, or other third-party fee.

T / F 88. Florida’s mortgage brokerage and lending statute prohibits a mortgage brokerage business from offering products and services, in addition to those offered in conjunction with the loan origination process, for a fee or commission.

T / F 89. Each mortgage broker or mortgage brokerage business licensee shall report any action in bankruptcy, voluntary or involuntary, to the Office not later than seven (7) business days after the action is instituted.

T / F 90. A person acting as a mortgage broker may not have control of any money from a noninstitutional investor.

T / F 91. Any person who makes only nonresidential mortgage loans and sells loans only to institutional investors is exempt from state mortgage lender licensing requirements.

T / F 92. A person licensed as a correspondent mortgage lender may not service a mortgage loan for more than four (4) months after the date the mortgage loan was made or acquired by the correspondent mortgage lender.

T / F 93. The borrower may, without penalty or responsibility for paying additional fees and charges, withdraw an application at any time prior to acceptance of commitment.

T / F 94. Under Florida law, a lender may not enter into an agreement with a borrower to “lock-in” a specified interest rate or discount points for a specified period of time.

T / F 95. All rate lock-in fees collected by a mortgage lender or correspondent mortgage lender who is not in compliance with the statute must be deposited into an escrow account in a federally insured financial institution.

T / F 96. Under Florida law, a commitment fee is refundable if the commitment is contingent upon approval by parties to whom the lender seeks to sell the loan.

T / F 97. If a mortgage lender or correspondent mortgage lender fails to satisfy net worth requirements, the mortgage lender or correspondent mortgage lender may take new loan applications for 60 days.

T / F 98. A high-cost home loan may not contain terms that require a borrower to pay a prepayment penalty for paying all or part of the loan principal before the date on which the payment is due.

T / F 99. In accordance with the Florida Fair Lending Act, a lender may recommend default on an existing loan prior to and in connection with the planned closing of a high-cost home loan that refinances all or any portion of such existing loan or debt.

T / F 100. A late payment fee for a high-cost home loan may not be in excess of five percent (5%) of the amount of the payment past due and may only be assessed for a payment past due for fifteen (15) days or more.


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Know The Rules – Truth in Lending and Florida Compliance

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