20 Hour SAFE Comprehensive Study Notes

COURSE INFORMATION AND RULES OF CONDUCT

Course Identification

Course Title: $20$ Hour SAFE Comprehensive: Applying Mortgage Knowledge to Exam Preparation (Video)
NMLS-Approved Provider ID: $1400013$
NMLS-Approved Course Number: $13907$
Course Content Date: $\text{December 30, 2024}$
Course Approval Date: $\text{June 3, 2024}$
Publisher: OnCourse Learning, $399\, \text{S Spring Ave., St. Louis, MO 63110}$

Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) Requirements

State-licensed Mortgage Loan Originators (MLOs) must complete pre-licensing (PE) and continuing education (CE) as a condition of licensure.
All education must be NMLS-approved.
Rules of Conduct (ROC) are established by the NMLS Mortgage Testing & Education Board and the Policy Committee to ensure integrity in delivery and completion.

Rules of Conduct (ROC) for Students

General Responsibility: Students are alone responsible for their conduct and compliance with NMLS rules. Course providers may report violations to the NMLS, which may lead to investigations and reports to state regulators.
Classroom (Live) Requirements: * Provide a signature prior to the start and presented government-issued ID. * Engagement with students and instructors is mandatory. * Strict adherence to break and lunch times. * Complete the entire seat-time required by the SAFE Act to receive a certificate.
Classroom Equivalent (Webinar) Requirements: * Authentication via government ID and Knowledge-Based Authentication (KBA). * Camera access must be maintained for the entire duration (shoulders up). * Penalty: Failure to maintain camera presence for more than $10\, \text{minutes}$ results in removal without credit. * Mandatory engagement with quizzes, case studies, polls, and facilitators.
Online Instructor-Led/Self-Study Requirements: * Use of personal login information only; credentials must never be shared. * Self-study requires authentication through a biometric system (BioSig) at various times. * Completion of all seat-time, quizzes, and case studies is required.

Prohibited Actions and Ethics

Identification: Students must attest to their identity and ensure registration info matches their current government ID.
Academic Integrity: Attempting to circumvent time requirements is prohibited. Use of artificial intelligence (AI), large language model (LLM) chatbots, or others to complete the course is strictly forbidden.
Conduct: No distractions (cell phones/smartwatches) or outside activities while in class. Students must maintain good character and not engage in dishonest or fraudulent behavior.
Penalties for Violations: Disciplinary actions by the State Regulatory Registry (SRR) or states include: * Revocation, suspension, or denial of license. * Disqualification or retraction of class credit. * Fines and requirements for additional education.

FEDERAL MORTGAGE-RELATED LAWS: OVERVIEW

Learning Objectives Based on the NMLS National Test Content Outline, participants must be able to:

Recall provisions of RESPA (referrals, fee collections, disclosures).
Discuss ECOA and fair access to credit.
Define TILA provisions regarding disclosures and advertising.
Identify High-Cost and Higher-Priced mortgage loans.
Discuss the Loan Originator Compensation Rule.
Explain TILA-RESPA Integrated Disclosure (TRID) requirements (Loan Estimate and Closing Disclosure).
Describe the Homeowners Protection Act (HPA), SAFE Act, and Home Mortgage Disclosure Act (HMDA).
Summarize FCRA, FACT Act (Red Flags Rule), and Dodd-Frank Act titles.
Identify keys to appraiser independence and provisions of the USA PATRIOT Act, BSA, and GLB Act.
Identify advertising rules under the MAP Rule and E-Sign Act.
Analyze Ability to Repay (ATR) and Qualified Mortgage (QM) rules.
Recognize regulatory authorities: Consumer Financial Protection Bureau (CFPB) and Department of Housing and Urban Development (HUD).

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) – REGULATION X

General Overview and Purpose RESPA protects consumers by:

Prohibiting excessive settlement costs and unearned fees.
Limiting funds required for escrow accounts.
Establishing procedures for communication between loan servicers and consumers.
Regulatory Agency: CFPB is responsible for enforcement. RESPA is implemented via Regulation X ( $12\, \text{C.F.R. \u00a71024.1}$ et seq.).

Loans Covered by RESPA RESPA applies to "federally-related mortgage loans," which include first or subordinate liens on residential property that are:

Funds/collateral insured by the federal government (e.g., FHA, flood insurance).
Made by lenders regulated by the federal government (FDIC or NCUA insured).
Intended for sale to Fannie Mae or Freddie Mac.
Made by creditors regulated under TILA or mortgage brokers assigned to federally-related creditors.
Includes purchase loans, refinances, assumptions, property improvement loans, HELOCs, and reverse mortgages.

Exempt Loans

Business, commercial, or agricultural purposes.
Temporary financing (construction loans, unless they convert to permanent financing with the same lender).
Vacant land (if no proceeds are used to build a structure within $2\, \text{years}$ ).
Loan assumptions without lender approval.
Secondary market transactions (sale of closed loans to investors).
Loan conversions not requiring a new note.

KEY RESPA TERMS AND DEFINITIONS

Affiliated Business Arrangement (AfBA): A relationship where one settlement service provider has ownership interest in another (e.g., a lender owning a title company). This must be disclosed to the borrower.
Agreement or Understanding: Can be written, verbal, or established through a pattern of conduct where things of value are exchanged for referrals.
Bona Fide Discount Point: Points paid to reduce interest rates; typically $1\% = 1\% \, \text{of the loan principal}$ .
Borrower Credit: Historically known as "Yield Spread Premium" (YSP). A fee paid by the lender to the borrower when a higher interest rate is chosen to subsidize closing costs.
Fee-Splitting and Kickbacks: Paying or accepting unearned fees or marking up a fee and splitting the overage between two parties.
Markup: Increasing the cost of a service and retaining the additional fee. A markup is only a RESPA violation if it is split between two parties. However, TILA rules state charges may not exceed the amount actually received by the provider.
Mortgage Broker: An intermediary between a borrower and a lender for a federally-related mortgage loan (excludes lender employees).
Settlement Service: Any service provided in connection with a real estate settlement, including origination, processing, underwriting, funding, title services, appraisals, inspections, credit reports, and insurance.
Sham Affiliated Business Arrangement: A joint venture designed solely to split fees under the guise of a legitimate AfBA.
Thing of Value: Includes money, discounts, commissions, salaries, stock, tickets to events, trips, or special banking terms. Any "payment" is synonymous with "thing of value" and does not require cash transfer.

MANDATORY RESPA DISCLOSURES

Special Information Booklet

Timeline: Due within $3\, \text{business days}$ of application.
Purchase Transactions: "Your Home Loan Toolkit: A Step-by-Step Guide."
HELOC Transactions: "What You Should Know about Home Equity Lines of Credit."
Exemptions: Refinances, closed-end subordinate liens, reverse mortgages, or if the application is denied within the $3\text{-day}$ window.

Affiliated Business Arrangement (AfBA) Disclosure

Requirement: Must be provided at the time of the referral. If referred by phone, written disclosure is due within $3\, \text{business days}$ .
Content: Nature of relationship, ownership percentage, estimated costs, and a statement that the borrower is NOT required to use the affiliate (except for lender-required attorneys, appraisers, or credit agencies).
Record Retention: Affiliated business arrangement disclosures must be kept for $5\, \text{years}$ .

Mortgage Servicing Disclosures

Transferor Servicer: Must provide notice at least $15\, \text{days}$ before the transfer.
Transferee Servicer: Must provide notice no more than $15\, \text{days}$ after the transfer.
Combined Notice: Allowed if provided $15\, \text{days}$ before the transfer.
Grace Period: A payment made to the transferor during the $60\text{-day}$ period starting on the transfer date cannot be treated as late.

Escrow Account Disclosures

Cushion Limit: Creditors can require a cushion no greater than $\frac{1}{6}$ of the estimated total annual disbursements (approx. $2\, \text{months}$ of payments).
Initial Escrow Account Statement: Due at settlement or within $45\, \text{days}$ of settlement.
Annual Escrow Account Statement: Due within $30\, \text{days}$ of the end of the computation year. Must show account history and projection for the next year.
Surpluses: If the surplus is $\geq \$50$ , it must be refunded within $30\, \text{days}$ . Surpluses $\lt \$50$ may be credited to the next year.

RESPA PROHIBITIONS AND PENALTIES

Section 8 Prohibitions

8(a): Prohibits giving or accepting referral fees or kickbacks of any "thing of value."
8(b): Prohibits fee-splitting where fees are received for services not actually performed (unearned fees).
Sham Affiliate Criteria: To be bona fide, an entity must have sufficient capital, its own employees, separate office space, and perform substantial services (not just contract everything out).

Case Scenario: Kohler Home Solutions Kohler owns $20\%$ of Moreland Title. When Kohler refers clients to Moreland, they provide a disclosure stating the relationship, the costs, and that the client may choose another provider. This meets Regulation X requirements for legitimate AfBA disclosure.

Penalties for Section 8 Violations

Criminal fines: Up to $\$10,000$ .
Imprisonment: Up to $1\, \text{year}$ .
Civil Penalties: For escrow statement failures, fines range from $\$118$ to $\$236$ per failure, with a total annual cap of $\$236,451$ (adjusted for inflation).
Class Action Damages: Up to $\$2,000$ per member, capped at $\$1\, \text{million}$ or $1\% \, \text{of the servicer's net worth}$ .

MORTGAGE LOAN SERVICING RULES

Servicer Responsibilities

Must investigate and correct borrower complaints.
Must respond to a Qualified Written Request (QWR): Acknowledge receipt within $5\, \text{business days}$ .
Escrow accounts: Refund remaining funds within $20\, \text{days}$ of loan payoff.

Force-Placed Insurance

Servicers may only charge for force-placed hazard insurance if they have a reasonable basis to believe the borrower's insurance has lapsed.
Specific notices must be sent to the borrower before purchase.

Delinquency and Foreclosure

Early Intervention: Servicers must make live contact with delinquent borrowers by the $36\text{th day}$ of delinquency.
Written Notice: Must be sent no later than the $45\text{th day}$ of delinquency.
The 120-Day Rule: A servicer cannot initiate foreclosure proceedings until the borrower is more than $120\, \text{days}$ delinquent to allow for loss mitigation efforts.

Foreclosure Types

Judicial Foreclosure: Requires filing a lawsuit; used when no "power of sale" clause exists in the mortgage.
Non-Judicial Foreclosure (Power of Sale): No legal action required. Involves serving a notice of default ( $120\, \text{days}$ prior to sale), publishing the notice weekly for $4\, \text{consecutive weeks}$ , and a public auction.

EQUAL CREDIT OPPORTUNITY ACT (ECOA) – REGULATION B

ECOA Overview

Purpose: Enacted in $1974$ to eliminate discriminatory treatment of credit applicants. It ensures equal access regardless of race, color, religion, national origin, sex, marital status, or age.
Implementing Regulation: Regulation B ( $12\, \text{C.F.R. \u00a71002.1}$ et seq.).
Regulatory Agency: CFPB (Office of Fair Lending and Equal Opportunity). FTC retains authority for non-depository lenders.
Scope: Unlike RESPA and TILA, ECOA applies to personal, business, commercial, and agricultural credit transactions.

Key Definitions

Adverse Action: A refusal to grant credit in the amount or terms requested.
Elderly: Defined as age $62$ or older.
Marital Status Terms: Only "unmarried" (single, divorced, widowed), "married," or "separated" may be used for inquiries.
Prohibited Basis: Includes race, color, religion, national origin, sex (including sexual orientation and gender identity), marital status, age (if of legal age), receipt of public assistance, or exercise of consumer rights (e.g., credit counseling).

Adverse Action Notifications

Timeline: Creditors must notify applicants of action taken within $30\, \text{days}$ of a completed application.
Notice Content: Must be in writing, provide specific reasons for denial, state that ECOA prohibits discrimination, and provide the name of the regulator. If based on a credit report, specific CRA information is required.
Incomplete Application: Lenders must send a Notice of Incompleteness within $30\, \text{days}$ , allowing a reasonable time for the applicant to provide missing info.

VALUATION AND APPRAISAL DISCLOSURES (ECOA)

Requirements for First Liens on Dwellings

Notice of Right: Applicants must be informed of their right to receive copies of all written appraisals within $3\, \text{business days}$ of application.
Delivery of Copies: Creditors must provide all appraisals/valuations "promptly" upon completion or at least $3\, \text{business days}$ prior to consummation (whichever is earlier).
Waiver: Borrowers can waive the timing requirement to receive the copy @ or before consummation, provided the request is made $3\, \text{business days}$ before consummation.
Exceptions (Documents NOT considered valuations): Internal docs restating value, government agency statements, manufacturers' invoices, inspection reports without value estimates, and certain appraisal reviews.

DATA COLLECTION AND MONITORING (HMDA/ECOA)

Required Inquiries

For loans secured by a dwelling, creditors must request: ethnicity, race, sex, marital status, and age.
Lenders must explain this is for federal government monitoring. If the applicant refuses to provide the info, the lender must record it based on visual observation and surname.
Video Interviews: Must collect demographic info as if the interview were in-person.

Record Retention

Lenders must retain ECOA records (applications, character information, notices) for at least $25\, \text{months}$ after notifying an applicant of action taken.

PROHIBITED DISCRIMINATORY PRACTICES

Overt Discrimination: Blatant refusal based on characteristics (e.g., race) or redlining.
Disparate Treatment: Treating "similarly situated" applicants differently (e.g., a female applicant getting a higher rate than a male with same credentials).
Disparate Impact: A neutral policy that has a discriminatory effect (e.g., setting a minimum loan amount of $\$250,000$ , which might exclude protected classes from the market).
Inquiries: It is illegal to ask about birth control, childbearing plans, or national origin. Exceptions: immigration status or for government monitoring.
Discouragement: Prohibits oral/written statements or advertising that would discourage protected classes from applying.
Co-Signers: Lenders cannot require a spouse's signature if the applicant qualifies individually. Exception: community property state laws to create a valid lien.

Case Scenario: Angelica and Rex Originator Rex asks Angelica about her plans to continue working after having a child. This is an explicit violation of ECOA. However, Rex requesting her husband Christopher to co-sign documents specifically to settle debt in a community property state is permitted.

CREDITWORTHINESS FACTORS UNDER ECOA

Age: Legal capacity (age $18$ ) is required. Lenders can use age in a scoring system as long as elderly applicants ( $62+$ ) are not penalized.
Public Assistance: Cannot be used to deny, but can be considered for "pertinent elements" of creditworthiness (e.g., how long the income will continue).
Telephone Listings: Lenders cannot favor those with a listed phone number, but can consider if a phone exists in the residence.
Credit History: Lenders may consider accounts in a spouse's name upon request if it reflects the applicant's creditworthiness.
Immigration Status: Lenders can consider immigration/residency status to determine rights to repayment.

ECOA Enforcement and Penalties

Individual Actions: Punitive damages up to $\$10,000$ .
Class Actions: Lesser of $\$500,000$ or $1\% \, \text{of creditor's net worth}$ .
Statute of Limitations: $5\, \text{years}$ from the violation date. If the DOJ files suit, an individual has $1\, \text{year}$ from the DOJ filing date to bring their own action.

TRUTH-IN-LENDING ACT (TILA) – REGULATION Z

General Overview

Enacted: $1968$ as Title I of the Consumer Credit Protection Act (CCPA).
Implementing Regulation: Regulation Z ( $12\, \text{C.F.R. \u00a71026.1}$ et seq.).
Regulatory Agency: CFPB has primary authority.
Purpose: Uniform standards for cost disclosure, truthful advertising, and right to rescind.

Scope of Coverage

Conditions: Credit offered to consumers, made regularly, includes a finance charge/installment agreement ( $\gt 4\, \text{installments}$ ), and used for personal/family/household purposes.
Exemptions: Business, agricultural, organization credit, home fuel plans, student loans, and credit above annually adjusted thresholds (unless secured by real property).

Types of Credit

Closed-end: Funds disbursed at once; repayment required over fixed period (e.g., home purchase loan).
Open-end: Borrower and lender anticipate repeat transactions (e.g., HELOCs).

Defining a "Creditor"

Natural person or business that regularly extends consumer credit.
Regularly Extends: Secured by a dwelling and extended $> 5\, \text{times}$ in the prior year, or originates $1+$ high-cost mortgage in a $12\text{-month}$ period.

KEY TILA DEFINITIONS

Application: Submission of $6$ pieces of info: Name, SSN, Income, Property Address, Est. Property Value, and Loan Amount.
Business Day (General): Any day the creditor is open for substantially all business functions (applies to Loan Estimate delivery).
Business Day (Specific): All calendar days except Sundays and legal holidays (applies to Closing Disclosure, Rescission, and Waiting Periods).
Consummation: When the consumer becomes contractually obligated (effectively, closing).
Dwelling: Residential structure ( $1\text{- to }4$ units), including condos, trailers, and mobile homes.
Finance Charge: The cost of consumer credit expressed as a dollar amount.
Annual Percentage Rate (APR): The cost of credit expressed as a yearly rate.

CALCULATING FINANCE CHARGES AND APR

Finance Charge Inclusions

Fees paid to third parties if the creditor requires that third party or retains a portion of the charge.
Credit life/disability insurance (unless voluntary/disclosed).
Mortgage broker fees are always included, even if not required by the lender.
Closing agent charges only if the lender requires the service or retains a portion.

Finance Charge Exclusions

Fees payable in a comparable cash transaction (e.g., taxes).
Seller's points and late payment fees.
Appraisal, credit report, and notary fees (if bona fide and reasonable).

Accuracy Tolerances for Closed-End Finance Charges

$\text{Understated by } \leq \$100$ or if the amount stated is greater than required.

APR Components

Includes: PMI/MIP, discount points, origination fees, processing, and underwriting.
Excludes: Title fees, escrow, notary, appraisal, and document prep.
Accuracy Tolerance: $1/8 \, \text{of } 1\%$ ( $0.125\%$ \text{)} for regular loans; $1/4 \, \text{of } 1\%$ ( $0.25\%$ \text{)} for irregular loans.
Good Faith Calculation: Error is not a violation if it resulted from a tool used in good faith and the creditor stops using that tool and notifies the CFPB upon discovery.

ADJUSTABLE-RATE MORTGAGE (ARM) DISCLOSURES

CHARM Booklet: "Consumer Handbook on Adjustable-Rate Mortgages" must be provided within $3\, \text{business days}$ of application.
Loan Program Disclosures: Required for each ARM product the applicant is interested in. Must include: index used, calculation formula, rate caps, frequency of changes, and a historical example for a $\$10,000$ loan.
Post-Consummation Disclosures: * Rate Change Notice: Due at least $60$ , but no more than $120\, \text{days}$ before a payment change. * Exception: If the first adjusted payment is due within $210\, \text{days}$ of consummation, notice is due at consummation. * Must show: current/new rates, payment amounts, index, and margin.

OPEN-END HOME EQUITY PLAN DISCLOSURES

Timeline: Due at the time the application is provided. Initial brochure ("What You Should Know about HELOCs") is mandatory.
Retention: Must include a statement advising the consumer to keep the disclosure.
Rights: If terms change (besides the index) before the plan opens, the consumer can opt out and receive a refund of application fees.
Prohibitions: Creditors cannot change the APR unless based on an outside index. They cannot terminate the plan early unless there is fraud, default, or the security value is impaired.
Allowed Changes: Reducing credit limits if the dwelling value decreases significantly or the consumer's financial situation changes materially.

RIGHT OF RESCISSION UNDER TILA

General Rules

Rescission: Voids the contract and restores parties to their prior positions.
Eligibility: Only applies to loans secured by the consumer's principal dwelling (refinances, HELOCs, home improvement). Does not apply to purchase loans (residential mortgage transactions).
Notice: Lenders must provide $2$ copies of the Right to Rescind to each owner with an interest in the property (only $1$ copy if delivered electronically per E-Sign).

Three-Business-Day Right to Rescind

Cooling-off interval ending at midnight on the third business day after the latest of: consummation, delivery of rescission notice, or delivery of material disclosures.
During this window, no money can be disbursed (except to escrow), and no services can be performed.
Waiver: Possible for bona fide personal financial emergencies; must be in writing.

Three-Year Right to Rescind

Triggered if the creditor fails to provide material disclosures or a proper rescission notice.
Material Disclosures: APR, finance charge, amount financed, total payments, and payment schedule.
Foreclosure Rule: If foreclosure starts, the finance charge is considered accurate only if understated by $\leq \$35$ .

Effects of Rescission

The security interest (lien) is voided.
The creditor has $20\, \text{calendar days}$ to return all money (closing costs/interest) and release the mortgage.
After the creditor complies, the borrower must return any funds/property received.

TILA ADVERTISING RULES

Fundamental Rule: If specific terms are advertised, they must be terms that are actually available.
Standard: Disclosures must be made "clearly and conspicuously."
Both open-end and closed-end ads are regulated to prevent misleading interest rate or payment representations.