Mortgage Concepts: What are the different loan features?

Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators. This video gives an overview of the different types of loan features. For course credit toward renewing your NMLS license, visit firsttuesday.us.

Debt-to-income ratio

If the financial institution relied upon the applicant’s total DTI when making the credit decision, it is reported. [12 CFR §1003.4(a)(23)]

Combined-loan-to-value

If the financial institution relied upon the applicant’s combined loan-to-value ratio (CLTV) when making the credit decision, it is reported. [12 CFR §1003.4(a)(24)]

Credit score information

If the financial institution relied upon the applicant’s credit score when making the credit decision, it is reported. [12 CFR §1003.4(a)(15)]

If more than one credit score is pulled (e.g., one from each of the three credit bureaus) the score used to make the decision is reported. This may be one of the three scores pulled (e.g., a mid-score), or a composite (average) of the scores pulled. [Official Interpretation of 12 CFR §1003.4(a)(15)-2]

If more than one applicant’s credit score is used in the credit decision, each applicant’s credit score is reported. [Official Interpretation of 12 CFR §1003.4(1)(15)-3]

Automated underwriting information

The automated underwriting system (AUS) used to evaluation the application is provided. [12 CFR §1003.4(a)(35)]

Interest rate

For loans originated, the interest rate in the Closing Disclosure is reported. Otherwise, the interest rate in the Loan Estimate or in the application is reported. [12 CFR §1003.4(a)(21)]

Introductory rate period

This data point reports the number of months between the loan closing or account opening until the first date the interest rate may change. [12 CFR §1003.4(a)(26)]

Rate spread

If the loan is subject to the Truth-in-Lending Act (TILA) and Regulation Z (Reg Z), calculate the difference between:

the loan’s annual percentage rate (APR) disclosed to the borrower; and
the average prime rate for a comparable transaction as of the date the interest rate is set.

The average prime rate is an APR derived from average loan pricing terms currently offered to consumers by a representative sample of lenders for low-risk mortgages. The Consumer Financial Protection Bureau (CFPB) makes these rates available on its website. [12 CFR §1003.4(a)(12)(ii); Appendix A to §1003 G.1.]

Contractual features

If the applied-for loan contains any of the following features, they need to be reported:

a balloon payment;
interest-only payments;
negative amortization; or
other contractual terms which would allow for payments other than fully amortizing payments. [12 CFR §1003.4(a)(27)]

Reg-Z loans features: costs, fees, terms

For loans subject to the Reg Z ability-to-repay provisions, the following information is to be reported:

total loan costs or total points and fees [12 CFR §1003.4(a)(17)];
total borrower-paid origination charges [12 CFR §1003.4(a)(18)];
total discount points [12 CFR §1003.4(a)(19)];
lender credits [12 CFR §1003.4(a)(20)];
prepayment penalty term [12 CFR §1003.4(a)(22)]; and
whether the loan is subject to the Home Ownership and Equity Protection Act of 1994 (HOEPA), known as a Section 32 loan. [12 CFR §1003.4(a)(13)]

In addition, Reg Z requires some commonly forgotten credit term disclosures. For instance, if an advertisement includes:

the amount or percentage of any down payment;
the number of payments or period of repayment; or
the amount of any payment or the amount of any finance charge is disclosed,

that advertisement also needs to state the amount or percentage of the down payment, the terms of repayment, and the annual percentage rate using that term and if the rate may be increased after consummation. [12 CFR §1026.24(d)]

Transaction indicators

Other loan parameters which have be reported when applicable are whether the sought loan is a:

reverse mortgage [12 CFR §1003.4(a)(36)]; and
open-end line of credit. [12 CFR §1003.4(a)(37)]

MLO identifier

The Nationwide Mortgage Licensing System (NMLS) ID number of the mortgage loan originator primarily responsible for origination of the loan is reported. [12 CFR §1003.4(a)(34)]