Posted by Bear900/CA on 10/1/13 3:08am
Msg #486564

About Annual Percentage Rate or APR

While this covers some topics about APR it is not the complete set of information. There are many government sites to read, changing rules and regulations to keep up with and differing lender interpretations. This information is as always, subject to change.

I mentioned earlier there may be serious side effects trying to explain APR. Msg #486551

Why? The obvious is if you muff it up and the transaction is halted, misconstrued or even successfully closed, you may be looking at a lawsuit not just from the customer but also from the lender for if you incorrectly explained the customer’s APR and if that is part of the customer's complaint.

If you’ve done 10,000 signings then you’re definitely a notch or two above an inexperienced LO with your knowledge and explanations, and that is all the more reason to stay current and get it right, at least for yourself.

Q. Where can I find out more about APR?
A. Try perusing the Government Rules and Regulations sites. Some are listed through this material.

Q. What is the definition of Annual Percentage Rate (APR)?
A. Reg Z of TILA: Annual Percentage Rate Definition §226.22 (Closed-End Credit)

http://www.federalreserve.gov/boarddocs/caletters/2008/0805/08-05_attachment1.pdf - Pg 12

Excerpt:
“The APR is a measure of the cost of credit, expressed as a nominal yearly rate.“

“Since an APR measures the total cost of credit, including costs such as transaction charges or premiums for credit guarantee insurance, it is not an "interest" rate, as that term is generally used. “

Q. How should I explain that to the borrower?
A. “This is the Cost of your Credit, Expressed as a Yearly Rate” is one good way.

Q. What does that mean? What is the cost of credit?
A. That is determined by the lending institution and the borrower as they sometimes decide together how certain fees will be paid.

Q. Can I just say that it’s the interest rate plus fees or costs of the loan?
A. This is not an accurate response. The Good Faith Estimate (GFE) lists the fees in the loan but they do not determine the APR. The APR on the TIL is largely determined by costs of transacting the loan.

Q. Can I refer to the Finance Charge Chart on page 10 of the above link as examples of costs that affect the APR?
A. At your own risk. As an example, the chart shows that an appraisal fee may be considered an application fee and not part of the finance charge affecting the APR. Here is what happens when we start memorizing and repeating information - it changes!

Starting Jan 2014, the 3% Cap & Fee Rule takes force. What fees are included? There is still some clarification needed. Note one expert’s comment below.

“The CFPB’s recent clarifications reveal that, if the lender owns or partially owns title and appraisal services, the fees from these services are included in the 3% cap; if the lender does not own them, however, those fees are not counted in the 3% cap. This is problematic because the CFPB has clearly communicated that lenders are responsible for the regulatory behavior of their third-party vendors - thus, it only makes sense that a lender would want to control its vendors by owning the title or appraisal companies. Including the fees of owned vendors in the 3% cap, however, makes it impossible, or at least very improbable, that a lender could make this move and control the quality of compliance.”

http://www.mortgageorb.com/e107_plugins/content/content.php?content.14251

Please explain this to yourself before you attempt to explain it to your customer.

Brokers are at a disadvantage as they must disclose all costs of the loan. Banks do not. Their non-disclosure of costs may show a lower APR, not necessarily a lower priced loan.

Q. Will shopping APR always get me the lowest priced mortgage loan?
A. Not always. Price shopping a mortgage loan’s APR is a guide only and not a true comparison for mortgage loan costs. The better comparison is the lending institution’s origination fees, and fees of their 3rd party vendors.

Q. Will shopping the APR provide the best Rate and Payment?
A. Not necessarily. Consider this Example -

page 7 - http://www.fdic.gov/regulations/compliance/manual/pdf/V-1.1.pdf

(IF YOU READ NOTHING ELSE, PLEASE READ THIS)

“The APR is often considered to be the finance charge expressed as a percentage. However, two loans require the same finance charge and still have different APRs because of differing values of the amount financed or of payment schedules. For example, the APR is 12 percent on a loan with an amount financed of $5,000 and 36 equal monthly payments of $166.07 each. It is 13.26 percent on a loan with an amount financed of $4,500 and 35 equal monthly payments of $152.18 each and final payment of $152.22. In both cases the finance charge is $978.52. The APRs on these example loans are not the same because an APR does not only reflect the finance charge. It relates the amount and timing of value received by the consumer to the amount and timing of payments made.”

Q. Relative to the last sentence above, what is a good way to explain APR?
A. “This is the cost of your credit, expressed as a yearly rate”, is a good enough explanation.

Q. Is there information somewhere that describes what makes up finance charges?
A. Page 5, http://www.fdic.gov/regulations/compliance/manual/pdf/V-1.1.pdf

“The finance charge is a measure of the cost of consumer credit represented in dollars and cents.”
“Finance charges include any charges or fees payable directly or indirectly by the consumer and imposed directly or indirectly by the financial institution either as an incident to or as a condition of an extension of consumer credit. The finance charge on a loan always includes any interest charges and often, other charges.”

Q. If my Mortgage loan APR changes, will I be notified, or could this turn into part of deceptive practices?
A. http://www.fdic.gov/regulations/laws/rules/6500-2340.html

19(a)(2)(ii) Three-business-day waiting period.

3. “Timing. When redisclosures are necessary because the annual percentage rate has become inaccurate, they must be received by the consumer no later than the third business day before consummation. (For redisclosures triggered by other events, the creditor must provide corrected disclosures before consummation.”

Q. Is the lender strictly required to redisclose my new APR to me?
A. Mostly yes. If the APR changed less than .125, there is no need to redisclose. If the APR increased more than .125, the lender must send another TIL 3 business days before consummation.

Q. Will an increase in APR increase the payments?
A. No. Refer the customer back to the note for their interest rate and payment. That’s really what most borrowers want to know.

More information -

http://www.consumerfinance.gov/askcfpb/173/if-something-related-to-my-loan-changes-when-does-the-lender-have-to-tell-me.html

UPDATED MARCH 22, 2012

"Your lender may be required to provide you with a new Good Faith Estimate (GFE) and a new Truth-in-Lending statement if the information disclosed on the forms changes. Once you have been provided a GFE and a Truth-in-Lending disclosure after you first apply, your estimated settlement charges and loan terms can only change within specific regulatory requirements.
If there are changes affecting information disclosed on the GFE, in some cases your lender must send you a revised version within three business days of the lender’s receipt of information justifying the change. If there are changes to information disclosed by the Truth-in-Lending statement, your lender may be required to issue a corrected Truth-in-Lending statement so that you receive it at least three business days before closing."

Common Questions:

http://www.consumerfinance.gov/askcfpb/search?selected_facets=tag_exact%3ATruth-in-Lending+disclosure

Best!

Reply by jba/fl on 10/1/13 8:29am
Msg #486569

"Time to call your LO" might be the best tactic.

Reply by Linda_H/FL on 10/1/13 8:44am
Msg #486576

I only explain the APR if the borrower asks -

and then only say "that's the cost of your loan expressed as a percentage - that is NOT your note rate, that's just the cost of your loan"...

They nod and we move on. Too many words they glaze over and we're in trouble.

Reply by 101livescan on 10/1/13 8:43am
Msg #486575

This is way too complicated for any of us to get into.

Most of the loans I do these days have been for very savvy borrowers, and they've refi'd over and over, invested over and over, and they are completely aware of what the APR represents. But any one else, take it up with your LO. He gets paid the big $$.

Reply by bagger on 10/1/13 9:23am
Msg #486590

I start with "Are you familiar with the Federal Governments mandated TIL?"
If they say yes, the all is cool, if not I say "well this has nothing to do with your loan, you paid some up front closing costs. If you roll those costs back into the loan, count it as interest, then re-calculate the interest charges over the term of the loan, you come up with this APR or actual cost of the loan. If you found someone that did not charge closing costs, then the APR would be the same as your interest rate. All this form is doing is helping you to shop for a loan".
Never had a problem. And I am not about to pull out a calculator.

Reply by JanetK_CA on 10/1/13 7:14pm
Msg #486665

I think that's TMI, bagger. I like one simple sentence, where needed only, like "this is the total cost of your loan...". (See the brief suggestion above.) Much more than that and the eyes glaze over - plus it raises other issues the LO may not want you to bring up. For example, what if they were paying closing costs and you mention that some don't. You've opened a can of worms. This is exactly why people are so nervous about notaries "explaining" loan docs. It doesn't mean they're not getting as good a deal (because the no-cost loans may have a higher interest rate), but that's not our territory, it's the LO's.

Reply by dgd/CA on 10/1/13 10:18am
Msg #486596

Thank you Bear. Very informative, fact based, post. Having worked in Lending (prior to becoming a NSA), I've never had a problem with this. However; I can certainly understand why many in our field, would/do.

What I have never understood is why so many LOs gloss over this in the beginning of the loan process, leaving it to either the NSA or Closer, at the end, to deal with.

Reply by MW/VA on 10/1/13 10:35am
Msg #486600

Thanks for the great info again. I have my "one-liner" for

the TIL: this apr is your rate + costs you paid. It's always worked & have never had any hangups on the TIL. Any further explanation would need to come from the LO.

Reply by CJ on 10/1/13 10:45am
Msg #486605

Thanks for all this helpful information. n/m

Reply by Bear900/CA on 10/1/13 10:56am
Msg #486606

Good comments - People who know much say little. n/m

Reply by JPH13/MO on 10/1/13 1:22pm
Msg #486628

Re: Good comments - People who know much say little. Or...

I agree for the most part about all this, and think it is interesting that my older post caused you to feel the need to create this lengthy post.

I have heard privately from others in the lending industry who appreciated my post and wish others would let borrowers know that the APR was designed to be used as a way to shop around for the lowest closing costs for a specific loan product. To me that is a short and truthful statement, and makes more sense to a borrower. I understand that a higher APR may not always indicate that the loan fees will be higher than another loan with a lower APR, but nothing is perfect and it remains, IMO, a good way to shop for a loan with the lowest closing costs.

I know saying that makes a lot more sense to borrowers, because they tell me that they never understood its purpose before and now it makes sense. To each his/her own, but telling someone an easily verifiable truth has not hurt me yet, and those borrowers will now be able to use this tool in the future, and are glad I told them this.

Reply by Bear900/CA on 10/1/13 2:26pm
Msg #486636

You're actually the type of person I would enjoy

sitting down with and having a one-on-one. Iron sharpens iron. I appreciate people who do their research and this was not a take on your process if that's what it takes to get you to a comfort zone.

Any post on APR, including mine, will induce opinions and statements from others while well-meaning can be incorrect. Unfortunately, those become teaching tools for the many.

My comments were intended for the NSA who chooses to learn a little bit more about the process as was yours. These are not comments I share with a customer. Personally, I feel it’s best to know the ‘what and whys’ so I know where the line is to stop.

Increasing our personal knowledge inspires confidence in us and others. Customers sense that and become more relaxed during the process. I say very little to customers compared to what I read here. I come from the perspective of an LO and wouldn't say anything 'extra' to alter whatever communication exists between the LO and their client. That is what I would want.

Reply by JPH13/MO on 10/1/13 4:20pm
Msg #486647

Re: You're actually the type of person I would enjoy - Thx!

I agree, wouldn't mind talking with you someday! Thank you for the nice comments. I, like you, try to help people even when it sometimes causes others to get a bit grumpy.

I really don't say too much to borrowers, other than what I mentioned, because it is helpful information that they don't know. I also summarize every doc, but I'm careful to point to the words on the doc that I essentially string together for each summary so that they know I'm not saying something that doesn't show up anywhere in the docs they are signing.

I will never be a "point and sign" notary, I will always be a signing agent. Borrowers are so happy that they don't have to sign without having a clue what they are signing. Most are also quite surprised by my administering an oath prior to the first Jurat, as well. I just don't get that notaries choose not to do that since it is what makes the document legally enforceable, but I have never had anyone swear me in, ever, on any property loan.