GLOSSARY OF TERMS MOST FREQUENTLY USED IN MORTGAGE LENDING
ACCELERATION CLAUSE A clause in a deed of trust or mortgage which accelerates or hastens the time when the debt becomes due, for example, most deeds of trust or mortgages contain a provision that the note shall become due immediately, at the lender's discretion, if the borrower does not honor the terms of the mortgage agreement.
AD VALOREM "According to value," used in connection with taxation.
ADVERSE ACTION A term used when a borrower's application has been denied. The lender must inform the applicant the denial. This process is referred to as "adverse action".
ALIENATION CLAUSE (DUE ON SALE CLAUSE) A clause in a mortgage that specifically calls a mortgage loan due upon sale or transfer of the property.
AMORTIZATION The gradual reduction of a debt by means of periodic payments sufficient to pay principal and thereby liquidate the debt.
ANNUAL PERCENTAGE RATE (APR) charges- including fees, interest rate, points, and other charges- expressed as a percentage of the total amount of the loan. Must be disclosed to the borrower under federal Truth-in-Lending Law.
APPRAISAL The act of placing an estimate of value on real property and the process of preparing such an estimate.
ARREARS Term used to describe a method of payment, i.e. taxes are paid in arrears, after the year has passed.
ASSESSED VALUE The value of real property established for the purpose of assessing real property taxes.
ASSIGNMENT OF MORTGAGE A document that shows that a mortgage has been transferred from one mortgagee to another mortgagee.
ASSUMPTION OF MORTGAGE Agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust. The lender must usually approve the new debtor in order to release debtor, (usually the seller), from liability.
ASSUMPTION SUBJECT TO THE MORTGAGE When a purchaser buys subject to the mortgage but does not endorse the same or assume to pay the mortgage, a purchaser cannot be held for any deficiency if the mortgage is foreclosed and the property sold for an amount not sufficient to cover the note.
ASSUMPTION CLAUSE A clause in a mortgage that sets forth the lender's conditions and terms for the transfer of a mortgage to another mortgagor. The two concerns of the clause are: (1 ) the seller's continued liability and (2) possible re-negotiation of the terms of the mortgage.
BASIS POINT Defind as one-hundredth of one percent (.01 percent). 50 basis points=1/2% = .5%. 75 basis points=3/4% =.75%. (Percentagewise, how much is 50 basis points = .5%). 200 basis points = 2%. 150 basis points = 1 1/2%.
BLANKET MORTGAGE A mortgage loan secured by more than one property pledged as collateral. For example, a homeowner wishing to purchase two adjacent residences may obtain one mortgage by pledging both properties as collateral.
BALLOON MORTGAGE A mortgage with periodic installments of principal and interest that does not fully amortize the loan. The balance of the mortgage is due in a lump sum at the end of the term.
BRIDGE LOAN Also known as a SWING LOAN
CAVEAT EMPTOR An expression used that means BUYER BEWARE.
COMMITMENT A written promise by a lender to make a specific loan to a prospective borrower.
CONTRACT FOR DEED (INSTALLMENT SALES CONTRACT, LAND CONTRACT, AGREEMENT FOR DEED) A method of financing property whereby the buyer obtains possession, but the seller retains title.
CONVENTIONAL LOAN A term describing the traditional fixed-rate, amortized mortgage loan that is not FHA -insured or VA guaranteed. (Can be offered by private companies or investors).
CONVEYANCE The transfer of the title to land from one person or class of persons to another.
COUNTEROFFER A lender will make an offer to make a loan with terms different than those applied for by the borrower.
DEED An instrument in writing under seal, duly executed and delivered, containing a transfer, bargain, or contract, used in conveying the title of real property from one party to another.
DEED OF TRUST (TRUST DEED) A conveyance of the title to land to a trustee as collateral security for payment of a debt with the condition that the trustee shall reconvey to title upon payment of the debt, and with power to the trustee to sell the land a pay the debt in the event of a default on the part of the debtor.
DEED RESTRICTION A limitation placed in a deed limiting or restricting the use of real property.
DEED IN LIEU OF FORECLOSURE A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.
DEFAULT The nonperformance of a duty, whether arising under a contract or otherwise. DEFICIENCY JUDGMENT A personal judgment against any person liable for the debt secured by a mortgagee or deed of trust and being the amount remaining due to the mortgagee or beneficiary after foreclosure.
DEPRECIATION The gradual reduction in value of an asset.
DISCOUNT POINT One percent of the face value of the loan.
DISINTERMEDIATION The flow of funds out of savings and loan associations into short-term investments in which interest rates are higher resulting in a decrease of funds available for long-term real estate financing.
DUE-ON-SALE CLAUSE A clause that specifically calls a mortgage loan due - at the lender's option - upon sale or transfer of the property.
EASEMENT A right or interest in the land of another entitling the holder thereof to some use, privilege, or benefit, such as to place pole lines, pipelines, roads thereon, or travel over.
EMPLOYED BY Receives W-2s. Has taxes taken from gross wages. Is directed as how to accomplish tasks.
ENCROACHMENT An improvement that intrudes illegally upon another's property.
EQUITY The market value of a property to the owner less all lien amounts outstanding against it. Equity is usually estimated by subtracting debts owed on the property from the property's estimated market value.
EQUITY OF REDEMPTION (BEFORE FORECLOSURE) The ability to save your home from foreclosure by paying all late mortgage payments along with all the appropriate penalties and fines.
ESCHEAT (The state cheats you out of your land) The lapsing or reverting of land to the state due to the owner dying intestate (without a will) and without heirs capable of inheriting the land.
ESCROW Securities, instruments or other property deposited by two or more persons with a third person, to be delivered on a certain contingency or the happening of a certain event. The subject matter of the transaction is the escrow. The terms with which it is deposited with the third party constitutes the escrow agreement. The third person is the escrow agent.
ESCROW ANALYSIS The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance and other bills when due.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC, FREDDIE MAC) A private corporation authorized by Congress in 1970 to provide secondary mortgage market support for conventional mortgages. Commonly known as Freddie Mac. FEDERAL HOUSING ADMINISTRATION (FHA) A federal agency under the Department of Housing and Urban Development that was formed to standardize home financing and stabilize the mortgage market. FHA's principal activity is insuring approved lending institutions against mortgage loan defaults. Lenders must in turn follow FHA credit guidelines and restrictions. FHA neither buys nor originates loans.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA, FANNIE MAE) A privately owned corporation created by Congress in 1938 to support the secondary mortgage market by purchasing and selling government underwritten residential mortgages. Today, FNMA purchases more conventional mortgages than government mortgages. Commonly known as Fannie Mae.
FEDERAL RESERVE (The banker's bank) A government institution that controls and regulates the operation of all nationally chartered banks.
FIDUCIARY A relationship that implies a position of trust or confidence wherein one person is usually entrusted to hold or manage property or property for another.
FIRST MORTGAGE A mortgage that is a first lien on the property pledged as security.
FORBEARANCE The act of refraining from taking legal action despite the fact that the mortgage is in default.
FORECLOSURE The legal process by which a mortgagor of real or personal property or other owner of a property subject to a lien, is deprived of his interest therein. The usual modern method is sales of the property by court proceedings or outside of court.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA, GINNIE MAE) A governmental agency that participates in the secondary mortgage market. It sponsors mortgage-backed securities programs backed by FHA and VA loans.
GRADUATED PAYMENT MORTGAGE (GPM) A standard loan for families with low but increasing income.
GRANT The act of conveying or transferring title to real property.
GRANTEE The person who receives from the grantor a conveyance of real property.
GRANTOR The person transferring title to, or an interest in, real properly, (i.e. seller gives up title). The grantor is not always the seller, (usually is seller, but could be trustee or sheriff).
GROWING EQUITY MORTGAGE (GEM) A mortgage loan where the mortgagor makes extra principal payments every year in addition to regular payments for the purpose of accelerating equity buildup.
HAZARD INSURANCE A contract whereby, for an agreed premium, one party undertakes to compensate the other for loss on a specific subject by specified hazards, such as fire, flood and windstorm.
HIGHEST AND BEST USE The available present use or series of future uses that will produce the highest present property value and develop a site to its full economic potential.
HOME EQUITY LOAN A loan based on the accumulated equity in the property. Can be either a lump sum or an equity line of credit, and is usually a junior mortgage.
HOMESTEAD ESTATE The rights of record of the head of family or household in real estate, owned and occupied as a home, which is designated to protect the interest of a spouse and lineal descendants.
HOUSING AND URBAN DEVELOPMENT, DEPARTMENT OF (HUD) The federal department that manages various housing programs throughout the nation; also the parent regulator of FHA and GNMA
HYPOTHECATE To give a thing as security without the necessity of giving up possession of it.
INDEPENDENT CONTRACTOR Receives a 1099. Does not have taxes taken from his gross wages. Decides how to accomplish tasks.
INTERMEDIATION The flow of funds out of short-term investments into savings and loan associations making more funds available for long-term real estate financing, (opposite of disintermediation).
JUNIOR MORTGAGE/ JUNIOR LIEN A lien that is subsequent to the claims of the holder of a prior mortgage. Any lien that is not a first mortgage. (Priority of a mortgage determined by date and time of recording). We record at the county courthouse or wherever public records are kept.
LATE CHARGE A 4% penalty permitted by both FHA and VA covering any monthly payment not made by the 15th of the month in which payment is due. A late charge for a conventional loan is typically 5%. Payment due on first of month, late any day after the fifteenth.
LEASEHOLD An interest in real property held by virtue of a lease.
LEGAL DESCRIPTION A description of a parcel of land sufficient to identify the property.
LEVERAGE The use of borrowed funds to increase the return on a cash investment. For leverage to be profitable, the rate of return on the investment must be higher than the cost of money borrowed, (interest plus amortization).
LIEN A hold or claim which one person or a taxing authority has upon the property of another as a security for some debt or charge.
INVOLUNTARY LIEN A lien imposed by law, for delinquent taxes
JUDGMENT LIEN A lien placed upon a debtor as a result of a court decree
LOAN-TO-VALUE RATIO (LTV) The ratio between a mortgage loan and the market or appraised value, whichever is less. Used as a standard to measure the borrower's vested interest in the property and his or her consequent willingness to repay the loan. The higher the loan-to-value ratio, the riskier the loan because the borrower has less to lose upon default.
METES AND BOUNDS A description in a deed of the land location in which the boundaries are identified by directions and distances.
MORTGAGE A contract by which specific property is hypothecated for the performance of an act without the necessity of a change of possession.
MORTGAGE BROKER An intermediary agent who, for a fee, brings together borrowers and lenders to effect loan transactions.
MORTGAGE INSURANCE PREMIUM (MIP) The price paid by the borrower for insurance under an FHA loan, furnished by the federal government in favor of the lender, insuring payment of the loan in the event of default by the borrower after foreclosure. (What type of loans require MIP? FHA loans with a L-T-V greater than 90% require MIP)
MORTGAGE NOTE A negotiable promissory note secured by a mortgage on certain specific real estate.
MORTGAGE PORTFOLIO The aggregate of mortgage loans held by the lender.
MORTGAGEE The party in a mortgage transaction who holds the mortgage as security for a loan, usually the lender. (Two "E's" in mortgagee, two "E's" in lender).
MORTGAGOR The party who gives the mortgage as security for a debt; the owner of the debt collateral.
NEGATIVE AMORTIZATION A loan balance that increases over time rather than decreasing. The result of monthly payments that are smaller than the interest accrued; the difference is subsequently added to the loan balance.
NET WORTH The equity of the business (assets minus liabilities). NOTE (PROMISSORY NOTE) A debt instrument stating the loan amount, its interest rate, the term and method of repayment and the promise to pay.
NO-LIEN AFFIDAVIT A written document signed by the borrower, or seller, that states to the best of their knowledge, no mechanic's liens have been filed against the property within the last ninety days.
NOVATION A term used when the lender releases the original borrower from personal liability when a new borrower assumes the loan.
OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC) The federal entity that regulates nationally chartered banks.
OPEN-END MORTGAGE Mortgage, or deed of trust, written so as to secure and permit additional advances on the original loan.
ORlGlNATlON FEE Fee charged by the mortgagee for originating a mortgage loan. Covers credit inspection, appraisal fees. inspection of property, loan application processing and other administrative costs.
PACKAGE MORTGAGE A method of financing in which the loan that finances the purchase of a home also finances the purchase of personal items such as a washer, dryer, refrigerator, ac, and other specified appliances.
PAYMENT CAP A limit set on what an adjustable rate mortgage loan's periodic (usually monthly) payments can be.
PITI An abbreviation for principal, interest, taxes and insurance, commonly synonymous with the borrower's monthly payment on a amortized loan plus taxes and insurance paid monthly to an impound or escrow account.
PLAT A map showing dimensions of a piece of real estate based upon the legal description.
PREPAYMENT PENALTY Similar to early withdrawal charge; levied against the borrower who repays a loan prior to its maturity. Commonly prescribed in an original loan agreement's prepayment clause.
PRIMARY MORTGAGE MARKET The market in which loans are made by institutions or investors directly to borrowers.
PRINCIPAL (1) The amount of a loan upon which interest is charged. (2) One of the main parties in a transaction, such as the seller of a home.
PURCHASE MONEY MORTGAGE (PMM) A mortgage given to the seller to secure in whole or in part the purchase price of real properly. QUALIFICATION In real estate finance, the process of obtaining a sufficient amount of information from a buyer and seller to determine the seller's financial objectives and the buyer's purchasing capacity.
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) A federal law requiring all closing costs on a first mortgage be disclosed to the buyer and the seller of a one to four-family residential property.
REPRODUCTION COST The sum of money which would be required to reproduce a building.
REVERSE MORTGAGE A mortgage in which a lender may make scheduled monthly payments to the borrower using a mortgage-free property as collateral.
RIGHT OF REDEMPTION (AFTER FORECLOSURE) The right allowed by law in some states, (not in Florida), whereby a mortgagor may buy back property by paying the amount owed on a foreclosed mortgage, including interest and fees.
RIGHT OF RESCISSION Commonly known as a "cooling off period". Refers to the 3 day period (72 hours) that consumers have to rescind certain types of transactions. For example, a borrower can rescind (invoke to right of recision) any time during the first 72 hours after signing an home equity line of credit. This applies to owner occupied refinance transactions, but is not applicable to purchase transactions.
RESTRICTIVE COVENANTS A clause in a deed limiting use of the property conveyed for a certain period of time.
SATISFACTION A written instrument that evidences the payment in full of a mortgage debt, and extinguishes the mortgage lien. In Florida, it is referred to as satisfaction of mortgage.
SECOND MORTGAGE A mortgage that ranks immediately behind the first mortgage in priority.
SECONDARY MORTGAGE MARKET The market in which already existing mortgages are bought and sold. Dominated by major agencies and organizations, which buy discounted mortgages in order to (1 ) Generate a yield for investors (2) Provide a source of liquidity to mortgage sellers (3) Redistribute funds from cash-rich to cash-poor localities
SECURITY INTEREST An interest that a lender takes in the borrower's property to assure repayment of a debt.
SELLER CARRYBACK An idiom commonly used in real estate for whenever the seller, acting as a lender, holds or "carries back" a first mortgage note from the buyer. An example would be a purchase-money mortgage.
SERVICING The collection of payments of interest and principal, and trust fund items such as fire insurance, taxes etc. on a note by the borrower in accordance with the terms of the note. SHARED APPRECIATION MORTGAGE A mortgage in which the lender charges a below-market interest rate in exchange for a share of the profits when the property is sold.
SIMULTANEOUS ISSUE Occurs when the buyers title insurance policy and the mortgagees title insurance policies are issued at the same time.
STATUTE OF FRAUDS Assures that all real estate contracts are in writing.
SUBORDINATION The act of a party acknowledging, by written recorded instrument, that a debt due is inferior to the interest of another in the same property. (i.e. voluntarily moving from first lien position to second lien position).
TABLE FUNDING A financing technique that occurs when a correspondent lender or lender closes a mortgage loan with funds belonging to an acquiring investor and immediately assigns the loan to that investor.
TERM MORTGAGE A mortgage wherein only the interest is paid, with the entire principal amount due in one lump sum due upon maturity.
TITLE The means whereby the owner of lands has the just possession of his properly.
TRUST DEED An agreement in writing conveying properly from owner to a trustee for accomplishment of the objectives set forth in the agreement. Trust deeds are generally used in many states rather than mortgages to secure loans on real property.
TRUSTEE A person, real or juristic, holding property in a trust. (often an attorney).
TRUTH-IN-LENDING LAW Enacted under the Consumer Credit Protection Act; implemented by Regulation Z of the Federal Reserve Board. Ensures disclosure or credit costs by lenders, including disclosure of all fees and charges associated with a loan, but separate from the quoted interest rate.
UNDERWRITING The financial analysis of a borrower made to determine the borrower's ability to repay a loan.
USURY Charging more interest on a loan than the legal limit. F.S. 687 covers usury here in Florida.
VETERANS ADMINISTRATION (VA) A federal agency that provides services for veterans of the US Armed Forces. In real estate finance, the VA guarantees lenders against defaults on loans made to qualified veterans.
WARRANTY DEED A type of deed containing the strongest and most comprehensive promises of further assurance possible for a seller to convey to a buyer. The seller fully warrants good clear title to the premises. In Florida, this is the document that transfers rights of ownership.
WAREHOUSING A revolving line of credit with a commercial bank secured by the pledge of first mortgages on residential property; the accumulation and holding of mortgage loans pending sale to an investor or provider of financing.
WRAPAROUND MORTGAGE A junior mortgage which secures a debt that includes the balance due on an existing senior mortgage, plus an additional amount due to the wraparound mortgagee. The wraparound mortgagee thereafter receives all payments and then remits the payments to the senior mortgage.
MAXIMUM MORTGAGE BROKERAGE COMMISSIONS (FEES)
A NET LOAN IS THE AMOUNT A GROSS LOAN IS THE AMOUNT OF THE LOAN AFTER THE OF THE LOAN BEFORE THE COSTS COSTS HAVE BEEN DEDUCTED HAVE BEEN DEDUCTED
UP TO $1,000 UP TO $1,000 $250 $250
$1,000 TO $2,000* $1,000 TO $5,650 $250 ON THE FIRST $1,000 ADD $1,500 TO THE AMOUNT OF PLUS $10 FOR EACH LOAN AND DIVIDE BY 11 ADDITIONAL WHOLE $100 OF THE LOAN AMOUNT
$2,000 TO $ 5,000* $5,650 TO $5,750 $350 ON THE FIRST $2,000 THE MAXIMUM COMMISSION IS THE PLUS $10 FOR EACH AMOUNT OVER $5,000 ADDITIONAL WHOLE $100 OF THE LOAN AMOUNT
OVER $5,000* OVER $5,750 $250 PLUS 10% OF THE DIVIDE THE AMOUNT OF THE LOAN AMOUNT OF THE LOAN BY 11 AND ADD $227.27
IMPORTANT NOTES
1. IF THE WORD NET DOES NOT APPEAR IN THE FIRST SENTENCE OF THE PROBLEM, IT IS CONSIDERED A GROSS PROBLEM. 2. IF A COMMISSION IS MENTIONED IN THE PROBLEM, THEN THE STATED COMMISSION AMOUNT IS THE MAXIMUM COMMISSION.
3. * THE STATE PERMITS THE ADDITION OF 10% OF ANY EXPENSES TO BE ADDED TO THE BROKERAGE FEE (IF THERE ARE EXPENSES STATED IN THE PROBLEM)
EXPLANATION:
Use this equation to solve the following problems. This equation always works. Sometimes you will be given the gross amount of the loan and asked to solve for the net amount, (net proceeds). In other instances you will be given the net amount and asked to solve for the gross amount. Remember that net and gross amounts are just like your paycheck; you start with the gross amount, subtract some "costs" and end up with the net amount.
THE GROSS AMOUNT - MORTGAGE BROKER COMMISSION - ANY EXPENSES NET AMOUNT (NET PROCEEDS)
In other words, the gross amount, minus the mortgage broker commission, minus any expenses equals the net amount.
MAXIMUM FEES (COMMISSIONS) CALCULATIONS
1. Bob requests a mortgage loan of $800.00. The amount which he expects to borrow must include the mortgage commission. a. What is the maximum amount that can be charged as a commission?
b. What will be the net proceeds of the loan?
a. ___________________ b. ___________________
2. Steve applies for a mortgage loan to net $3,600.00.
a. What is the maximum brokerage commission that may be charged?
b. What is the total amount of the loan?
a. ___________________
b. ___________________
3. Ralph is told that a mortgage loan will be made for $12,000.00 on a certain house.
a. What is the maximum fee that may be charged?
b. What is the net amount of the loan?
a. ___________________
b. ___________________
4. Barbara applies for a mortgage loan of $7,000.00.
a. What is the maximum commission amount?
b. What is the net amount of the loan?
a. ___________________
b. ___________________ 5. Ruth makes application for a mortgage loan of $9,000.00. She is told that the approximate fee would be $350.00.
a. What is the maximum amount of commission that can be charged on this transaction?
b. What is the net amount of the loan? a. ____________________ b. ____________________ 6. Ken applies for a mortgage loan of $10,500.00. In addition to the brokerage fee, Ken will be charged $75.00 for title insurance, $150.00 for an attorney's fee, and $25.00 for a credit report.
a. What is the maximum fee that may be charged? b. What are the net proceeds of the loan? a. ___________________ b. ___________________
7. Mick has applied for a mortgage loan of $1,900.00.
a. What is the maximum fee that may be charged on this loan? b. What are the net proceeds of the loan? a. ___________________ b. ___________________
8. Mr. Bordeaux seeks a mortgage loan to net him $2,420. He is told that he will have to pay $125.00 attorney's fee, $55.00 for a survey and $85.00 title insurance plus the brokerage fee. He requests these expenses be added to his loan. a. What would the brokerage fee be if the maximum is charged?
b. What is the total amount of the loan?
a. ___________________
b. ___________________ STATE TRANSFER TAXES
TAX BASED ON TAX RATE EXAMPLES: DOC STAMPS ON THE DEED (NORMALLY PAID BY SELLER) SALES PRICE $.70 PER $100 OF THE SALES PRICE SALES PRICE = $80,000 $80,000/100 = 800 STAMPS 800 STAMPS X $.70 = $560
REMEMBER: ALWAYS ROUND STAMPS UP 800.2 STAMPS = 801 STAMPS DOC STAMPS ON MORTGAGE (NORMALLY PAID BY THE BUYER) NEW AND ASSUMED MORTGAGES $.35 PER $100 OF THE NEW MORTGAGE AMOUNT
PLUS
$.35 PER $100 OF THE ASSUMED MORTGAGE AMOUNT NEW MORTGAGE = $50,000 $50,000/100 = 500 STAMPS 500 X $.35 = $175.00
ASSUMED MORTGAGE= $10,550 $10,550/100 = 106 STAMPS (UP) 106 X $.35 = $37.10
TOTAL FOR BOTH MORTGAGES $175.00 + $37.10= $212.10
REMEMBER: ALWAYS ROUND STAMPS UP INTANGIBLE TAX (NORMALLY PAID BY BUYER) NEW MORTGAGES ONLY .002 X NEW MORTGAGE AMOUNT NEW MORTGAGE = $50,000 ASSUMED MORTGAGE = $10,500
$50,000 X .002 = $100 INTANGIBLE (USE NEW MORTGAGE ONLY)
Documentary stamps must be paid before the instrument is recorded.
The intangible tax is based on the face value of the note.
STATE TRANSFER TAXES
1. Denny buys a parcel of land from Bob for $100,000 with Bob holding a new 80% loan. Compute all taxes due.
a. ____________________ b. ____________________ c. ____________________
2. Maria agrees to sell her home to David for $50,000. David assumes a $20,000 first mortgage. Maria agrees to hold a $12,500 second mortgage. Compute all taxes due.
a. ____________________ b. ____________________ c. ____________________ d. ____________________
3. Joe buys Lisa's house for $75,000. What are the state documentary taxes due ?
a. ____________________
4. Julie sells her condominium to Donna for $67,000. Donna takes title to Julie's property by assuming Julie's $60,000 mortgage with the lender agreeing to release Julie from all liability. The remainder of the purchase price is cash down payment. Compute all taxes due.
a. ____________________ b. ____________________
LOAN AMORTIZATION (Please read problem #1, and then complete #2)
1. A borrower obtains a $100,000 loan at 10 1/2% for thirty years. The monthly payments are $914.74. What is the first month's interest payment? What is the first month's principal reduction?
$100,000 X 10 1/2% = $10,500.00 First year's interest $ 10,500 / 12 months = $ 875.00 First month's interest $ 914.74 - $875.00 = $ 39.74 Principal reduction
2. A borrower obtains a $100,000 loan at 10% for thirty years. The monthly payments are $877.57. What is the first month's interest payment? What is the first month's principal reduction? First month's interest $ ______ Principal reduction $ ______ PRORATIONS
TAXES, INTEREST, AND RENT
When negotiating a contract for sale and purchase of real property, the buyer and seller agree to certain costs that are to be prorated or proportionally divided between them as of the closing date of the transaction. These costs may include those for property taxes, insurance premiums, interest on an existing mortgage taken over by the buyer, rent and/or security deposits if an income-producing property is involved, plus any others as agreed between the parties.
Proration computations will be made for the various items, and the appropriate figures will be entered on a closing statement prepared in accordance with the terms and conditions of the contract. Each prorated item will be entered on the statement as a debit for one party and a credit for the other.
Debit means to "charge to" and applies to the party who pays a sum of money.
Credit means to "add to" and applies to the party who receives a sum of money.
Prorated costs are often computed as of the closing date of the transaction; who this date "belongs to" or is "charged to", or who is "responsible for" the day of closing, should be specified in the sales contract as agreed to by the parties.
If the closing date belongs to the seller, that is the date to be used for all proration computations. If the closing date belongs to the buyer, all proration computations should be made as of the previous day; the last day of seller ownership.
If the time given for proration computations is "midnight" of the date previous to title closing, all computations should be based upon the previous date.
If the sales contract is silent as to who should be charged with the closing date and the transaction closes according to "custom" without dispute, there should be no problem for anyone. However, if either party disagrees with custom, there is a civil dispute that will likely be resolved in a court of law.
After reviewing the sales contract and all aspects of the dispute, the court could: 1) rule based upon custom; 2) rule contrary to custom; or 3) rule that no contract exists because "there was no meeting of the minds." If no contract exists, the broker involved may be held responsible.
METHOD OF PRORATION
The 365-Day Method
The "365-Day Method" assumes that every year has 365 days, and the procedure for using this method is as follows:
1. Divide the annual cost of the item to be prorated by 365, (the number of days in a year) to compute the average daily cost of that item. 2. The average daily cost should not be "rounded", and must be used exactly as computed. For example: If $550 is divided by 365, the result is an average of $1.506849 per day.
3. The use of the average daily cost will be explained in the problems which follow. Most students find that the proration of property taxes, insurance, interest, and rent is easier to understand if they learn to "diagram" the problem. The "diagram" should be prepared immediately after thoroughly reading the problem, and before any computations are made.
TYPICAL PRORATION COMPUTATIONS
The following problems are examples of typical "property tax, interest, and rent proration" computations, and the procedure for using a diagram to assist in solving each type of problem.
Problem No. 1 Tax Proration
Jan and Fred sold their home, and the transaction closed on May 22nd. If their property taxes for the year of closing were $675 and the day of closing belonged to the seller, what was the buyer's credit for the prorated taxes by the 365-Day method?
Explanation: Real property taxes are normally paid in arrears, and the buyer of the property is responsible for paying all of the taxes for the year of closing. Consequently, the seller pays the buyer at closing for his prorated share of the property taxes.
Solution - 365-Day Method:
Step No. 1: Prepare a "diagram" of the tax proration problem as shown below.
(from) SELLER (to) BUYER
Jan. 1 Dec. 31 $
May 22
Step No. 2: Compute the average daily cost by dividing the annual cost of the property taxes by 365 (the number of days in a year.)
$675 Average Daily Cost ------ = $1.849315 365
Step No. 3: Compute the number of days of seller ownership of the property in the year of closing.
January 31 days + February 28 days + March 31 days + April 30 days + May 22 days Total 142 days
Step No. 4: Compute the buyer's total credit for prorated property taxes by multiplying the average daily cost times the number of days of seller ownership in the year of closing.
Buyer's Total Credit = $1.849315 X 142 = $262.60
The buyer's total credit of $262.60 would be entered on the closing statement as a "credit" to the buyer and a "debit" to the seller.
When the diagram was prepared, the "$" sign was placed at the end of the tax year (December 31st) since property taxes are usually paid in arrears in Florida. On property tax diagrams, the arrow at the top of the diagram will always point toward the "$" sign and indicate the direction in which the money for tax proration is "flowing". Problem No. 2 - Proration Of Interest Paid In Arrears
Tom sold his home to Dave, who assumed the existing mortgage loan on the home. The closing date of September 22nd was charged to Tom, and the interest portion of the next monthly payment due on October 1st was $195. How much was Dave's credit at closing for the prorated interest?
Explanation:
Mortgage loan interest is normally paid in arrears, and the buyer of the property is responsible for paying all of the interest for the month of closing when assuming the existing loan. Consequently, the seller pays the buyer at closing for his share of the interest for the month of closing.
The actual number of days in the month of closing should be used when prorating interest.
Solution:
Step No. 1: Prepare a "diagram" of the interest proration problem as illustrated below.
(from) SELLER (to) BUYER
1st 30th $
22nd
Step No. 2: Compute the average daily cost by dividing the interest. cost for the month of closing by the actual number of days in month of closing (September = 30).
$195 Average Daily Cost = $6.50 30
Step No. 3: Compute the buyer's total credit for prorated interest by multiplying the average daily cost times the number of days of seller ownership in the month of closing.
Buyer's Total Credit = $6.50 X 22 = $143.00
When the diagram was prepared, the "$" sign was placed at the end of the month of closing (September 30th) since the interest amount to be prorated was due after the closing date on October 1st.
On "interest paid in arrears" diagrams, the arrow at the top of the diagram will always point toward the "$" sign and indicate the direction in which the money for interest proration is "flowing".
The seller is paying the buyer at closing for the prorated interest; the buyer's total credit of $143 would be entered on the closing statement as a "credit" to the buyer and "debit" to the seller.
Problem No. 3 - PrePaid Interest
A home was sold, and the buyer assumed the existing mortgage loan. The seller had prepaid the mortgage loan interest of $294.50 on May 1st, and the transaction closed on the 11th day of the same month. If the seller was charged with the day of closing, how much was the seller's credit at dosing for the prorated interest?
Explanation:
When the interest on an existing mortgage loan is prepaid by the seller for the month of closing and the buyer of the property assumes the mortgage, the buyer pays the seller at closing for his prorated share of the interest for the month of closing.
The actual number of days in the month of closing should be used when prorating interest.
Solution:
Step No. 1: Prepare a "diagram" of the interest proration problem as illustrated below.
(to) SELLER (from) BUYER
$
1st 31st
11th
Step No. 2: Compute the average daily cost by dividing the interest cost for the month of closing by the actual number of days in the month of closing (May = 31).
$294.50 Average Daily Cost -------- = $9.50 31 Step No. 3: Compute the seller's total credit for Prorated interest by multiplying the average daily cost times the number of days of buyer ownership in the month of closing.
Seller's Total Credit = $9.50 X 20 = $190.00
When the diagram was prepared, the $ sign was placed at the beginning of the month of closing (May 1st) since the problem stated that the seller had prepaid the mortgage loan interest for May.
On "prepaid interest" diagrams, the arrow at the top of the diagram will always point toward the "$" sign and indicate the direction in which the money for interest proration is "flowing". In this problem, the buyer is paying the seller at closing for the prorated interest; the seller's total credit of $190 would be entered on the closing statement as a "credit" to the seller and "debit" to the buyer.
PRORATIONS (PRACTICE PROBLEMS)
INSTRUCTIONS: AT A MINIMUM, PLEASE COMPLETE THE PROBLEMS IN BOLD PRINT. COMPLETE THE OTHERS FOR ADDITIONAL PRACTICE. SOLUTIONS ARE LOCATED IN THE BACK OF THIS MANUAL.
1. Mary and Bob sold their home and the property taxes were $495.00 for the year of closing. If the closing date of August 4th belongs to the seller, what was the buyer's credit for prorated taxes by the 365-day method?
2. Tom sold his home and he was charged with the closing date of April 12th. If the property taxes were $900.00 for the year of closing, what was the debit to the seller for the prorated taxes by the 365-day method?
3. Dick's tri-plex was assessed for $167,000 and the property taxes for the year of closing were $3,006.00. If the property sold and Dick was charged with the closing date of June 20th, what was the buyer's credit for prorated taxes by the 365-day method?
4. Fred sold his home as was charged with the closing date of November 20th, 1987. Property taxes of $876.00 for the year of sale were paid on November 5th, 1987. What was Fred's credit for prorated taxes if the 365-day method was used for all proration calculations?
5. Ted bought a rental property located in the county from Dave. It was assessed at $90,520 for tax purposes and the property taxes were $1,493.58 for the year of closing. If Dave was charged with the closing date of October 21st, what was the debit to seller for prorated taxes by the 365-day method?
6. Dave sold his home to Tom and the deal closed on October 12th. Tom assumed the existing mortgage loan on the home and the interest portion of the next monthly payment due on November 1st was $449.50. If Dave was responsible for the day of closing, what was Tom's credit for prorated interest?
7. A home sold and the buyer assumed the seller's existing mortgage loan of $30,000.00. The seller had prepaid the mortgage loan interest of $225.00 on June 1st and the closing was held on the 22nd day of the month. If the seller was charged with the day of closing, what was the debit to the buyer for prorated interest?
REAL ESTATE FACTS TO REMEMBER
1. Sales contracts, title insurance policies, and deeds all contain legal descriptions.
2. Survey methods include:
a. Government survey method b. Metes and bounds method (starts at the point of beginning, most accurate) c. Plat method (most common)
3. Conveyance is the transfer of title to land from person or class or persons to another.
4. The linear distance from the lot line to where building can begin is called the setback. (However, the front property line to the back property line is not a setback) 5. Ad valorem taxes are taxes against property according to value.
6. Usually the real estate broker represents the seller.
7. Survey: Needed Not needed
Name of surveyor Name of the survey company Professional designation The age of an easement License number of surveyor Raised seal 8. Titles:
a. Property in severance means only one person on the deed. b. Tenancy in common has the following characteristics: 1. Unequal ownership 2. Parties can acquire title at the same or different times. c. Joint tenancy involves four mandatory characteristics: 1. Time 2. Title 3. Interest 4. Possession d. Husbands and wives have tenancy by the entireties. (Most common method of holding title) (Only type of ownership that can be severed by death or divorce)
Mary and Steve own a property with joint tenancy with right of survivorship. Steve passes away. Does Mary receive title to the property? Yes, regardless of the hiers MORTGAGE FACTS TO REMEMBER
1. A lien subsequent to the claims of the holder of a prior lien is called a junior lien.
2. A mortgage subsequent to the claims of the holder of a prior mortgage is called a junior mortgage.
3. A mortgage broker has a fiduciary relationship with the borrower, above all others.
4. A commission is earned when the loan has a written commitment. The commission is paid at closing.
5. Safety of the principal (money) is the primary objective of a sound mortgage lending practice.
6. A mortgage broker must inform the borrower, in writing, of the maximum total costs of processing and closing a loan. The borrower is under no obligation to complete the transaction if the broker underestimates the costs by 10% or $100, whichever is greater.
7. Lis pendens means the intent to file foreclosure or the intent to put a lien on a property, (pending litigation).
8. The coupon rate is the interest rate stated on the note.
9. The APR, (annual percentage rate), is located on the T-I-L, (Truth-in-Lending), statement.
10. To subordinate a mortgage means to move one of a higher priority to a lower position.
LOAN FACTS TO REMEMBER
1. A commitment is a written promise to make or insure a loan for a specified amount.
2. A loan has been consummated, but the deed has not been recorded. Escrow funds would still be distributed immediately.
3. GNMA issues mortgage-backed securities which are guaranteed by the government.
4. A promissory note serves as evidence of debt.
5. Submitting false information on a loan application may subject the borrower to a prison term and/or a $10,000 fine.
6. FHA and VA will not allow junk fees in the origination of a loan. A junk fee is any fee charged that is not customary to the transaction, (i.e. processing fee, underwriting fee, etc.)
7. A promissory note contains:
a. The loan amount b. Interest rate c. Term d. Method of repayment e. Promise to repay
8. The following are needed to fund a loan (pre-paids):
a. Interest payment to the end of the month (accrued interest) b. PMI insurance (private mortgage insurance) c. Hazard insurance d. Real estate taxes
AGENCY RELATIONSHIP
Agency: One person acts for another person by that person's authority
PRINCIPAL MORTGAGE BROKER BORROWER
ASSOCIATE MORTGAGE BROKER LENDER
FIDUCIARY RELATIONSHIP
PRINCIPAL MORTGAGE BROKER BORROWER
ASSOCIATE MORTGAGE BROKER LENDER
ARM'S LENGTH RELATIONSHIP
PRINCIPAL MORTGAGE BROKER BORROWER
ASSOCIATE MORTGAGE BROKER LENDER
CLOSING STATEMENT (SAMPLE)
SELLER'S STATEMENT BUYER'S STATEMENT
DEBIT CREDIT DEBIT CREDIT
_____ _____ TOTAL PURCHASE PRICE _____ _____ _____ _____ BINDER DEPOSIT _____ _____ _____ _____ FIRST MORTGAGE BALANCE _____ _____ ___________________________________________________________________________
PRORATIONS AND PREPAYMENTS: _____ _____ RENT _____ _____ _____ _____ INTEREST - 1ST MORTGAGE _____ _____ _____ _____ INTEREST - 2ND MORTGAGE _____ _____ _____ _____ PREPAYMENT 1ST MORTGAGE _____ _____ _____ _____ INSURANCE _____ _____ _____ _____ TAXES CITY _____ _____ _____ _____ TAXES COUNTY _____ _____
___________________________________________________________________________
EXPENSES _____ _____ ABSTRACT / CONTINUATION _____ _____ _____ _____ ATTORNEY'S FEES _____ _____
DOCUMENTARY STAMPS _____ _____ STATE TAX DEED _____ _____ _____ _____ STATE TAX MORTGAGE _____ _____ _____ _____ INTANGIBLE TAX _____ _____
_____ _____ RECORDING TAX: MORTGAGE _____ _____ _____ _____ RECORDING: DEED _____ _____ _____ _____ TITLE INSURANCE _____ _____ _____ _____ BROKERAGE _____ _____ _____ _____ MISC. _____ _____
___________________________________________________________________________
_____ _____ TOTAL DEBITS AND CREDITS _____ _____
THIS "FAR / BAR" CONTRACT IS A UNIVERSALLY ACCEPTED DOCUMENT CREATED BY THE FLORIDA ASSOCIATION OF REALTORS (FAR) AND THE FLORIDA BAR (THE FLORIDA LEGAL COMMUNITY). INTEREST ANALYSIS
To determine the amount of interest paid on a particular loan, you would first determine the total amount of payments, (P & I) paid and then subtract the amount of principal repaid. For example:
Loan amount is $ 50,000 Monthly payment is $ 600 (P & I) Loan term is 30 years How much interest is paid?
$600 X 360 (total number of payments over 30 years) = $ 216,000 Principal paid = 50,000 Interest paid = $ 166,000
This methodology can also be used to compare loans. For example, assuming both loans are for $50,000:
Tom has a 30 year loan with monthly P&I payments of $500 per month Sam has a 15 year loan with monthly P&I payments of $650 per month How much more interest did Tom pay than Sam?
Tom 360 payments x $500 per month = $ 180,000 - 50,000 = $130,000 Sam 180 payments x $650 per month = $ 117,000 - 50,000 = $ 67,000 Tom paid more than Sam: = $ 63,000
Loan amount is $ 75,000 Payment (P & I) is $ 800 Term is 30 years How much interest is paid? __________
DISCOUNT POINTS AND BROKER'S FEES
A discount point, (pre-paid interest) lowers the net proceeds to the borrower. For example:
Loan amount is $50,000 One discount point is charged What are the net proceeds to the borrower?
Loan amount $50,000 Discount point (1% of the loan amount) - 500 Net proceeds to borrower $49,500
If the broker's fee was 1/2 of 1% on the example above, how much would the broker receive? $50,000 X .005 = $ 250 DETERMINING THE MONTHLY PAYMENT
To determine the monthly payment, divide the total amount of the payments by the number of months paid. For example:
Loan amount is $ 40,000 Total interest paid is $ 86,370 Total amount of payments $ 126,370 Loan term is 30 years Total number of payments is 360 Monthly payment: $126,370 / 360 = $ 351.02 per month
PRO-RATED INTEREST PAYMENTS
Normally interest is paid in arrears, but pro-rated interest is paid in advance the day of closing for the remaining days in the month of closing. For example:
Loan amount is $54,750 8% interest rate 23 days remaining in the month How much interest is due using the 365 day proration method?
$54,750 X .08 = $ 4,380 interest per year $4,380 / 365 days = $ 12 interest per day $12 x 23 days = $ 276 total interest due for 23 days
MORE TRANSFER TAX PROBLEMS
A buyer is purchasing a home and obtaining a mortgage of $50,000 and giving a purchase money mortgage to the seller for $30,000. What is the amount of the intangible tax?
$ 50,000 + $ 30,000 = $ 80,000 (new mortgage money) x .002 = $160.00
Price is $ 110,000 L-T-V 80% Documentary stamps on the security instrument will be based upon what amount? $ 110,000 x 80% = $88,000
FOUR LICENSE CATEGORIES UNDER THE MORTGAGE BROKERAGE AND MORTGAGE LENDING ACT (EFFECTIVE OCTOBER 1, 1999)
THE FLORIDA MORTGAGE BROKER SCHOOL
MORTGAGE BROKER (ASSOCIATE) MORTGAGE BROKER BUSINESS CORRESPON- DENT MORTGAGE LENDER MORTGAGE LENDER LICENSE FEE $200 $425 $500 $575 NET WORTH REQUIREMENT NONE NONE $25,000 $250,000 SURETY BOND N/A N/A $10,000 $10,000 PERMITTED TO BROKER MORTGAGES THRU A PROPERLY LICENSED MB BUSINESS BROKER MORTGAGES MAKE LOANS
AND SERVICE LOANS UP TO 4 MONTHS MAKE LOANS
AND SERVICE LOANS INDEFINITELY RENEWAL PERIOD AUGUST 31 ODD YEARS AUGUST 31 EVEN YEARS AUGUST 31 EVEN YEARS AUGUST 31 EVEN YEARS RENEWAL FEES (MAIN) $150 $375 $475 $575
RENEWAL FEES (BRANCH) N/A $225 $325 $325
LATE RENEWAL UP TO 2 YRS REACTIVATION FEE $100 UP TO 6 MOS. REACTIVATION FEE $100 UP TO 6 MOS. REACTIVATIONFEE $100 UP TO 6 MOS. REACTIVATION FEE $100 MISC. CAN ONLY WORK FOR ONE MB BUSINESS MUST HAVE A QUALIFIED PRINCIPAL MORTGAGE BROKER MUST BE A BUSINESS OF SOME TYPE (PARTNERSHIP, CORP., ETC.) MUST BE A BUSINESS OF SOME TYPE (PARTNERSHIP, CORP., ETC.) FOUR LICENSE CATEGORIES UNDER THE MORTGAGE BROKERAGE AND MORTGAGE LENDING ACT (EFFECTIVE OCTOBER 1, 1999)
THE FLORIDA MORTGAGE BROKER SCHOOL
MORTGAGE BROKER (ASSOCIATE) MORTGAGE BROKER BUSINESS CORRESPON- DENT MORTGAGE LENDER MORTGAGE LENDER LICENSE FEE
NET WORTH REQUIREMENT
SURETY BOND
PERMITTED TO
RENEWAL PERIOD
RENEWAL FEES (MAIN)
RENEWAL FEES (BRANCH)
LATE RENEWAL
MISC.
(MAKE COPIES OF THIS PAGE AND FILL-IN THE CHART FOR PRACTICE) I. LAW AND CONTRACTS (30% OF STATE EXAM QUESTIONS)
A. STATE LAW (FLORIDA STATUTE 494) MORTGAGE BROKERAGE AND MORTGAGE LENDING ACT
PART 1 GENERAL PROVISIONS (ss 494.01 - 494.028) PART II MORTGAGE BROKERS (ss 494.03 - 494.043) PART III MORTGAGE LENDERS (ss 494.06 - 494.077) PART IV LOANS UNIFORM LAND (ss 494.008)
SECTION 494.001 DEFINITIONS
As used in ss. 494.001-494.0077, The term:
(1) ACT AS A CORRESPONDENT MORTGAGE LENDER means to make a mortgage loan.
(2) LOAN ORIGINATOR An employee of a mortgage lender or correspondent mortgage lender that negotiates the making of a mortgage loan. A person whose activities are ministerial and clerical, which may include quoting available interest rates or loan terms and conditions is not acting as a loan originator.
(3) 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, or 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.
(4) 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.
(5) ASSOCIATE means a person required to be licensed as a mortgage broker under this chapter 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 a correspondent mortgage lender. The use of the term associate, in contexts other than in the administration of ss. 494.003-494.0043, shall not be construed to impose or effect the common law or statutory liability of the employer. (6) BRANCH BROKER means the licensee in charge of, and responsible for, the operation of a branch office. Branch broker runs a branch office of a mortgage broker business.
(7) BRANCH OFFICE means a location other than the licensee's principal place of business.
(8) DEPARTMENT means the Department of Banking and Finance.
(9) 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.
(10) 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.
(11) 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:
(a) Revocation of a license or registration.
(b) Suspension of a license or registration.
(c) Probation of a license or registration for an offense involving fraud, dishonest dealing, or an act of moral turpitude.
(12) 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, business licensed under ss.494.001-494.0077, or other like 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.
(13) 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.
Five branches require five branch brokers. Commitment: Written promise to make a loan. Job 1 for the Dept of Banking & Finance is to protect public You must have a license if you are in Florida, another's $ and you're paid The cabinet office that regulates the Department of Banking and Finance is the Comptroller. (14) 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. (Lock-in: terms promised)
(15) MAKE A MORTGAGE LOAN means to advance funds, offer to advance funds, or make a commitment to advance funds to an applicant for a mortgage loan.
(16) MORTGAGE BROKERAGE FEE means a fee received for acting as a mortgage broker.
(17) MORTGAGE BROKERAGE BUSINESS means a person acting as a mortgage broker.
(18) MORTGAGE LOAN means any: (a) Residential mortgage loan (b) Loan on commercial real property if the borrower is a natural person or the lender is a non-institutional investor; or (c) Loan on improved real property consisting of five or more dwelling units if the borrower is a natural person or the lender is a non-institutional investor.
(19) NET WORTH means total assets minus total liabilities pursuant to generally accepted accounting principles.
(20) NONINSTITUTIONAL INVESTOR means an investor other than an institutional investor. (Man on the street, not a bank, S & L or real estate company)
(21) NONRESIDENTIAL MORTGAGE LOAN means a mortgage loan other than a residential mortgage loan. (Nonresidential = commercial)
(22) PERSON means an individual, partnership, corporation, association, or other group, however organized. (Person is a business entity)
(23) PRINCIPAL BROKER means a licensee in charge of, and responsible for, the operation of the principal place of business and all branch brokers.
(24) 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.
(25) RESIDENTIAL MORTGAGE LOAN means any mortgage or other security instrument secured by improved real property consisting of no more than four dwelling units. (26) SERVICE A MORTGAGE LOAN means to receive for another installment payments of principal, interest, or other payments pursuant to a mortgage loan.
(27) SUBSTANTIAL FAULT OF THE BORROWER means that the borrower: (The borrower not acting in good faith)
(a) Failed to provide information or documentation required by the lender or broker in a timely manner;
(b) 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;
(c) 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; or
(d) 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 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.
(28) 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. (Ultimate equitable owner = 10% or greater ownership interest).
A mortgage broker originates loans. Net worth = Assets - Liabilities Private investors = Man on the street; not banks, S & L's, etc. A mortgage transaction begins at application and ends at satisfaction. The borrower has 7 days to provide the requested information.
SECTION 494.0011 POWERS AND DUTIES OF THE DEPARTMENT
(1) The department shall be responsible for the administration and enforcement of ss. 494.001-494.0077.
(2) The department may adopt rules and perform other acts necessary for the proper administration, enforcement, and interpretation of ss. 494.001-494.0077.
(3) All fees, charges, and fines collected by the department pursuant to ss. 494.001-494.0077 shall be deposited in the State Treasury to the credit of the Regulatory Trust Fund under the Division of Finance of the department.
(4) (a) The department has the power to issue and to serve subpoenas and subpoenas duces tecum to compel the attendance of witnesses and the production of all books, accounts, records, and other documents and materials relevant to an examination or investigation. The department, or its duly authorized representative, has the power to administer oaths and affirmations to any person. (b) The department may, in its discretion, seek subpoenas or subpoenas duces tecum from any court of competent jurisdiction commanding the appearance of witnesses and the production of books, accounts, records, and other documents or materials at a time and place named in the subpoenas; and any authorized representative of the department may serve any subpoena.
Subpoena = Show up Subpoena duces tecum = Bring in requested books and records
(5)(a) In the event of substantial noncompliance with a subpoena or subpoena duces tecum issued or caused to be issued by the department, the department may petition the circuit court or any other court of competent jurisdiction of the county in which the person subpoenaed resides or has its principal place of business for an order requiring the subpoenaed person to appear and testify and to produce such books, accounts, records, and other documents as are specified in the subpoena duces tecum. The court may grant injunctive relief restraining the person from advertising, promoting, soliciting, entering into, offering to enter into, continuing, or completing any mortgage loan transaction or mortgage loan servicing transaction. The court may grant such other relief, including, but not limited to, the restraint, by injunction or appointment of a receiver, of any transfer, pledge, assignment, or other disposition of the person's assets or any concealment, alteration, destruction, or other disposition of books, accounts, records, or other documents and materials as the court deems appropriate, until the person has fully complied with the subpoena duces tecum and the department has completed its investigation or examination. In addition, the court may order the refund of any fees collected in a mortgage loan transaction whenever books and documents substantiating the transaction are not produced or cannot be produced. The department is entitled to the summary procedure provided in s. 51.011, and the court shall advance such cause on its calendar. Attorney's fees and any other costs incurred by the department to obtain an order granting, in whole or part, a petition for enforcement of a subpoena or subpoena duces tecum shall be taxed against the subpoenaed person, and failure to comply with such order is a contempt of court. (b) When it appears to the department that the compliance with a subpoena or subpoena duces tecum issued or caused to be issued by the department pursuant to this section is essential and otherwise unavailable to an investigation or examination, the department, in addition to the other remedies provided for in this section, may apply to the circuit court or any other court of competent jurisdiction of the county in which the subpoenaed person resides or has its principal place of business for a writ of ne exeat. The court shall thereupon direct the issuance of the writ against the subpoenaed person requiring sufficient bond conditioned on compliance with the subpoena or subpoena duces tecum. The court shall cause to be endorsed on the writ a suitable amount of bond upon the payment of which the person named in the writ shall be freed, having a due regard to the nature of the case.
(c) Alternatively, the department may seek a writ of attachment from the court having jurisdiction over the 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 duces tecum.
SECTION 494.0012 INVESTIGATIONS; COMPLAINTS; EXAMINATIONS
(1) The department may conduct an investigation of any person whenever the department has reason to believe, either upon complaint or otherwise, that any violation of ss. 494.001-494.0077 has been committed or is about to be committed.
(2) Any person having reason to believe that a provision of this act has been violated may file a written complaint with the department setting forth details of the alleged violation. (3)(a) The department may, at intermittent periods, conduct examinations of any licensee or other person under the provisions of ss. 494.001 - 494.0077.
(b) The department shall conduct all examinations at a convenient location in this state unless the department determines that 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 up to thirty 8-hour days per year for each department 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.
Biennial is every two years Bi-annual is each six months Any person making or acquiring a mortgage loan for the purpose of reselling, must be licensed. SECTION 494.00125 CONFIDENTIALITY OF INFORMATION RELATING TO INVESTIGATIONS AND EXAMINATIONS
(1) (a) Except as otherwise provided by this section, information relative to an investigation or examination by the department pursuant to this chapter, including any consumer complaint, is confidential and exempt from s. 119.07(1) until the investigation or examination is completed or ceases to be active. The information compiled by the department in such an investigation or examination shall remain confidential and exempt from s. 119.07(1) after the department's investigation or examination is completed or ceases to be active if the department submits the information to any law enforcement or administrative agency for further investigation. Such information shall remain confidential and exempt from s. 119.07(1) until that agency's investigation is completed or ceases to be active. For purposes of this section, an investigation or examination shall be considered "active" so long as the department or any law enforcement or administrative agency is proceeding with reasonable dispatch and has a reasonable good faith belief that the investigation or examination may lead to the filing of an administrative, civil, or criminal proceeding or to the denial or conditional grant of a license, registration, or permit. This section shall not be construed to prohibit disclosure of information which is required by law to be filed with the department and which, but for the investigation or examination, would be subject to s. 119.07(1).
(b) Except as necessary for the department to enforce the provisions of this chapter, a consumer complaint and other information relative to an investigation or examination shall remain confidential and exempt from s. 119.07(1) after the investigation or examination is completed or ceases to be active to the extent disclosure would:
1. Jeopardize the integrity of another active investigation or examination.
2. Reveal the name, address, telephone number, social security number, or any other identifying number or information of any complainant, customer, or account holder.
3. Disclose the identity of a confidential source.
4. Disclose investigative techniques or procedures.
5. Reveal a trade secret as defined in s. 688.002.
(c) In the event that department personnel are or have been involved in an investigation or examination of such nature as to endanger their lives or physical safety or that of their families, then the home addresses, telephone numbers, places of employment, and photographs of such personnel, together with the home addresses, telephone numbers, photographs, and places of employment of spouses and children of such personnel and the names and locations of schools and day care facilities attended by the children of such personnel are confidential and exempt from s. 119.07(1).
(d) Nothing in this section shall be construed to prohibit the department from providing information to any law enforcement or administrative agency. Any law enforcement or administrative agency receiving confidential information in connection with its official duties shall maintain the confidentiality of the information so long as it would otherwise be confidential.
(e) All information obtained by the department from any person which is only made available to the department on a confidential or similarly restricted basis shall be confidential and exempt from s. 119.07(1). This exemption shall not be construed to prohibit disclosure of information which is required by law to be filed with the department or which is otherwise subject to s. 119.07(1).
(f) These exemptions are subject to the Open Government Sunset Review Act in accordance with s. 119.14.
(2) If information subject to subsection (1) is offered in evidence in any administrative, civil, or criminal proceeding, the presiding officer may, in his discretion, prevent the disclosure of information which would be confidential pursuant to paragraph (1)(b).
(3) A privilege against civil liability is granted to a person who furnishes information or evidence to the department, unless such person acts in bad faith or with malice in providing such information or evidence.
SECTION 494.0013 INJUNCTION TO RESTRAIN VIOLATIONS
(This section deals with non-licensed persons)
(1) The department may bring action through its own counsel in the name and on behalf of the state against any person who has violated or is about to violate any provision of ss. 494.001-494.0077 or any rule or order of the department issued under ss. 494.001-494.0077 to enjoin the person from continuing in or engaging in any act in furtherance of the violation.
(2) In any injunctive proceeding, the court may, on due showing by the department, issue a subpoena or subpoena duces tecum 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.
(3) In addition to all other means provided by law for the enforcement of any temporary restraining order, temporary injunction, or permanent injunction issued in any such court proceeding, the court has the power and jurisdiction, upon application of the department, to impound, and to appoint a receiver or administrator for, the property, assets, and business of the defendant, including, but not limited to, the books, records, documents, and papers appertaining thereto. Such receiver or administrator, when appointed and qualified, has all powers and duties as to custody, collection, administration, winding up, and liquidation of the property and business as are from time to time conferred upon him by the court. In any such action, the court may issue an order staying all pending suits and enjoining any further suits affecting the receiver's or administrator's custody or possession of the property, assets, and business, or the court, in its discretion and with the consent of the chief judge of the circuit, may require that all such suits be assigned to the circuit court judge who appoints the receiver or administrator.
SECTION 494.0014 CEASE AND DESIST ORDERS; REFUND ORDERS
(1) The department has the power to issue and serve upon any person an order to cease and desist and to take corrective action whenever it has reason to believe the person is violating, has violated, or is about to violate any provision of ss. 494.001-494.0077, any rule or order of the department issued under ss. 494.001-494.0077, or any written agreement between the person and the department. All procedural matters relating to issuance and enforcement of such a cease and desist order are governed by the Administrative Procedure Act.
(2) The department 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 in ss. 494.001-494.0077.
(3) The department may prohibit the association by a mortgage broker business, or the employment by a mortgage lender or correspondent mortgage lender, of 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. For the purpose of this subsection, the term "pattern of misconduct" means the commission of three or more violations of ss. 494.001-494.0077 or the provisions of chapter 494 in effect prior to October 1, 1991, during any 1-year period or any criminal conviction for violating ss. 494.001-494.0077 or the provisions of chapter 494 in effect prior to October 1, 1991.
SECTION 494.0015 EVIDENCE; EXAMINER'S WORKSHEETS, INVESTIGATIVE REPORTS, OTHER RELATED DOCUMENTS
In any hearing in which the financial examiner acting under authority of ss. 494.001-494.0077 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 by the financial examiner, after being duly authenticated by the examiner, may be admitted as competent evidence upon the oath of the examiner that the report, worksheet, or related paper was prepared as a result of an examination of the books and records of a licensee or other person conducted pursuant to the authority of ss. 494.001-494.0077.
The department can order the refund of fee which is: 1. Unauthorized 2. In excess of the maximum commissions allowed
A pattern of misconduct is three or more violations or one criminal conviction. SECTION 494.0016 BOOKS, ACCOUNTS, AND RECORDS; MAINTENANCE; EXAMINATIONS BY THE DEPARTMENT
(1) 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 ss. 494.001-494.0077.
(2) The department may authorize maintenance of records at a location other than a principal place of business. The department may require books, accounts, and records to be produced and available at a reasonable and convenient location in this state.
(3) 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 department for at least 3 years after the date of original entry.
(4) The department may prescribe the minimum information to be shown in the books, accounts, records, and documents of licensees so that such records will enable the department to determine the licensee's compliance with ss. 494.001-494.0077.
Advertising must be kept for two years from the date of publication or broadcast. SECTION 494.00165
(1) It is a violation of this chapter for any person to:
(a) Advertise that an applicant will 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 could apply.
(b) Advertise a mortgage loan at an expressed interest rate unless the advertisement specifically states that the rate could change or not be available at commitment or closing.
(c) 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.
(d) Falsely advertise or misuse names indicating a federal agency pursuant to 18 U.S.C. s. 709 (2) Each person required to be licensed under this chapter shall maintain a record of samples of each of its advertisements, including commercial scripts of each radio or television broadcast, for examination by the department for a period of 2 years after the publication or broadcast.
SECTION 494.0018 PENALTIES
(1) Whoever knowingly violates any provision of s. 494.0041(2)(e), (f), or (g); s. 494.0072(2)(e), (f), or (g); or s. 494.0025(1), (2), (3), (4), or (5), except as provided in subsection (2) of this section, is guilty of a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084. Each such violation constitutes a separate offense.
You cannot use the following words in your mortgage brokerage business name; Federal, National or United States. (2) Any person convicted of a violation of any provision of ss. 494.001-494.0077, in which violation the total value of money and property unlawfully obtained exceeded $50,000 and there were five or more victims, is guilty of a felony of the first degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084. SECTION 494.0019 LIABILITY IN CASE OF UNLAWFUL TRANSACTION
(1) If a mortgage transaction is made in violation of any provision of ss. 494.001-494.0077, the person making the transaction and every licensee, director, or officer who participated in making the transaction are jointly and severally liable to every party to the transaction in an action for damages incurred by the party or parties.
(2) A person is not liable under this section upon showing that such person's licensees, officers, and directors who participated in making the transaction, if any, acted in good faith and without knowledge and, with the exercise of due diligence, could not have known of the act committed in violation of ss. 494.001-494.0077.
SECTION 494.002 STATUTORY OR COMMON-LAW REMEDIES
Nothing in ss. 494.001-494.0077 limits any statutory or common-law right of any person to bring any action in any court for any act involved in the mortgage business or the right of the state to punish any person for any violation of any law.
SECTION 494.0021 PUBLIC RECORDS
All audited financial statements submitted pursuant to ss. 494.001-494.0077 are confidential and exempt from the requirements of s. 119.07(1), except that department employees may have access to such information in the administration and enforcement of ss. 494.001-494.0077 and such information may be used by department personnel in the prosecution of violations under ss. 494.001-494.0077. This exemption is subject to the Open Government Sunset Review Act in accordance with s. 119.14.
SECTION 494.0022 APPLICABILITY OF ACT Failure to comply with the provisions of ss. 494.001-494.0077 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 or not the provisions of ss. 494.001-494.0077 have been complied with.
SECTION 494.0023 CONFLICTING INTEREST
(1) If, in a mortgage transaction, a licensee has a conflicting interest as specified in subsection (2), then (a) - (c) must all be done:
(a) The type of conflicting interest shall be fully and fairly disclosed.
(b) 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.
(c) 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.
(2) A licensee has a conflicting interest if:
(a) The licensee or the licensee's relative provides the borrower with additional products or services;
(b) The licensee or licensee's relative, either directly or indirectly, owns, controls, or holds with power to vote, or holds proxies representing, 10 percent or more of any class of equity securities or other beneficial interest in such person providing the additional products or services;
(c) The person providing the additional products or services, either directly or indirectly, owns, controls, or holds the power to vote, or holds proxies representing, 10 percent or more of any class of equity securities or other beneficial interest in the licensee;
(d) A holding company, either directly or indirectly, owns, controls, or holds with power to vote, or holds proxies representing, 10 percent or more of any class of equity securities or other beneficial interest in both the licensee and the person providing the additional products or services;
(e) 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; or
(f) 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.
(3) As used in this section, the term "relative" of any natural person means any of the following persons, whether by the full or half blood or by adoption:
(a) Such person's spouse, father, mother, children, brothers, and sisters.
(b) The father, mother, brothers, and sisters of such person's spouse.
(c) The spouses of children, brothers, or sisters of such person.
(According to the above, a cousin is not considered a relative.)
SECTION 494.0024 WAIVER
Unless otherwise indicated, any waiver of ss. 494.001-494.0077 is unenforceable and void.
SECTION 494.0025 PROHIBITED PRACTICES
It is unlawful for any person:
(1) To act as a mortgage lender in this state without a license issued by the department pursuant to ss. 494.006-494.0077.
(2) To act as a correspondent mortgage lender in this state without a license issued by the department pursuant to ss. 494.006-494.0077.
(3) To act as a mortgage broker in this state without a current, active license issued by the department pursuant to ss. 494.003-494.0043.
(4) 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:
(a) To knowingly or willingly employ any device, scheme, or artifice to defraud; (b) 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; or
(c) To obtain property by fraud, willful misrepresentation of a future act, or false promise.
(5) In any matter within the jurisdiction of the department, 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.
(6) To violate s. 655.922 subject to 494.001 - 494.0077.
(7) Who is required to be licensed under 494.006 - 494.0077, to fail to report to the department the failure to meet the net worth requirements of s. 494.0061, s. 494.0062 or s. 494.0065 within 48 hours after the person's knowledge of such failure or within 48 hours after the person should have known of such failure.
(8) 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 this chapter.
(9) 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.
SECTION 494.0026 DISPOSITION OF INSURANCE PROCEEDS
The following provisions apply to mortgage loans held by a mortgagee that is subject to ss. 494.003 - 494.0077
(1) 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 ss. 494.003 - 494.0077 refuses to endorse the instrument.
(2) 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.
(3) 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.
(4) 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.
(5) The mortgage or assignee is not required to remit the portion or 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 section 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.
Which type of money must be given immediately to the borrower ? Insurance Living expenses and contents insurance must be given immediately to the insured. 494.0028 ARBITRATION
(1) This section applies to any mortgage brokerage agreement, servicing agreement, loan application, or purchase agreement, which provides for arbitration between:
(a) A non-institutional investor and a mortgage lender or correspondent mortgage lender to service a mortgage loan.
(b) A borrower and a mortgage brokerage business, mortgage lender or correspondent mortgage lender to obtain a mortgage loan.
(c) A non-institutional investor and a mortgage brokerage business, mortgage lender or correspondent mortgage lender to fund or purchase a mortgage loan.
(2) All agreements subject to this section shall provide that, at the voluntary election of the non-institutional investor or borrower, disputes shall be handled by either a court of competent jurisdiction or by binding arbitration.
(3) All investments subject to this section shall provide the non-institutional investor or borrower with the option to elect arbitration before the American Arbitration Association or other non-industry arbitration forum. Any other non-industry arbitration forum may apply to the department to allow such forum to provide arbitration services. The department shall grant the application if the applicant's fees, practices and procedures do not materially differ from those of the American Arbitration Association.
(4) At the election of the non-institutional investor or borrower, venue shall be in the county in which the non-institutional investor or borrower entered into the agreement or at a business location of a mortgage brokerage business, mortgage lender or correspondent mortgage lender.
(5) Any fees or charges shall be made as provided in the rules of the American Arbitration Association or other approved non-industry arbitration forum and shall not be set in the agreement.
(6) Any election made under this section shall be irrevocable.
(7) This section shall not be construed to require an agreement which is subject to section to contain an arbitration clause.
Who can select arbitration? Borrower and non-institutional investor (two members of the public) PART II MORTGAGE BROKERS
SECTION 494.003 EXEMPTIONS
(1) None of the following persons is subject to the requirements of ss. 494.003-494.0043:
(1a - 1e) are not required to follow F.S. 494 or to be licensed.
(a) Any person licensed under ss. 494.006-494.0077, except as provided in s. 494.0073.
(b) A bank, bank holding company, trust company, savings and loan association, savings bank, credit union, or consumer finance company licensed pursuant to chapter 516.
(c) 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, the Veterans Administration, the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation. The department shall prepare a report on the effect of this exemption and deliver its findings no later than January 1, 1997, to the Speaker of House and the President of the Senate.
(d) The Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation; 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.
(e) Any person licensed to practice law in this state, not actively and principally engaged in the business of negotiating loans secured by real property, when such person renders services in the course of his practice as an attorney at law. (Attorneys operating within the scope of their legal practices)
Disabled veterans are not exempt from payment of the license fee. (2) None of the following persons is required to be licensed under ss. 494.003-494.0043:
(a) An insurance company duly licensed in this state when dealing with its clients in the normal course of its insurance business.
(b) A federally licensed small business investment company.
(c) A securities dealer registered under the provisions of s. 517.12, when dealing with its corporate or individual clients in the normal course of its securities business.
(d) Any person acting in a fiduciary capacity conferred by authority of any court.
(e) 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.
(2a - 2e) above must follow 494; but are not required to be licensed.
(3) It is not necessary to negate any of the exemptions provided in this section in any complaint, information, indictment, or other writ or proceeding brought under ss. 494.001-494.0077. The burden of establishing the right to any such exemption is upon the party claiming the benefit of the exemption. SECTION 494.0031 LICENSURE AS A MORTGAGE BROKERAGE BUSINESS
(1) The department shall issue a license to each person who:
(a) Has submitted a completed application form and a nonrefundable application fee in an amount that may not exceed $425; and
(b) Has a qualified principal broker pursuant to s. 494.0035.
(2) The department may require that each officer, director, and ultimate equitable owner of a 10-percent or greater interest in the mortgage brokerage business submit a complete set of fingerprints taken by an authorized law enforcement officer.
Mortgage brokerage business can be; sole proprietorship, partnership, joint venture, S-corp, or corporation. (3) Notwithstanding the provisions of subsection (1), it is a ground for denial of licensure if the designated principal mortgage broker; any officer, director, partner, or joint venturer; any natural person owning a 10-percent or greater interest in the mortgage brokerage business; or any natural person who is the ultimate equitable owner of a 10-percent or greater interest in the mortgage brokerage business has committed any violation specified in ss. 494.001-494.0077 or has pending against him any criminal prosecution or administrative enforcement action, in any jurisdiction, which involves fraud, dishonest dealing, or any other act of moral turpitude.
(4) A license, permit or registration may be canceled if it was issued through mistake or inadvertence of the department. A notice of cancellation must be issued by the department within 90 days after the issuance of the license. A notice of cancellation shall provide the applicant with notification of the right to request a hearing within 21 days after the applicant's receipt of the notice of cancellation. A license, permit or registration shall be reinstated if the applicant can demonstrate that the requirements for obtaining the license, permit or registration pursuant to ss. 494.001 - 494.0077 have been satisfied.
(5) If the initial license, permit or registration has been issued but the check upon which the license, permit or registration is based is returned due to insufficient funds, the license, permit or registration shall be deemed canceled. A license, permit or registration deemed canceled pursuant to this subsection shall be reinstated if the department receives a certified check for the appropriate amount within 30 days after the date the check was returned due to insufficient funds.
SECTION 494.0032 RENEWAL OF MORTGAGE BROKERAGE BUSINESS LICENSE; PERMIT RENEWAL
(1) The department shall renew a mortgage brokerage business license upon receipt of a completed renewal form and payment of a renewal fee that may not exceed $375. Each licensee shall pay at the time of renewal a fee that may not exceed $225 for the renewal of each branch office permit
(2) The department shall adopt rules establishing a procedure for the biennial renewal of mortgage brokerage business licenses and branch office licenses. The department may prescribe the form for renewal and may require an update of all information provided in the licensee's initial application.
(3) A mortgage brokerage business or branch office license that is not renewed by the end of the biennium established by the department shall revert from an active to an inactive status. An inactive license may be reactivated by filing a completed reacivation form with the department, payment of the renewal fee, and payment of a nonrefundable reactivation fee of $100. A license that is not renewed within 6 months after the end of the biennial period automatically expires.
SECTION 494.0033 MORTGAGE BROKER'S LICENSE
(1) Each natural person who acts as a mortgage broker for a mortgage brokerage business must be licensed pursuant to this section. To act as a mortgage broker, an individual must be an associate of a mortgage brokerage business. A mortgage broker is prohibited from being an associate of more than one mortgage brokerage business.
(2) Each initial application for a mortgage broker's license must be in written form as prescribed by the department. The department may require each applicant to provide any information reasonably necessary to make a determination of the applicant's eligibility for licensure. The department shall issue an initial license to any natural person who:
(a) Is at least 18 years of age;
(b) Has passed a written test adopted by the department which is designed to determine competency in primary and subordinate mortgage financing transactions as well as to test knowledge of ss. 494.001-494.0077 and the rules adopted pursuant thereto;
(c) Has submitted a completed application and a nonrefundable application fee that may not exceed $200. The department may set by rule an additional fee for a retake of the examination; and
(d) Has filed a complete set of fingerprints, taken by an authorized law enforcement officer, for submission by the department to the Department of Law Enforcement or the Federal Bureau of Investigation for processing.
(3) Any person applying after July 1, 1992, must have completed 24 hours of classroom education on primary and subordinate financing transactions and the laws and rules of ss. 494.001-494.0077 to be eligible for licensure. The department may adopt rules regarding qualifying hours.
(4) Notwithstanding the provisions of subsection (1), it is a ground for denial of licensure if the applicant has committed any violation specified in ss. 494.001-494.0077 or has pending against him any criminal prosecution or administrative enforcement action, in any jurisdiction, which involves fraud, dishonest dealing, or any other act of moral turpitude.
To change mortgage brokerage businesses, a mortgage broker associate does not have to write to anyone or call anyone. He only takes his license with him. (5) An initial mortgage broker's license is valid for the remainder of the biennium in which the license is issued.
(6) A license, permit or registration may be canceled if it is issued through mistake or inadvertence of the department. A notice of cancellation must be issued by the department within 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 21 days after the applicant's receipt of the notice of cancellation. A license, permit or registration shall be reinstated if the applicant can demonstrate that the requirements for obtaining the license, permit or registration pursuant to ss. 494.001 - 494.0077 have been satisfied.
(7) If an initial license, permit or registration has been issued but the check upon which the license, permit or registration is based is returned due to insufficient funds, the license, permit or registration shall be deemed canceled. A license, permit of registration deemed canceled pursuant to this subsection shall be reinstated if the department receives a certified check for the appropriate amount within 30 days after the date the check was returned due to insufficient funds.
494.00331 MORTGAGE BROKER ASSOCIATE
No person required to be licensed as a mortgage broker under this chapter shall be simultaneously an associate of more than one licensed mortgage brokerage business, licensed mortgage lender or correspondent mortgage lender.
SECTION 494.0034 RENEWAL OF MORTGAGE BROKER'S LICENSE
(1) The department shall renew a mortgage broker's license upon receipt of the completed renewal form and payment of a renewal fee that may not exceed $150.
(2) The department shall adopt rules establishing a procedure for the biennial renewal of mortgage broker's licenses. The department may prescribe the form of the renewal application and may require an update of information since the licensee's last renewal.
(3) A license that is not renewed by the end of the biennium prescribed by the department automatically reverts to inactive status. An inactive license may be reactivated by the filing of a completed reactivation application with the department, payment of the renewal fee, and payment of a reactivation fee of $100.
(4) A license that is not renewed within 2 years after becoming inactive automatically expires. SECTION 494.0035 PRINCIPAL BROKER AND BRANCH BROKER REQUIREMENTS
(1) Each mortgage brokerage business must have a principal broker who shall operate the business under such broker's full charge, control, and supervision. The principal broker must be a licensed mortgage broker pursuant to s. 494.0033. Each mortgage brokerage business shall maintain a form as prescribed by the department indicating the business's designation of principal broker and the individual's acceptance of such responsibility. If the form is unavailable, inaccurate, or incomplete, it is deemed that the business was operated in the full charge, control, and supervision by each officer, director, or ultimate equitable owner of a 10-percent or greater interest in the mortgage brokerage business, or any other person in a similar capacity.
(2) Each branch office of a mortgage brokerage business must have a designated branch broker who shall operate the business under such broker's full charge, control, and supervision. The designated branch broker must be a licensed mortgage broker pursuant to s. 494.0033. Each branch office shall maintain a form as prescribed by the department 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 by each officer, director, or ultimate equitable owner of a 10-percent or greater interest in the mortgage brokerage business, or any other person in a similar capacity.
Only Mortgage Broker Businesses have Principal Brokers and Branch Brokers. These positions do not exist for Mortgage Lender and Correspondent Mortgage Lender licensees.
If there is no principal mortgage broker form, then all persons are responsible for the action of the associates. If you do not maintain the proper principal mortgage broker or branch broker form the fine is $500. If it is determined that you purposely do not have the form, the fine is $5,000. SECTION 494.0036 MORTGAGE BROKERAGE BUSINESS BRANCH OFFICES
(1) A mortgage brokerage business branch office license is required for each branch office maintained by a mortgage brokerage business.
(2) The department shall issue a mortgage brokerage business branch office license upon receipt of a completed application in a form as prescribed by the department and payment of an initial nonrefundable fee of $225. Branch office licenses must be renewed in conjunction with the renewal of the mortgage brokerage business license. The branch office license shall be issued in the name of the mortgage brokerage business that maintains the branch office. (3) Each branch office must prominently display the license issued for such branch office. Each person licensed as a mortgage broker must prominently display his or her license in the office where such person acts as a mortgage broker
A branch location should be licensed as a branch office if the public is led to believe that mortgage brokerage business could be conducted there. SECTION 494.0038 MORTGAGE BROKER DISCLOSURES
(1) (a) A person may not receive a fee for acting as a mortgage brokerage business except pursuant to a written agreement between the mortgage brokerage business and the borrower. The 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. (b) 1. If any of the rates, points, fees, and other terms quoted by or on behalf of the lender are to be received by the mortgage brokerage business, such fact shall be specifically disclosed to the borrower.
2. If the mortgage brokerage fee is for brokering a loan for a particular program under which the brokerage fee varies according to the terms of the loan, the brokerage fee may be disclosed as a range of fees at the time of application. The mortgage broker shall, in such instance, disclose the nature of the fee arrangement to the borrower, and the exact amount of the fee must be disclosed at settlement or closing.
(2) Prior to entering into a written agreement or accepting an application, an application fee, credit report fee, property appraisal fee, or any other third-party fee, a mortgage brokerage business must disclose in writing to any applicant for a mortgage loan the following information:
(a) 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. (b) That such mortgage brokerage business cannot guarantee acceptance into any particular loan program or promise any specific loan terms or conditions.
(c) A good faith estimate of the credit report fee, property appraisal fee, or any other third-party fee and 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.
Mortgage brokers do not issue lock-ins or commitments 60 days to return excess third party fees. Mortgage brokers cannot guarantee loans. (3) If the mortgage brokerage agreement includes a nonrefundable application fee, the following requirements are applicable: (a) The amount of the application fee, which must be clearly denominated as such, shall be clearly disclosed.
(b) The specific services that will be performed in consideration for the application fee shall be disclosed.
(c) 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.
(4) 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.
(5) 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 the accounts of which are insured by the Federal Government. Such funds shall be held in trust for the payor 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. (Third party fees must be deposited immediately, not one business day, one business day is a wrong answer).
(6) All mortgage brokerage fees shall be paid to a mortgage brokerage business licensee.
(7) This section 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.
SECTION 494.0039 PRINCIPAL PLACE OF BUSINESS REQUIREMENTS
(1) Each mortgage brokerage business licensee shall maintain and transact business from a principal place of business.
Real estate, insurance and appraisal commissions are "O.K." with F.S. 494 as long as you disclose. Of course a proper license for each profession would also be required. Application fees in a % - "Not O.K." Broker fees in a range -"O.K." Immediately is defined as within seven days. (2) A licensee under ss. 494.003-494.0043 shall report any change of address of the principal place of business or any branch office within 15 days after the change.
(3) Each mortgage brokerage business must prominently display its license at the principal place of business.Each licensed mortgage broker must prominently display his or her license in the office where such person acts as a mortgage broker. SECTION 494.004 REQUIREMENTS OF LICENSEES
(1) Each licensee under ss. 494.003-494.0043 shall report, in writing, any conviction of any crime or administrative violation that involves fraud, dishonest dealing, or any other act of moral turpitude, in any jurisdiction, by the licensee or any natural person named, pursuant to s. 494.0031(3), not later than 30 days after the conviction or final administrative action.
(2) Each licensee under 494.033-494.043 shall report, in a form prescribed by rule of the department, any conviction of, plea, of nolo contendere to, regardless of whether adjudication is withheld, any felony committed by the licensee or any natural person named in s. 494.0031(3), not later than 30 days after the date of conviction or the date the plea of nolo contendere is entered.
(3) Each licensee under ss. 494.003-494.0043 shall report any action in bankruptcy, voluntary or involuntary, to the department not later than 7 business days after the action is instituted.
(4) Each licensee under ss. 494.003-494.0043 shall report any change in the form of business organization or any change of a person named, pursuant to s. 494.0031(3), to the department in writing not later than 30 days after the change is effective. (5) A license issued under ss. 494.003-494.0043 is not transferable or assignable.
Bad guy stuff - 30 days to inform department. (6) On or before April 30, 2000 each mortgage brokerage business shall file an initial report stating the name, social security number, date of birth, mortgage broker license number, date of hire, and if applicable, the date of termination for each person who was an associate of the mortgage brokerage business during the immediate preceding quarter. Thereafter, a mortgage brokerage business shall file a quarterly report only if a person became an associate of the mortgage brokerage business during the immediate preceding quarter. Such report shall be filed within 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 immediate preceding quarter. The department shall prescribe, by rule, the procedures for filing reports required by this subsection.
SECTION 494.0041 ADMINISTRATIVE PENALTIES AND FINES; LICENSE VIOLATIONS
(1) Whenever the department finds a person in violation of an act specified in subsection (2), it may enter an order imposing one or more of the following penalties against the person:
(a) Revocation of a license or registration.
(b) Suspension of a license or registration subject to reinstatement upon satisfying all reasonable conditions that the department specifies.
(c) Placement of the licensee, registrant, or applicant on probation for a period of time and subject to all reasonable conditions that the department specifies. (d) Issuance of a reprimand.
(e) Imposition of a fine in an amount not exceeding $5,000 for each count or separate offense.
(f) Denial of a license or registration. (1) (a) - (e) are administrative penalties
Bankruptcy - 7 days to notify the department. Change in the form of business organization - 30 days to notify the department. (2) Each of the following acts constitutes a ground for which the disciplinary actions specified in subsection (1) may be taken:
(a) Being convicted or found guilty, regardless of adjudication, of a crime in any jurisdiction which involves fraud, dishonest dealing, or any other act of moral turpitude.
(b) Fraud, misrepresentation, deceit, negligence, or incompetence, in any mortgage financing transaction.
(c) A material misstatement of fact on an initial or renewal application.
(d) Disbursement, or an act which has caused or will cause disbursement, to any person in any amount from the Mortgage Brokerage Guaranty 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.
(e) Failure to place immediately upon receipt, and maintain until authorized to disburse, any money entrusted to him by a person dealing with him as a mortgage broker in a segregated account of a federally insured financial institution in this state.
(f) Failure to account or deliver to any person any property that has come into his hands and that is not his property or that 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.
(g) Failure to disburse funds in accordance with agreements.
(h) Any misuse, misapplication, or misappropriation of personal property entrusted to his care to which he had no current property right at the time of entrustment.
(i) 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 this state or another state, territory, or country for fraud, dishonest dealing, or any other act of moral turpitude.
(j) Failure to comply with any department order or rule made or issued under ss. 494.001-494.0077.
(k) Acting as a mortgage broker or mortgage brokerage business without a current, active license issued under ss. 494.003-494.0043. (l) Failure to timely pay any fee, charge, or fine under ss. 494.001-494.0077.
(m) Failure to maintain, preserve, and keep available for examination all books, accounts, or other documents required by ss. 494.001-494.0077 and the rules of the Division of Finance.
(n) Refusal to permit an investigation or examination of books and records, or refusal to comply with a department subpoena or subpoena duces tecum.
(o) Consistently and materially underestimating maximum closing costs.
(p) Failure to comply with, or violation of, any other provision of ss. 494.001-494.0077. (q) 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.
(3) A mortgage brokerage business is subject to the disciplinary actions specified in subsection (1) for a violation of subsection (2) by any officer, director, joint venturer, partner, ultimate equitable owner of a 10-percent or greater interest in the mortgage brokerage business, or associate mortgage broker of the licensee.
(4) A principal mortgage broker is subject to the disciplinary actions specified in subsection (1) for violations of subsection (2) by associates in the course of an association with the mortgage brokerage business. 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.
(5) A natural person who is associated with a mortgage brokerage business is subject to the disciplinary actions specified in subsection (1) for a violation of subsection (2) with respect to an action in which such person was involved. History.--ss. 28, 50, ch. 91-245.
SECTION 494.0042 BROKERAGE FEES
(1) A mortgage brokerage fee earned by a licensee, pursuant to ss. 494.003-494.0043, is not considered interest or a finance charge under chapter 687. (Chapter 687 is the usury law that sets a maximum limit on interest rates).
(2) 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 this section. The maximum fees or commissions that may be charged for mortgage loans are as follows:
(a) On a mortgage loan of $1,000 or less: $250.
(b) 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.
(c) 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.
(d) On a mortgage loan exceeding $5,000: $250 plus 10 percent of the entire mortgage loan.
(See chart on page 17)
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. (Definition of a net loan)
(3) 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, or a fee which complies with s. 494.00421. (Fees earned upon obtaining a bona fide commitment). Unless otherwise stated, the mortgage broker works for the borrower. Sources of income for mortgage brokers are application fees and mortgage brokerage commissions only. Maximum commissions come directly from chapter 494. Broker fees are considered neither interest or finance charges under chapter 687. 494.00421 FEES EARNED UPON OBTAINING A BONA FIDE COMMITMENT
Notwithstanding the provisions of ss. 494.001 - 494.0077, 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 agreement:
(1) The gross amount of the loan.
(2) In the case of a fixed-rate mortgage, the note rate.
(3) In the case of an adjustable rate mortgage:
(a) The initial note rate.
(b) The length of time for which the initial rate is effective. (c) The frequency changes
(d) The limitation upon such changes including adjustment to adjustment cap and cap life.
(e) Whether the loan has any potential for negative amortization.
(f) Identification of the margin-interest rate differential.
(g) Identification of a nationally recognized index which index must be free from control of the mortgage broker, mortgage brokerage business, mortgage lender or correspondent mortgage lender.
(4) 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, encumbrances to perfect the lien of the new mortgage and establish the agreed-upon priority of the new mortgage.
(5) The lien priority of the new proposed mortgage.
(6) The number of calendar days, which are mutually agreed upon, within which the mortgage brokerage business shall obtain a bona fide mortgage commitment. (7a) 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 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 terms and conditions, you will be obligated to pay the mortgage brokerage 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 Banking and Finance, Tallahassee, Florida, regarding complaints that the borrower may have against the mortgage broker or the mortgage brokerage business. The telephone number of the department as set by rule of the department is (800) 848-3792."
(b) Paragraph (a) does not apply to nonresidential mortgage loan commitments in excess of $1 million.
(8) Any other disclosure required pursuant to s. 494.0038.
The department of Banking and Finance shall review the effects of this section on consumers and shall issue a written report, by January 31, 1997, to the President of the Senate and the Speaker of the House of Representatives. Such report shall summarize the findings of the department's review and include recommended changes, if any, to this section.
SECTION 494.0043 REQUIREMENTS FOR BROKERING LOANS TO NONINSTITUTIONAL INVESTORS
(1) A mortgage broker, when arranging a mortgage loan for a noninstitutional investor, shall:
(a) 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.
(b) Provide to the noninstitutional investor a mortgagee's title insurance policy or an opinion of title by an attorney licensed to practice law in the state, or a copy thereof.
1. If a title insurance policy is issued, it must insure the non-institutional 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, 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 closed.
2. 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 subparagraph 1. Any conditions must be eliminated or waived in writing by the investor prior to delivery to the non-institutional investor. The policy or opinion, or a copy thereof, shall be delivered to the investor within a reasonable period of time, not exceeding 6 months, after closing. 3. The requirements of this paragraph may be waived in writing. If the requirements are waived by the non-institutional investor, the waiver must include the following wording: "The non-institutional 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 non-institutional mortgage investor."
(c) 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.
(d) Provide a disclosure if the licensee is directly or indirectly acting as a borrower or principal in the transaction. (If broker is involved as the borrower)
Non-institutional investor, (man on the street), must receive appraisal and mortgagee title insurance policy, (or opinion or title signed by an attorney), unless waived in writing by the non-institutional investor.
(2) Each mortgage, or other instrument securing a note or assignment thereof, shall be recorded before being delivered to the non-institutional investor. A mortgage broker shall cause the properly endorsed original note to be delivered to the non-institutional investor, (CANNOT BE WAIVED). (3) Each mortgage and assignment shall be recorded as soon as practical, but no later than 30 business days after the date of closing, (CANNOT BE WAIVED).
(4) Any money from a non-institutional investor for disbursement at a mortgage loan closing shall be deposited with and disbursed by an attorney duly licensed in this state or by a title company duly licensed in this state. A person acting as a mortgage broker may not have control of any money from a non-institutional investor. This subsection does not prohibit a licensee under ss. 494.003-494.0043 from receiving a mortgage brokerage fee upon the closing of the mortgage loan funded by the non-institutional investor.
Mortgage brokers arrange loans, they do not fund loans. PART III MORTGAGE LENDERS
SECTION 494.006 EXEMPTIONS
(1) None of the following persons are subject to the requirements of ss. 494.006-494.0077 in order to act as a mortgage lender or correspondent mortgage lender:
(a) 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 this state.
(b) Any person acting in a fiduciary capacity conferred by authority of any court.
(c) 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, the Veterans Administration, the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation. The department shall prepare a report on the effect of this exemption and deliver its findings no later than January 1, 1997, to the Speaker of House and the President of the Senate.
(d) Any person who, as a seller of his own real property, receives one or more mortgages in a purchase money transaction. (Any person making or acquiring a mortgage loan for the purpose of re-selling, must be licensed).
(e) 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. (For example a swimming pool contractor).
(f) Any person who makes only nonresidential mortgage loans and sells loans only to institutional investors. (Commercial loans to institutional investors, no public to protect, no license needed).
(g) The Federal National Mortgage Association; the Federal Home Loan Mortgage Corporation; 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. (h) A consumer finance company licensed pursuant to chapter 516 as of October 1, 1991.
(i) Any person making or acquiring a mortgage loan with his own funds for his own investment, and who does not hold himself out to the public, in any manner, as being in the mortgage lending business, (THIS IS A NON-INSTITUTIONAL INVESTOR). (j) Any person selling a mortgage that was made or purchased with that person's funds for his own investment, and who does not hold himself out to the public, in any manner, as being in the mortgage lending business, (THIS IS ALSO A NON-INSTITUTIONAL INVESTOR). (k) Any person who acts solely under contract and as an agent for federal, state, or municipal agencies in the servicing of mortgage loans.
(2) (a) A natural person employed by a mortgage lender licensed under ss. 494.001-494.0077 is exempt from the licensure requirements of ss. 494.001-494.0077 when acting within the scope of employment with the licensee.
1 (a-k) above can ignore F.S. 494.
A natural person must be an employee to be exempt from licensure. (b) A corporation that is in existence on October 1, 1991, and that is a wholly owned subsidiary of a consumer finance company licensed pursuant to chapter 516 on October 1, 1991, is not required to be licensed under ss. 494.006-494.0077 in order to act as a mortgage lender or a correspondent mortgage lender. (Consumer finance company subsidiary "grandfathered" in 10-1-91)
(3) It is unnecessary to negate any of the exemptions provided in ss. 494.001-494.0077 in any complaint, information, indictment, or other writ or proceeding brought under ss. 494.001-494.0077. The burden of establishing the right to any exemption is upon the party claiming the benefit of the exemption.
SECTION 494.0061 MORTGAGE LENDER'S LICENSE REQUIREMENTS
(1) The department may require each applicant for a mortgage lender's license to provide any information reasonably necessary to make a determination of the applicant's eligibility for licensure. The department shall issue an initial mortgage lender's license to any corporation that submits:
(a) A completed application form;
(b) A nonrefundable fee set by rule of the department in an amount that may not exceed $575.
(c) Audited financial statements, 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;
(d) A surety bond in the amount of $10,000, payable to the state and conditioned upon compliance with ss. 494.001-494.0077, which inures to the department and which must be continuously maintained thereafter in full force; and
(e) 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 this state or another state of the United States. (2) Notwithstanding the provisions of subsection (1), it is a ground for denial of licensure if the applicant, any principal officer or director of the applicant, or any natural person owning a 10-percent or greater interest in the applicant, or any natural person who is the ultimate equitable owner of a 10-percent or greater interest in the applicant has committed any violation specified in s. 494.0072, or has pending against him any criminal prosecution or administrative enforcement action, in any jurisdiction, which involves fraud, dishonest dealing, or any act of moral turpitude.
(3) Each initial application for a mortgage lender's license must be in written form prescribed by the department. The division may require each applicant to provide any information reasonably necessary to make a determination of the applicant's eligibility for licensure. The department may require that each officer, director, and ultimate equitable owner of a 10-percent or greater interest in the applicant submit a complete set of fingerprints taken by an authorized law enforcement officer.
(4) A licensee under ss. 494.006-494.0077, or an agent or employee thereof, is deemed to have consented to the venue of courts of competent jurisdiction in this state regarding any matter within the authority of ss. 494.001-494.0077 regardless of where an act or violation was committed.
(5) A license issued in accordance with ss. 494.006-494.0077 is not transferable or assignable.
(6) A license, permit or registration may be canceled if it was issued through mistake or inadvertence of the department. A notice of cancellation must be issued by the department within 90 days after the issuance of the license. A notice of cancellation shall provide the applicant with notification of the right to request a hearing within 21 days after the applicant's receipt of the notice of cancellation. A license, permit or registration shall be reinstated if the applicant can demonstrate that the requirements for obtaining the license, permit or registration pursuant to ss. 494.001 - 494.0077 have been satisfied.
(7) If the initial license, permit or registration has been issued but the check upon which the license, permit or registration is based is returned due to insufficient funds, the license, permit or registration shall be deemed canceled. A license, permit or registration deemed canceled pursuant to this subsection shall be reinstated if the department receives a certified check for the appropriate amount within 30 days after the date the check was returned due to insufficient funds.
SECTION 494.0062 CORRESPONDENT MORTGAGE LENDER'S LICENSE REQUIREMENTS
(1) The department shall issue an initial correspondent mortgage lender's license to any person who submits:
(a) A completed application form;
(b) A nonrefundable fee set by rule of the department in an amount that may not exceed $500;
(c) 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;
(d) A surety bond in the amount of $10,000, payable to the State of Florida and conditioned upon compliance with ss. 494.001-494.0077, which inures to the department and which must be continuously maintained, thereafter, in full force; and
(e) 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 this state or another state of the United States. (2) Notwithstanding the provisions of subsection (1), it is a ground for denial of licensure if the applicant, any principal officer or director of the applicant, or any natural person who is the ultimate equitable owner of a 10-percent or greater interest in the applicant has committed any violation specified in s. 494.0072, or has pending against him any criminal prosecution or administrative enforcement action, in any jurisdiction, which involves fraud, dishonest dealing, or any act of moral turpitude.
(3) Each initial application for a correspondent mortgage lender's license must be in written form prescribed by the department. The division may require each applicant to provide any information reasonably necessary to make a determination of the applicant's eligibility for licensure. The department may require that each officer, director, and ultimate equitable owner of a 10-percent or greater interest submit a complete set of fingerprints taken by an authorized law enforcement officer.
(4) Each license is valid for the remainder of the biennium in which the license is issued.
(5) A person licensed as a correspondent mortgage lender may make mortgage loans, but may not service a mortgage loan for more than 4 months after the date the mortgage loan was made or acquired by the correspondent mortgage lender.
(6) A licensee under ss. 494.006-494.0077, or an agent or employee thereof, is deemed to have consented to the venue of courts of competent jurisdiction in this state regarding any matter within the authority of ss. 494.001-494.0077 regardless of where an act or violation was committed.
(7) A correspondent mortgage lender is subject to the same requirements and restrictions as a licensed mortgage lender unless otherwise provided in this section. (8) A license issued under this section is not transferable or assignable.
(9) A license, permit or registration may be canceled if it was issued through mistake or inadvertence of the department. A notice of cancellation must be issued by the department within 90 days after the issuance of the license. A notice of cancellation shall provide the applicant with notification of the right to request a hearing within 21 days after the applicant's receipt of the notice of cancellation. A license, permit or registration shall be reinstated if the applicant can demonstrate that the requirements for obtaining the license, permit or registration pursuant to ss. 494.001 - 494.0077 have been satisfied.
(10) If the initial license, permit or registration has been issued but the check upon which the license, permit or registration is based is returned due to insufficient funds, the license, permit or registration shall be deemed canceled. A license, permit or registration deemed canceled pursuant to this subsection shall be reinstated if the department receives a certified check for the appropriate amount within 30 days after the date the check was returned due to insufficient funds. SECTION 494.0063 AUDITED FINANCIAL STATEMENTS
All audited financial statements required by ss. 494.001-494.0077 must be prepared by an independent licensed certified public accountant.
Financial statements are submitted to the department with the initial application, but maintained thereafter at the principal place of business.
SECTION 494.0064 RENEWAL OF MORTGAGE LENDER'S LICENSE; BRANCH OFFICE LICENSE RENEWAL
(1) The department shall renew a mortgage lender's license upon receipt of a completed renewal form and the renewal fee of $575. The department shall renew a correspondent mortgage lender license upon receipt of completed renewal form and a nonrefundable fee of $475. Each licensee shall pay at the time of renewal a nonrefundable fee of $325 for the renewal of each branch office license.
(2) The department shall adopt rules establishing a procedure for the biennial renewal of mortgage lender's licenses, correspondent lender's licenses, and branch office permits. The department may prescribe the form for renewal and may require an update of all information provided in the licensee's initial application.
(3) The license of a mortgage lender, correspondent mortgage lender, or branch office that is not renewed by the end of the biennium prescribed by the department automatically reverts to inactive status. An inactive license may be reactivated within 6 months of becoming inactive by the filing of completed reactivation form with the department, payment of a nonrefundable reactivation fee of $100. A license that is not renewed within 6 months after becoming inactive automatically expires. (4) The department may adopt rules setting forth the evidence or documentation of minimum net worth to be submitted for renewal of a license. SECTION 494.0065 SAVING CLAUSE
(1) (a) Any person in good standing who holds an active registration pursuant to former **s. 494.039 or license pursuant to former ***s. 521.205, or any person who acted solely as a mortgage servicer on September 30, 1991, is eligible to apply to the department for a mortgage lender's license and is eligible for licensure if the applicant: 1. For at least 12 months during the period of October 1, 1989, through September 30, 1991, has engaged in the business of either acting as a seller or assignor of mortgage loans or as a servicer of mortgage loans, or both; 2. Has documented a minimum net worth of $25,000 in audited financial statements; and
3. Has applied for licensure pursuant to this section by January 1, 1992, and paid an application fee of $100.
(b) A licensee pursuant to paragraph (a) may operate a wholly owned subsidiary or affiliate for the purpose of servicing accounts if the subsidiary or affiliate is operational as of September 30, 1991. Such subsidiary or affiliate is not required to obtain a separate license, but is subject to all the requirements of a licensee under ss. 494.006-494.0077.
(2) A licensee issued a license pursuant to subsection (1) may renew its mortgage lending license if it documents a minimum net worth of $25,000, according to generally accepted accounting principles.
(3) The department may prescribe by rule forms for initial application for licensure and for renewal of licensure of licensees under this section. History.--ss. 36, 50, ch. 91-245.
SECTION 494.0066 BRANCH OFFICES
(1) A branch office license is required for each branch office maintained by a licensee under ss. 494.006-494.0077.
(2) The department shall issue a branch office license upon receipt of a completed application form as prescribed rule by the department and an initial nonrefundable branch office license fee of $325. The branch office application must include the name and license number of the licensee under ss. 494.006-494.0077, 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 ss. 494.006-494.0077 and must be renewed in conjunction with the license renewal.
SECTION 494.0067 REQUIREMENTS OF LICENSEES UNDER SS. 494.006-494.0077
(1) Each license of a mortgage lender, correspondent mortgage lender or branch office shall be prominently displayed in the office for which it is issued.
(2) Each licensee under ss. 494.006-494.0077 which makes mortgage loans on real estate in this state 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 ss. 494.006-494.0077.
(3) A license or branch office permit issued under ss. 494.006-494.0077 is not transferable or assignable.
(4) The department may require each licensee under ss. 494.006-494.0077 to report any change of address of the principal place of business, change of address of any branch office, or change of principal officer, director, or ultimate equitable owner of 10 percent or more of the licensed corporation to the department in writing not later than 30 business days after the change is effective.
(5) Each licensee under ss. 494.006-494.0077 shall report in writing 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 ss. 494.006-494.0077 or any principal officer, director, or ultimate equitable owner of 10 percent or more of the licensed corporation, not later than 30 business days after the indictment, information, charge, conviction, or final administrative action.
(6) Each licensee under ss. 494.006-494.0077 shall report any action in bankruptcy, voluntary or involuntary, to the department, not later than 7 business days after the action is instituted.
(7) Each licensee under ss. 494.006-494.0077 shall designate a registered agent in this state for service of process.
(8) Each licensee under ss. 494.006-494.0077 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 department may adopt rules that set forth the disclosure requirements of this section.
(9) On or before April 30, 2000 each mortgage lender or correspondent mortgage lender shall file an initial report stating the name, social security number, date of birth, mortgage broker license number, date of hire, and if applicable, the date of termination for each person who acted as a loan originator or an associate of a mortgage lender or correspondent mortgage lender during the immediate preceding quarter. Thereafter, a mortgage lender or correspondent mortgage lender shall file a quarterly report only if a person became or ceased to be a loan originator during the immediate preceding quarter. Such report shall be filed within 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 a loan originator or an associate of the mortgage lender or correspondent mortgage lender during the immediate preceding quarter. The department shall prescribe, by rule, the procedures for filing reports required by this subsection. SECTION 494.0068 LOAN APPLICATION PROCESS
(1) In addition to the requirements set forth in s. 494.0067(8), 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:
(a) Whether all or any part of such fees or charges is refundable.
(b) The terms and conditions for the refund, if all or any part of the fees or charges is refundable.
(c) A realistic estimate of the number of days required to issue a commitment following receipt of the application by the lender.
(d) 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.
(2) The disclosures required in subsection (1) shall be acknowledged in writing by the borrower and maintained by the lender, and a copy of such acknowledgment shall be given to the borrower.
(3) 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 written disclosure required by subsection (1), except that:
(a) If the lender failed to provide the borrower with the written disclosure required by subsection (1), the lender shall promptly refund to the borrower all funds paid, or
(b) 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.
(4) 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.
(5) 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 determining whether the borrower is qualified for the mortgage loan or whether the mortgage loan should be funded. SECTION 494.0069 LOCK-IN AGREEMENT
(1) Each lock-in agreement must be in writing and must contain:
(a) The expiration date of the lock-in, if any;
(b) The interest rate locked in, if any;
(c) The discount points locked in, if any;
(d) The commitment fee locked in, if any;
(e) The lock-in fee, if any; and
(f) A statement advising of the provisions of ss. 494.006-494.0077 regarding lock-in agreements.
(2) The 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.
(3) 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.
(4)(a) Any correspondent mortgage lender or mortgage lender prior to issuing a mortgage loan rate lock-in agreement must have the ability to timely advance funds on all mortgage loans for which rate lock-in agreements have been issued. As used in this section, "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. (b) A correspondent mortgage lender or mortgage lender that does not comply with paragraph (a) may issue mortgage rate lock-in agreements only if, prior to the issuance, the correspondent mortgage lender or mortgage lender:
Lock-ins and commitments must be signed by the lender to be effective. A borrower can rescind a lock-in until it is signed by the lender and mailed to the borrower. (1) Has received a written rate lock-in agreement from a correspondent mortgage lender or mortgage lender that complies with paragraph (a); or
(2) Has received 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.
(c) All rate lock-in fees collected by a mortgage lender or correspondent mortgage lender who is not in compliance with paragraph (a) 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:
(1) The mortgage loan closes and is funded.
(2) The applicant cancels the loan application or the loan application is rejected; or
(3) 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.
(5) For purposes of this section, the term "lock-in fee" means any moneys advanced by the borrower to lock in for a specified period of time a specified interest rate or discount points.
(6) The department may adopt by rule a form for required lock-in agreement disclosures.
SECTION 494.007 COMMITMENT PROCESS
(1) If a commitment is issued, the lender shall disclose in writing:
(a) The expiration date of the commitment;
(b) The mortgage amount, meaning the face amount of credit provided to the borrower or in the borrower's behalf;
(c) If the interest rate or other terms are subject to change before expiration of the commitment:
1. 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; or
2. 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.";
(d) The amount of the commitment fee, if any, and whether and under what circumstances the commitment fee is refundable; and (e) The time, if any, within which the commitment must be accepted by the borrower.
(2) 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 required by subsection (1) 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.
(3) A commitment fee is refundable if: (a) The commitment is contingent upon approval by parties to whom the lender seeks to sell the loan.
(b) The loan purchaser's requirements are not met due to circumstances beyond the borrower's control. (c) The borrower is willing but unable to comply with the loan purchaser's requirements.
SECTION 494.0071 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 lender shall promptly refund to the borrower any lock-in fee and any commitment fee paid by the borrower.
SECTION 494.0072 ADMINISTRATIVE PENALTIES AND FINES; LICENSE VIOLATIONS
(1) Whenever the department finds a person in violation of an act specified in subsection (2), it may enter an order imposing one or more of the following penalties against that person:
(a) Revocation of a license or registration.
(b) Suspension of a license or registration, subject to reinstatement upon satisfying all reasonable conditions that the department specifies.
(c) Placement of the licensee or applicant on probation for a period of time and subject to all reasonable conditions that the department specifies.
(d) Issuance of a reprimand.
(e) Imposition of a fine in an amount not exceeding $5,000 for each count or separate offense.
(f) Denial of a license or registration.
(2) Each of the following acts constitutes a ground for which the disciplinary actions specified in subsection (1) may be taken:
(a) Being convicted or found guilty, regardless of adjudication, of a crime in any jurisdiction which involves fraud, dishonest dealing, or any other act of moral turpitude.
(b) Fraud, misrepresentation, deceit, negligence, or incompetence in any mortgage financing transaction.
(c) A material misstatement of fact on an initial or renewal application.
(d) Disbursement, or an act which has caused or will cause disbursement, to any person in any amount from the Mortgage Brokerage Guaranty 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.
(e) Failure to place immediately upon receipt, and maintain until authorized to disburse, any money entrusted to him by a person dealing with him as a lender in a segregated account in a federally insured financial institution;
(f) Failure to account for or deliver to any person any personal property that has come into his hands and that is not his property or that 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.
(g) Failure to disburse funds in accordance with agreements.
(h) Any misuse, misapplication, or misappropriation of personal property entrusted to his care to which he had no current property right at the time of entrustment.
(i) 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 this state or another state, territory, or country for fraud, dishonest dealing, or any other act of moral turpitude.
(j) Failure to comply with any department order or rule made or issued under the provisions of ss. 494.001-494.0077.
(k) Acting as a mortgage lender or correspondent mortgage lender without a current, active license issued under ss. 494.006-494.0077.
(l) Failure to timely pay any fee, charge, or fine under ss. 494.001-494.0077.
(m) Failure to maintain, preserve, and keep available for examination all books, accounts, or other documents required by ss. 494.001-494.0077 or the rules of the Division of Finance.
(n) Refusal to permit an investigation or examination of books and records, or refusal to comply with a department subpoena or subpoena duces tecum.
(o) Consistently and materially underestimating the closing costs. (p) Failure to comply with, or violations of, any other provision of ss. 494.001-494.0077.
(q) 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.
(3) A mortgage lender or correspondent mortgage lender is subject to the disciplinary actions specified in subsection (1) for a violation of subsection (2) by any officer, director, or ultimate equitable owner of a 10-percent or greater interest in the mortgage lender or correspondent mortgage lender, or employee of the licensee.
(4) A natural person employed by a mortgage lender or correspondent mortgage lender is subject to the disciplinary actions specified in subsection (1) for a violation of subsection (2) regarding any action for which such person was involved.
494.00721 NET WORTH
(1) The net worth requirements required in ss. 494.0061, 494.0062 and 494.0065 shall be continually maintained as condition of licensure.
(2) 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 60 days within which to satisfy the net worth requirements. If the licensee makes the department aware, prior to an examination, that the licensee no longer meets the net worth requirements, the mortgage lender or correspondent mortgage lender shall have 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 department, which authorization shall be granted if the mortgage lender or correspondent mortgage lender provides the department with documentation which satisfies the requirements of s. 494.0061(1)(c), s. 494.0062(1)(c), or 494.0065(2), whichever is applicable.
If a correspondent mortgage lender or mortgage lender has his net worth fall below the required minimums, they must: Cease doing business & notify the Dept within 48 hours. If they are caught by a department audit, they have 60 days to remedy the net worth issue. It they voluntarily notify the department of their net worth issue, they have 120 to remedy the net worth issue. (3) 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 relinquished and canceled and all servicing contracts shall be disposed of in a timely manner by the mortgage lender or correspondent mortgage lender.
SECTION 494.0073 MORTGAGE LENDER OR CORRESPONDENT MORTGAGE LENDER WHEN ACTING AS A BROKER
Sections 494.006-494.0077 do not prohibit a mortgage lender or correspondent mortgage lender from acting as a mortgage broker. However, in mortgage transactions in which a mortgage lender or correspondent mortgage lender acts as a mortgage broker, the provisions of ss. 494.0038, 494.0042, and 494.0043(1), (2), and (3) apply.
SECTION 494.0074 LENDER FEES AND CHARGES
(1) In a mortgage financing transaction, fees designated as loan origination fees, up to 4 percent of the face amount of the loan or line of credit, are not considered interest or finance charge under chapter 687, (4% HOLD). (2) In a mortgage finance transaction, fees designated as loan origination fees, up to 10 percent of the face amount of the loan or line of credit, are not considered interest or finance charges under chapter 687 if such licensee sells or assigns the loan to another person within 90 days after the date the loan was funded, (10%, SELL WITHIN 90 DAYS) SECTION 494.0075 REQUIREMENTS FOR SELLING LOANS TO NONINSTITUTIONAL INVESTORS
(1) A mortgage lender, when selling a mortgage loan to a noninstitutional investor, shall:
(a) 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;
Chapter 687 is the usury law setting a limit on maximum interest rates allowed by law. (b) Provide to the noninstitutional investor a mortgagee's title insurance policy or an opinion of title by an attorney licensed to practice law in this state, or a copy thereof:
1. 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 this state, 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.
2. 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 subparagraph 1. 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 6 months, after purchase.
3. 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."
(c) 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.
(d) Provide a disclosure if the licensee is directly or indirectly acting as a borrower or principal in the transaction.
(2) Each mortgage, or other instrument securing a note or assignment thereof, shall be recorded before being delivered to the noninstitutional investor.
(3) Each mortgage and assignment shall be recorded as soon as practical, but no later than 30 business days after the date of purchase.
(4) If the loan is to be serviced by a licensee under ss. 494.006-494.0077 for a non-institutional investor, there shall be a written servicing agreement.
(5) The mortgage lender shall cause the original note to be properly endorsed showing the assignment of the note to the non-institutional investor. SECTION 494.0076 SERVICING AUDITS
(1) (a) Each licensee under ss. 494.006-494.0077 which services mortgage loans shall:
1. Maintain a segregated set of records for accounts that are serviced by the licensee.
2. Have a separate, segregated depository account for all receipts relating to servicing.
(b) For fiscal years ending after January 1, 1992, 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.
(c) The audited statement shall be maintained at the licensee's place of business.
(2) (a) In lieu of the audit referred to in subsection (1), 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.
(b) The department is authorized to adopt rules to ensure that investors are adequately protected under this subsection.
SECTION 494.0077 OTHER PRODUCTS AND SERVICES
Sections 494.006-494.0077 do 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.
PART IV LOANS UNDER FLORIDA UNIFORM LAND SALES PRACTICES LAW
SECTION 494.008 MORTGAGES OFFERED BY LAND DEVELOPERS LICENSED PURSUANT TO THE FLORIDA UNIFORM LAND SALES PRACTICES LAW; REQUIREMENTS; PROHIBITIONS
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, chapter 498, shall be sold to a mortgagee, except a financial institution, by any person unless all of the following requirements are met:
(1) Each mortgage securing a note or other obligation sold or offered for sale shall be eligible for a recordation as a first mortgage.
(2) Each mortgage negotiated pursuant to this section must include a mortgagee's title insurance policy or an opinion of title, from an attorney who is licensed to practice law in this state, 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.
(3) 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.
(4) 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.
(5) 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.
(6) All funds received by the mortgage broker pursuant to this section shall promptly be deposited in the broker's trust account where they shall remain until the note and mortgage are fully executed and recorded.
(7) Willful failure to comply with any of the above provisions shall subject the person to the penalties of **s. 494.05.
CHAPTER 3D-40 RULES REGULATING MORTGAGE BROKERAGE
3D-4.001 DEFINITIONS
(4) Net worth shall be defined as total assets minus total liabilities, except that total assets shall not include the following:
(a) Any mortgage amount in excess of the lower of the cost or market value of mortgages in foreclosure, construction loans, or foreclosed property acquired through foreclosure.
(b) Any existing leasehold improvements not being amortized over the lessor of the expected life of the asset or the remaining term of the lease.
(c) Commitment fees paid which are not recoverable through the closing or selling of loans, and
(d) The value of any servicing contracts not determined in accordance with Financial Accounting Standards Board, Statement of Accounting Standards No. 65, dated September 1982.
(8) For purposes of s.494.006(2)(a), F.S., "employed" means a natural person engaged in the service of another for a salary or wages. Such person is subject to withholding, FICA, and other lawful deductions by the employer as a condition of employment or is subjected to the right of the employer to direct and control the actions of the employee.
(9) "Independent contractor" means a person who contracts with another to perform a service where this person is not directed or controlled by the other person or is required to maintain separate records regarding his contract for services in respect to, but not limited to, accounting and taxes. Employed: W-2, taxes withheld, someone controls your actions. Independent contractor: 1099, no taxes withheld, you control your own actions (10) "Notice of noncompliance" means a notification by the Department that a person has violated an administrative rule which is classified as a minor offense as set forth in section120.695 F.S. The mandatory fine that is associated the administrative rule is waived for the first offense.
(11) "Moral turpitude" shall be defined as follows: "Moral turpitude involves duties owed by persons to society as well as acts contrary to justice, honesty, principle or morals." This includes, but is not limited to, theft, extortion, use of the mail to obtain property under false pretenses, tax evasion, and the sale of, (or intent to sell), controlled substances. (Not manslaughter, not any felony in Florida, not DUI).
3D-40.008 FEES AND COMMISSIONS
(1) A mortgage brokerage business shall state in each contract for services the total fee to be received. The total fee shall not exceed the maximum as prescribed in 494.0042 (2) F.S.
(6) The maximum fees or commissions as provided in subsection 494.0042(2). F.S. must be based on the net proceeds of the loan.
(7) In determining the maximum fees or commissions on the gross proceeds of a loan, the following method may be used: On loans in excess of $1,000 and not over $5,650, add $1,500 to the gross proceeds of the loan and divide that sum by 11; and, on loans of $5,760 and over, divide the gross proceeds by 11 and add $227.27. On loans that are over $5,650 but less than $5,750, the maximum fee is the amount in excess of $5,000.
3D-40.031 APPLICATION PROCEDURE FOR MORTGAGE BROKER LICENSE
(1) Each person desiring to obtain licensure as a mortgage broker shall apply to the Department by submitting the following:
(a) A completed Application for Licensure as a Mortgage Broker, Form DBF-MB-101, revised 9-3-95, which is hereby incorporated by reference and available by mail from the Department of Banking and Finance, Division of Finance, The Capitol, Tallahassee, Florida 32399-0350. The application must be completed and signed within thirty (30)
(b) A non-refundable application fee of $200 which shall be the fee for the biennial period beginning September 1 of each odd-numbered year or any part thereof
(b) A completed fingerprint card accompanied by a $15 non-refundable processing fee. The fingerprint card will be valid for the period of 90 days from the date of receipt by the Department.
(2) Request for Additional Information. Any request for additional information, including a passing score on the Mortgage Broker Examination, will be made by the Department within thirty (30) days after receipt of the application by the Department. The additional information must be received by the Department within ninety (90) days from the date of the request. Failure to respond within ninety (90) days from the date of the request shall be construed by the Department as grounds for denial for failure to complete the application, and the application shall be denied pursuant to Section 120.60(2), Florida Statutes.
(3) Amendment of Application. If the information contained in an Application for Licensure as a Mortgage Broker becomes inaccurate for any reason before the applicant becomes licensed, the applicant shall be responsible for correcting the inaccurate information within ten (10) days of the change occurring by following the procedures set forth in this subsection. An applicant may amend the application as to those factors generally within the control or selection of the applicant once, as a matter of course, at any time within thirty (30) days from its receipt for filing. Otherwise the application may be amended only with prior written permission form the Department. Requests to make changes which are material to the application or to the Department's evaluation of the application filed at any time after the application has been received may be deemed by the Department to be grounds for denial, and a new application, accompanied by the appropriate filing fee, may be required.
(4) Withdrawal of Application. An applicant may request withdrawal of an application prior to determination of the application being made by the Department by submitting a written request that the application be withdrawn.
(5) Refunds. If the application is withdrawn or denied, the application fee and fingerprint processing fee are non-refundable.
(6) Upon approval of an application, a license will be issued for the remainder of the biennial licensure period.
(7) Restoration of Civil Rights
(a) If one's civil rights have been restored and the conviction did not directly relate to the mortgage industry, provide evidence of restoration of civil rights.
(b) If one's civil rights have been restored and the conviction is directly related to the mortgage industry, provide evidence of restoration of civil rights and rehabilitation should include, but is not limited to, employment history and letters from probation officers and employers.
3D-40.043 MORTGAGE BROKER LICENSE RENEWAL
(1) Each active mortgage broker license shall be renewed for the biennial period beginning September 1 of each odd numbered year upon submission of the renewal fee of $150 and a completed renewal form. Form DBF-F-103, Mortgage Broker License Renewal and Reactivation Form, Revised 9-3-95, is hereby incorporated by reference and available by mail from the Department of Banking and Finance, Division of Finance, The Capitol, Tallahassee, Florida 32399-0350.
(2) Failure to submit the fee and form required as required in Subsection (1) prior to September 1 of the renewal year shall automatically result in the license becoming inactive. The license may be reactivated within two (2) years after the end of the biennial period upon payment of the renewal fee and the reactivation fee of $100 and submission of a completed renewal form.
(3) A mortgage broker license that is not renewed within two (2) years after becoming inactive shall expire.
3D-40.051 APPLICATION PROCEDURE FOR MORTGAGE BROKERAGE BUSINESS LICENSE
(1) Each person desiring to obtain licensure as a mortgage brokerage business shall apply to the Department by submitting the following:
(a) A completed Application for Licensure as a Mortgage Brokerage Business, Form DBF-MB-201, revised 5/14/95, which is hereby incorporated by reference an available by mail from the Department of Banking and Finance, Division of Finance, The Capitol, Tallahassee, Florida 32399-0350.
(b) A non-refundable application fee of $425 which shall be the fee for the biennial period beginning September 1 of each even-numbered year of any part thereof.
(2) Each ultimate equitable owner of 10% of greater interest, the chief executive officer and each director of an entity applying for licensure as a mortgage brokerage business, shall submit a completed fingerprint card and Biographical Summary, Form MBB-96-1, (effective 7/14/96), to the Department along with a $15 nonrefundable processing fee. Form MBB-96-1 is hereby incorporated by reference and available from the Department of Banking and Finance, Division of Finance, the Capitol, LL-22, Tallahassee, FL 32399-0350.
(a) Any entity that is a wholly-owned subsidiary of a state or federally approved financial is exempt from the provisions of subsection (2). (b) For the purposes of this rule, "chief executive officer" means the person primarily responsible for the operation of this business, and a "financial institution" means a state or federal association, bank, trust company, international bank agency or credit union.
(c) If the individual owner, director or chief executive officer holds an active mortgage broker's license with the Department, they are exempt from the provisions of subsection (2).
(d) If an entity holds an active license under Chapter 494 F.S., with the Department, it is exempt from the rule when it applies for a different type of license, unless there has been a change of control of 50% or more of the ownership interest since the time its initial license was approved by the Department.
(e) Any claim to any of the above exemptions shall be supported by attaching evidence with the application for licensure.
(3) Request for Additional Information. Any request for additional information, including a passing score on the Mortgage Broker Examination, will be made by the Department within thirty (30) days after receipt of the application by the Department. The Additional information must be received by the Department within forty-five (45) days from the date of the request. Failure to respond within forty-five (45) days from the date of the request shall be construed by the Department as grounds for denial for failure to complete the application, and the application shall be denied pursuant to Section 120.60(2), Florida Statutes.
(4) Amendment of Application. If the information contained in an Application for Licensure as a Mortgage Broker becomes inaccurate for any reason before the applicant becomes licensed, the applicant shall be responsible for correcting the inaccurate information within ten (10) days of the change occurring by following the procedures set forth in this subsection. An applicant may amend the application as to those factors generally within the control or selection of the applicant once, as a matter of course, at any time within thirty (30) days from its receipt for filing. Otherwise the application may be amended only with prior written permission form the Department. Requests to make changes which are material to the application or to the Department's evaluation of the application filed at any time after the application has been received may be deemed by the Department to be grounds for denial, and a new application, accompanied by the appropriate filing fee, may be required.
(5) Withdrawal of Application. An applicant may request withdrawal of an application prior to determination of the application being made by the Department by submitting a written request that the application be withdrawn.
(6) Refunds. If the application is withdrawn or denied, the application fee is nonrefundable. (7) Upon approval of an application, a license will be issued for the remainder of the biennial licensure period.
(8) Restoration of civil rights
(a) If one's civil rights have been restored and the conviction did not directly relate to the mortgage industry, provide evidence of restoration of civil rights.
(b) If one's civil rights have been restored and the conviction is directly related to the mortgage industry, provide evidence of restoration of civil rights and rehabilitation. Evidence of rehabilitation should include, but is not limited to, employment history and letters from probation officers and employers.
3D-40.053 MORTGAGE BROKERAGE BUSINESS LICENSE AND BRANCH OFFICE LICENSE RENEWAL AND REACTIVATION
(1) Each active mortgage mortgage brokerage business license shall be renewed for the biennial period beginning September 1 of each even-numbered year upon submission of the statutory renewal fee required by Section 494.0032, F.S. , and a completed renewal form. Form DBF-MB-707, Mortgage Brokerage Business License Renewal and Reactivation Form, revised 10/99, is hereby incorporated by reference and available by mail from the Department of Banking and Finance.
(2) A mortgage brokerage business license that is not renewed as required in Subsection (1) prior to September 1 of the renewal year shall revert from active to inactive status. An inactive license may be renewed within six (6) months after becoming inactive upon payment of the statutory renewal and reactivation fees required by Section 494.0032, F.S. and submission of a completed reactivation form.
(3) Each active mortgage brokerage business branch office license shall be renewed in conjunction with the mortgage brokerage business license renewal upon submission of the statutory renewal fee required by Section 494.0032, F.S. , and a completed renewal form. Form DBF-MB-708, Mortgage Brokerage Business Branch Office License Renewal and Reactivation Form, revised 10/99, is hereby incorporated by reference and available by mail form the Department of Banking and Finance, Division of Securities and Finance.
(4) A mortgage brokerage business branch office license that is not renewed as required in Subsection (3) prior to September 1 of the renewal year shall revert from active to inactive status. An inactive branch office license may be renewed within six (6) months after becoming inactive upon payment of the statutory renewal and reactivation fees required by Section 494.0032, F.S., and submission of a completed reactivation form.
(5) A mortgage brokerage business license and branch office license that is not renewed within the six months after the end of the biennial period automatically expires.
3D-40.058 APPLICATION PROCEDURE FOR MORTGAGE BROKERAGE BUSINESS BRANCH OFFICE LICENSE
(1) Every mortgage brokerage business which conducts mortgage brokerage business in this state from a branch office shall apply to the Department for a license to operate a branch office by submitting the following:
(a) A completed Application for Mortgage Brokerage Business Branch Office License. Form DBF-MB-301, revised 10/99, which is hereby incorporated by reference and available by mail from the Department of Banking and Finance.
(b) The statutory, nonrefundable license fee required by Section 494.0036, F.S., which shall be the fee for the biennial period beginning September 1 of each even-numbered year or any part thereof
(2) Any office or location shall be deemed to be a branch office if it meets the definition in Section 494.001 (7), F.S.
(3) Request for Additional Information. Any request for additional information will be made by the Department within thirty (30) days after receipt of the application by the Department. The additional information must be received by the Department within forty-five (45) days from the date of request. Failure to respond to the request within the forty-five (45) days from the date of the request shall be construed by the Department as grounds for denial for failure to complete the application and the application shall be denied pursuant to Section 120.60 (1), F.S.
(4) Amendment of Application. If the information contained in the Application for Mortgage Brokerage Business Branch Office License becomes inaccurate for any reason before the applicant becomes licensed, the applicant shall be responsible for correcting the inaccurate information within ten (10) days of the change occurring by following the procedures set forth in this subsection. An applicant may amend the application as to those factors generally within the control or selection of the applicant once, as a matter of course, at any time within thirty (30) days from its receipt of filing. Otherwise, the application may be amended only with prior written permission from the Department. Requests to make changes which are material to the application or to the Department's evaluation of the application filed at any time after the application has been received may be required.
(5) Withdrawal of Application. An applicant may request withdrawal of an application prior to a determination of the application being made by the Department by submitting a written request that the application be withdrawn.
(6) Refunds. If the application is withdrawn or denied, the license fee is non-refundable.
(7) Upon approval of an application, a license will be issued for the remainder of the biennial licensure period.
3D-40.099 CHANGE OF NAME, CHANGE OF ENTITY , CHANGE IN CONTROL OR OWNERSHIP
(1) Each person licensed as a mortgage broker, mortgage brokerage business, mortgage lender or correspondent mortgage lender which changes her or his name of record, as filed with the initial application for licensure, or any subsequent change on file and acknowledged by the Department thereafter, shall notify the Department, in writing, of the name change and shall provide documentation authorizing such name change within thirty (30) days of the date effecting such change. Any licensee pursuant to Section 494.0061 or 494.0062, F.S. shall additionally provide a completed surety bond, on Form DBF-ML-444, Mortgage Brokerage and Mortgage Lending Act Surety Bond, which is hereby incorporated by reference (effective 10/91), executed in the new name of the licensee as documented by the requirements of this subsection. The form is available by mail from the Department of Banking and Finance.
(2) Each licensed mortgage brokerage business, mortgage lender, or correspondent mortgage lender which proposes to change the entity licensed with the Department shall file a new application for licensure pursuant to Section 494.0031, 494.0061 or 494.0062, F.S. Application forms are available by mail from the Department of Banking and Finance.
(3) Any person or persons who, directly or indirectly, seeks to own, control, or hold power to vote, or holds proxies representing 50 percent or greater of any class of equity securities or ultimate equitable ownership of a mortgage brokerage business, mortgage lender or correspondent mortgage lender shall file a new application for licensure pursuant to Section 494.0031, 494.0061 or 494.0062 F.S. prior to the effective date of the change in ownership or control interest.
(4) Any person who is subjected to the requirements of subsections (2) or (3) herein, and who seeks to own, control, or hold power to vote of a mortgage lender licensed pursuant to the Saving Clause, Section 494.0065, F.S. is subjected to the new worth requirements as specified in Section 494.0065 (1) (a)2, F.S., when reapplying for licensure as required in subsections (2) and (3) above. An application for licensure under this subsection shall be submitted in accordance with Rule 3D-40.100
3D-40.156 THIRD-PARTY FEE ACCOUNTS
(1) All third-party fees and refundable application fees received by a mortgage brokerage business shall immediately be deposited in a segregated account in a federally insured financial institution located in Florida. The account shall be in the name of the mortgage brokerage business and shall provide for withdrawal of funds without notice. The account shall be used exclusively for third-party fees and refundable application fees. The licensee shall maintain an updated and accurate record or account activity on Form DBF-MX-999, which is hereby incorporated by reference and available by mail from the Department of Banking and Finance, Division of Finance, LL-22, The Capitol, Tallahassee, Florida 32399--350, or on a format which substantially similar to Form-MX-999.
(2) For the purposes of this rule "immediately" means within seven (7) business days of receipt of the funds.
(3) The administrative penalty for the failure to comply with this rule shall be $500. Incidental and "isolated clerical errors or omissions" shall mean less than three (3), or a percentage less than 20% of the deposit entries examined or reviewed. The penalty for intentional or repeat violations of this rule shall be a $500 fine and suspension or revocation.
(4) For the purpose of this rule, failure to maintain an escrow account is a violation of this rule. Failure to maintain a record of account activity in a current manner is a violation of this rule. Failure to make immediate deposits as required is a violation of this rule. Each of the above shall be considered separate violations with each subject to the penalties provided therein.
3D-160 PRINCIPAL BROKERS
(1) Each mortgage brokerage business shall designate a licensed mortgage broker as the principal broker and the individual designated shall accept responsibility by completing the Principal Broker Designation, Form DBF-MB-PB, effective October 7, 1991, which is hereby incorporated by reference and available by mail from the Department of Banking and Finance, Division of Finance, LL-22, The Capitol, Tallahassee, Florida 32399-0350.
(2) Upon any change of the principal broker, the licensee and the newly designated broker shall complete the Principal Broker Designation, Form DBF-MB-PB. Form DBF-MB-PB shall be maintained at the principal office of the mortgage brokerage business, and a copy mailed to the Department within thirty (30) days of said designation or change of designation.
(3) The penalty for failure to maintain Form DBF-MB-PB shall be the issuance of a "notice of noncompliance" at the first offense. Any subsequent finding of a violation of this rule during an examination or investigation shall be a fine of $500. In cases where the failure to maintain Form DBF-MB-PB is intentional, the penalty shall be a fine of $5,000.
(4) Each principal broker shall notify the Department of Banking and Finance, Division of Finance, Attention: Licensing Section, LL-22, The Capitol, Tallahassee, FL 32399-0350 in writing, within thirty (30) days, of termination of principal broker status.
3D-40.165 BRANCH BROKERS
(1) Each mortgage brokerage business shall designate a licensed mortgage broker as the branch broker of the branch office, and the individual shall accept such responsibility by completing the Branch Broker Designation, Form DBF-MB-BB, effective October 7, 1991, which is hereby incorporated by reference and available by mail form the Department of Banking and Finance, Division of Finance, LL-22, The Capitol, Tallahassee, Florida 32399-0350.
(2) Upon any change of the branch broker, the licensee and the newly designated branch broker shall complete the Branch Broker Designation, Form DBF-MB-BB. Form DBF-MB-BB shall be maintained at the applicable branch office of the mortgage brokerage business, and a copy mailed to the Department within thirty (30) days of said designation or change in designation.
(3) The penalty for failure to maintain Form DBF-MB-BB shall be the issuance of a "notice of noncompliance" for the first offense. Any subsequent finding of a violation of this rule during examination of investigation shall be a fine of $500. In all cases where the failure to maintain the Form DBF-MB-BB is intentional, the penalty shall be a fine of $5,000.
(4) Each branch broker shall notify the Department in writing, within thirty (30) days, of termination of branch broker status.
3D-40.170 BOOKS AND RECORDS
(1) A licensee may maintain required books, accounts and records at a location other than the principal place of business. The licensee must notify the Department in writing prior to said books, accounts and records being maintained in any place other than the designated principal place of business. Such notification shall be submitted to the Department of Banking and Finance, Division of Finance, Attention: Regulatory Support, LL-22, The Capitol, Tallahassee, Florida 32399-0350.
(2) Books, accounts and records maintained at a location other than the principal place of business shall be made available to the Department within three (3) business days from the date of written request by the Department and at a reasonable and convenient location in this State designated by the Department.
(3) All books, accounts and records must be maintained for three (3) years from the date of "original entry". For the purpose of this rule, "original entry" means the date documentation was originated by the licensee or received by the licensee.
(4)(a) The penalty for maintaining books, accounts and records at a location other than the principal place of business, without written notification to the Department, shall be the issuance of a "notice of noncompliance" for the first offense. Any subsequent finding of a violation of this rule during an examination or investigation shall b a $500 fine. (b) The penalty for refusal to permit an investigation or examination of books, accounts and records after a reasonable request by the Department, shall be revocation of the license. This paragraph shall not apply to a proceeding governed by the rules of civil procedures of any state or federal court.
3D-40.175 MORTGAGE BROKERAGE FILES
(1) Each mortgage brokerage business shall maintain a file for each mortgage brokerage transaction. The files shall be maintained in a central location and in alphabetical or numerical sequence.
(2) Each file shall contain the following:
(a) Mortgage brokerage agreement pursuant to 494.0038.
(b) Copy of signed closing statement as required by 494.0037(3), F.S., or documentation of denial or cancellation of the loan application; and
(c) A copy of the good faith estimate of costs pursuant to s. 494.0038(2)(c).
(3) 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.
(4) If the mortgage brokerage business issues to the client a written commitment for the loan on behalf of the lender then the following must be maintained in the file:
(a) A copy of the written commitment issued by the mortgage brokerage business.
(b) A copy of the written commitment provided by the lender.
(5) If the mortgage brokerage business issues to the client a written lock-in for the loan on behalf of the lender then the following must be maintained in the file:
(a) A copy of the written lock-in issued by the mortgage brokerage business, and
(b) A copy of the written lock-in provided by the lender.
(6) If the mortgage brokerage business receives a mortgage loan application, then the mortgage brokerage business shall maintain a copy in the file.
(7) If the loan is funded by a non-institutional investor then the file must also include the following:
(a) 1. A copy of the appraisal or opinion of value of the mortgage property and a signed and dated acknowledgment by the non-institutional investor of receipt of the appraisal or opinion of value, or
2. A copy of a waiver of the appraisal dated and executed by the non-institutional investor.
(b) 1. A receipt acknowledging that the non-institutional investor has been furnished with title insurance or legal opinion of title, or
2. A written waiver thereof.
(c) On a junior mortgage, documentation that the non-institutional lender has been furnished with a showing the balance owed and the status of the liens that will be superior to the lien being funded by the non-institutional investor.
(d) A signed and dated acknowledgment by the non-institutional investor of receipt of recorded mortgage or other instrument securing a note or assignment.
(e) If applicable, documentation that said licensee has disclosed that it is acting (directly or indirectly) as a borrower or principal in that transaction.
(8) All documentation must be maintained for three (3) years from the date of "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. 3D-40.177 MORTGAGE BROKERAGE AND LENDING TRANSACTION JOURNAL
(1) Each mortgage brokerage business and lender acting in capacity of a mortgage brokerage business shall maintain a journal of mortgage brokerage transactions which shall include, at least, the following information:
(a) Name of applicant
(b) Date applicant applied for the mortgage loan
(c) 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:
1. Loan funded 2. Loan denied 3. Application withdrawn 4. Other (with explanation)
(2) The journal shall be maintained in a format which substantially similar to form DBF-MX-888, Mortgage Brokerage and Lending Transaction Journal, revised 7-25-96, which is hereby incorporated by reference and is available by mail from the Department of Banking and Finance, Division of Finance, LL-22, The Capitol, Tallahassee, Florida 32399-0350.
(3) The Mortgage Brokerage and Lending Transaction Journal shall be maintained in the principal office or in each branch office where mortgage brokerage transactions are originated. The Mortgage Brokerage and Lending Journal shall be kept current. The failure to initiate an entry to the Mortgage Brokerage and Lending Journal within seven (7) business days from the date the brokerage transaction is entered into shall be deemed a failure to keep the Mortgage Brokerage and Lending Journal current.
3D-40.245 INDEPENDENT CONTRACTORS
A natural person is not exempt from the licensure requirements of ss.494.003-.0043, F.S., when acting as an independent contractor as defined in Rule 3D.40.001(9), F.A.C., for licensees pursuant to ss. 494.006-.0077, F.S. (Must have a mortgage broker associate and a mortgage brokerage business license)
3D-40.250 DOCUMENTATION OF NET WORTH AND SURETY BOND
(1) Each licensee under ss.494.0061, 494.0062 and 494.0065, F.S., shall document and verify the required net worth and audited financial statements, prepared in accordance with Generally Accepted Accounting Principles, by an independent licensed CPA.
(a) Each mortgage lender shall continuously maintain a net worth of $250,000
(b) Each mortgage lender licensed pursuant to the provisions of the savings clause, 494.0065 F.S., shall continuously maintain a net worth of $25,000 or more.
(c) Each correspondent mortgage lender shall continuously maintain a net worth of $25,000, or more.
(2) Each licensee identified in subsection (1) above shall have completed, annually, the required audited financial statement within 120 days of the fiscal year end of said licensee. All audited financial statements shall be maintained in the licensee's principal place of business in this state and made available to department examiners upon request.
(3) Failure to maintain net worth. Each licensee who fails to maintain net worth as prescribed in paragraphs (1)(a), (b) and (c) of this rule shall immediately cease taking any new mortgage loan applications and notify the department in writing by U.S. certified mail within 48 hours. A licensee shall not resume business without written department authorization.
(4) Surety Bond. Surety bonds required as a condition of licensure under ss. 494.0061 and 494.0062, F.S., shall be continuously maintained. A copy of the surety bond shall be maintained in the principal place of business in this state and made available to department examiners upon request.
(a) In the event a licensee changes the issuer of the surety bond or issuer of the surety bond cancels the bond, the licensee shall inform the department of such change in writing by U.S. certified mail and provide a new surety bond to the department.
(b) Each surety bond shall be issued by a company authorized to do business in this state by the Florida Department of Insurance.
(c) Each surety bond shall be in the amount of $10,000 and on the form prescribed by the department.
(d) A mortgage lender licensed pursuant to the saving clause, s. 494.0065, F.S., is not required to have or maintain a $10,000 surety bond. 3D-40.290 ACTS REQUIRING LICENSURE AS MORTGAGE BROKER, MORTGAGE BROKERAGE BUSINESS, MORTGAGE LENDER OR CORRESPONDENT MORTGAGE LENDER
(1) A person shall not be deemed to be acting as a mortgage broker pursuant to Section 494.001 (3), F.S., to be acting as a correspondent mortgage lender pursuant to Section 494.001 (1), F.S., or a mortgage lender pursuant to Section 494.001 (4), F.S., for:
(a) Purchasing or offering to purchase a mortgage loan from a member of the general public.
(b) Selling or offering to sell a mortgage to an institutional investor.
(c) Negotiating or offering to negotiate the purchase or sale of a mortgage loan to an institutional investor.
(2) The phrase "holds himself out to the public in any manner" in section 494.006(1) (i) and (j) means that any person who does any of the following, but not limited to, is not exempt from mortgage lender or correspondent mortgage lender license requirements.
(a) Is a business entity which makes, sells, of offers to sell, mortgage loans to noninstitutional investors.
(b) Is employed or associated with a business where mortgage lending or mortgage brokerage services may be received.
(c) Has placed himself in a position where he is likely to come into contact with borrowers or investors or buyers or sellers of mortgage loans.
(d) Advertises, related to mortgage loans, by soliciting for borrowers, lenders or purchasers in a telephone directory.
(e) Advertises in newspapers, magazines, or the like in a manner which would lead the reader believe the person was in the business of buying, making or selling mortgage loans. For example, placing an advertisement which states "I buy and sell mortgages" would lead the public to believe the person was in the mortgage lending business, or
(f) Solicits in a manner which would lead the reader to believe the person was in the business of buying, making or selling mortgage loans.
B. FEDERAL LAW
In addition to Chapter 494, (the law that regulates the mortgage industry here in Florida), there are numerous federal laws affecting mortgage transactions as well. These federal laws include:
THE TRUTH IN LENDING ACT (REG Z) (ADS ARE REGULATED BY THE FTC)
The Consumer Protection Act of 1968 contains Title I, better known as Truth-in-Lending (or Regulation Z). The purpose of this legislation was to require that all lenders, including mortgage lenders, disclose to borrowers exactly how much obtaining credit was going to cost them. Under these regulations a lender is required to make certain disclosures concerning the extension of credit to a borrower. These include:
1. ANNUAL PERCENTAGE RATE (APR)
The most meaningful disclosure is of the annual percentage rate (APR). The APR is the annual interest rate the mortgage borrower will actually pay after all other costs and charges associated with the loan are taken into consideration. This calculation would include the interest rate, points, MIP, (if applicable), and other costs of credit. The APR must be computed and disclosed with accuracy to the nearest 1/8 percent.
2. FINANCE CHARGES
In addition to the APR disclosure, a mortgage lender is required to provide within three business days after a written application a good faith estimate of the amount financed. The amount financed includes the principal loan amount, and any other amount that is financed by the lender, and the finance charge. The finance charge is "the dollar amount the credit will cost you." The "good faith estimate of settlement costs" required for those loans subject to RESPA, (Real Estate Settlement Procedures Act, see below), may be substituted for this disclosure if it provides all the required information. Most mortgage lenders use one form for these two disclosures.
The charges which must be disclosed to a borrower include all fees that are required as a condition of the loan, such as the following:
1. Interest 2. Loan discount 3. Origination fees 4. Mortgage insurance premiums 5. Principal repayment
Typical closing costs, (fees paid to a third party), that do not need to be included in the finance charge include:
1. Appraisal fee 2. Credit report fee 3. Title examination 4. Lawyer fees 5. Property survey
The lender is required, usually within three days of receiving the borrower's application, to give the borrower or place in the mail to the borrower a Truth-in-Lending statement that will disclose the "annual percentage rate" (APR). The APR reflects the cost of the borrower's mortgage loan as an yearly rate. This rate may be higher than the rate stated in the borrower's mortgage or deed of trust note because the APR includes, in addition to interest, loan discount points fees and other credit costs. The Truth-in-Lending discloses other useful information, such as the finance charge, (see above), schedule of payments, late payment charges, and whether or not additional charges will be assessed if you pay off balance of your loan before it is due, (prepayment penalty).
Some of the information that the lender is required to disclose may not be certain at the time the lender is required to give the borrower the Truth-in-Lending . If so, the lender will indicate that the uncertain amounts are estimates. Should the actual APR differ by more than a small amount from the lender's estimate, the lender must give the borrower a corrected Truth-in-Lending no later than at settlement. However, if the estimated APR proves to be correct, the lender need not give you a new Truth-in-Lending , even if other disclosures have changed. Reg Z, (Regulation Z), says the APR must match the lender's estimate. If it is off as little as 1/8%, it must be rewritten.
Under federal law, if you advertise an interest rate, you must also include the APR. Unfair credit advertising is governed by the FTC, (the Federal Trade Commission). Truth-in-Lending is also governed by the FTC.
KICKBACKS
Kickbacks and referrals for business for gain are often tied together. RESPA prohibits anyone from giving or taking a fee, kickback, or anything of value under an arrangement that business will be referred to a specific business or organization. It is also illegal to charge or accept a fee or part of a fee where no service has actually been performed. This requirement does not prevent title companies, attorneys or others actually performing a service in connection with the mortgage loan or settlement transaction, from receiving compensation for their work.
TITLE COMPANIES UNDER RESPA
Under RESPA, the seller may not require, as a condition of sale, that title insurance be purchased by the borrower from any particular title company. A violation of this will make the seller liable to the borrower in an amount equal to three times all charges made for title insurance.
SUITS UNDER RESPA
Any suit you file under RESPA must be brought within one year of the date of the alleged violation. The borrower may have legal remedies under other state or federal laws in addition to RESPA.
RULE OF THUMB TO DETERMINE APPROXIMATE APR
Each point, (one percent of the loan amount), that the borrower pays to the lender increases the lender's yield by approximately 1/8%. This rule of thumb assumes a payback period of approximately fifteen, (15) years. For example:
Assume that a lender has quoted the following terms for a $60,000 loan:
Interest rate 12.5% Origination fee 2.0% = 2.00% of the loan amount Application fee $150 = .25% of the loan amount Attorney's fee $300 = .50% of the loan amount
Total = 2.75% of the loan amount
Since each one percent of the loan amount is an equivalent of 1/8% increase in the interest, the effective interest rate for this lender is approximately 12.84%:
12.5% + (2.75 x 1/8 = .34%) = 12.84%
By using the above rule of thumb a borrower can effectively compare lenders even if the lenders offer differing terms.
RIGHT OF RESCISSION
Truth-in-Lending regulations also require that mortgage lenders disclose to borrowers who are refinancing an existing home mortgage or getting a second mortgage, that they have three business days in which to rescind, (undo), the loan transaction if they so desire. This right does not apply to purchase money transactions.
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA)
For many people, buying a home is the single most important financial step of a lifetime. The Real Estate Settlement Procedures Act of 1974, (RESPA), a federal statute helps to protect the borrower at this step.
Settlement is the formal process by which ownership of real property passes from the seller to the buyer. It is the end of the home buying process, the time when title to the property is transferred from the seller to the buyer.
RESPA covers most residential mortgage loans used to finance the purchase of one-to-four family properties, such as a house, a condominium or cooperative apartment unit, a lot with a manufactured home or a which the borrower will build a house of place a manufactured home immediately following settlement. RESPA does not apply to loans to refinance the home.
RESPA is not designed to set the prices of settlement services. Instead, it provides the borrower with information to take the mystery out of the settlement process, so the borrower can shop for settlement services and make informed decisions.
The RESPA handbook was prepared as provided in RESPA by the Assistant Secretary for Housing, the Federal Housing Commissioner, of the U.S. Department of Housing and Urban Development, (HUD).
Settlement is sometimes called closing and settlement charges are frequently referred to as closing costs.
When a borrower files his application for a loan, the lender is required by RESPA to provide a Good Faith Estimate, (see below) and a copy of the RESPA handbook. The lender has three business days to mail or deliver these materials to the borrower.
The RESPA handbook also encourages borrowers to add specific clauses to the sales contract. This includes a clause that assures that the borrower's deposit, (earnest money), be refunded if the borrower is not able to acquire financing at affordable rates and terms. Another clause that the borrower is encouraged to add to a standard purchase agreement is a clause that details how taxes, water and sewer charges, etc. will be handled by the seller and the buyer, (typically pro-rated).
The borrower has the right to inspect the HUD-1 document the day before closing. A completed HUD-1 is mailed or delivered to the borrower at or before closing, unless the borrower waives his right delivery of the completed document. Under this situation, the HUD-1 will be mailed at the earliest practical date.
WHICH LAW HAS TO DO WITH KICKBACKS? RESPA THE HUD-1 IS NOT USED IN SITUATIONS WHERE:
1. There are no settlement charges to the buyer, (the seller paid all). 2. The borrower is informed of a fixed amount of loan application
This law applies to all federally related mortgage loans, (practically all purchase, [not refinance or junior mortgages], money residential mortgages. The purpose of RESPA is to inform borrowers of all the costs that will be associated with the loan and loan closing. RESPA does not apply to the following types of mortgages:
1. Loans to finance property of 25 or more acres
2. Loans to finance a vacant lot
3. Construction loans, (unless loan can convert to a permanent loan).
GOOD FAITH ESTIMATES OF SETTLEMENT COSTS (CLOSING COSTS TO BORROWER)
In addition, RESPA requires a mortgage lender to provide within three business days a "good faith estimate of settlement costs" which a borrower will incur at closing. This estimate does not have to be exactly what the final closing will be but must be a good faith estimate. The items which are normally found in the closing statement include among others:
1. Appraisal fee 2. Commitment fee 3. Credit report fee 4. Settlement or closing fee 5. Survey 6. Recording fee 7. Pest inspection
HUD-1 (CLOSING COSTS TO BORROWER AND SELLER)
RESPA also provides a borrower with the right to inspect the Uniform Settlement Statement, (HUD-1), on the business day before settlement. This two-page form is completed by the closing agent and lists all the charges paid by the seller and the buyer. Both parties sign the form and the lender will keep the original in the loan file.
WHICH LAW COVERS SERVICING DISCLOSURES RESPA FAIR CREDIT REPORTING ACT (FCRA)
The purpose of this law is to insure that accurate credit information is used when credit decisions are made. Basically, the law allows lenders to only obtain credit information on a particular borrower if the borrower has given his written permission to release the credit information. If a mortgage lender turns down an applicant because of poor credit as established by a credit report, the lender must inform the applicant of this fact and the lender should also advise applicant of his right to discuss or question any information on the credit report with the credit bureau that provided the credit information. The lender should not discuss the contents of the credit report with the applicant. Any discussions about the accuracy of the credit report should be between the applicant and the credit reporting agency.
EQUAL CREDIT OPPORTUNITY ACT (ECOA) (REGULATION B)
This law is intended to assure that all persons have equal opportunity to receive credit. The provisions assure that lenders do not discriminate against an applicant on the basis of:
1. Race 2. Color 3. Religion 4. National origin Note: ECOA does not cover handicapped. The ADA does. 5. Sex (American Disabilities Act) 6. Martial status 7. Age 8. The fact that the applicant's income is derived from any public assistance program 9. The fact that an applicant has in good faith exercised any right under the Consumer Credit Protection Act or any similar law
ECOA states that lenders are not allowed to ask borrowers questions related to how many children that they planning on having in their family.
MONITORING INFORMATION (This information is optional by the borrower, mandatory by the lender)
A typical FNMA application form will contain a government monitoring information section. The lender will ask the applicant to supply information as to race, national origin and sex. The applicant should be informed that this information is only used to assure that the lender is not discriminating against applicants and is not considered when determining whether to grant a loan. The applicant must also be told that this information need not be supplied, (by the applicant, [borrower]), but if it is not supplied by the borrower the lender must supply the information based on visual observations.
MARITAL STATUS
The marital status of an applicant may be requested for a mortgage loan. This information is important to the lender because of the different requirements in some states for establishing a secured interest in real estate depending on whether or not a person is married. However, in establishing the martial status, the only terms that can be used by a lender are married, unmarried or separated. A lender may never ask questions about an applicant's spouse unless:
1. The spouse will be contractually liable 2. The applicant is relying on the spouse' income to qualify 3. The applicant resides in a community property state or the security is in such a state 4. The applicant is relying on alimony, child support or separation maintenance payments from a spouse or former spouse
NOTIFICATION OF ADVERSE ACTION
Applicants for credit must be notified within 30 days after receipt of a completed application whether the loan has been approved substantially as requested or the creditor is taking "adverse action", (denial). An application is considered complete when all required information has been received by the lender. If the application is rejected, the lender must state a specific reason for rejection.
NATIONAL FLOOD INSURANCE ACT (NFIA)
This act established the National Flood Insurance Program, (NFIP), which allowed home owners to purchase flood insurance at reasonable rates. Subsequently, the Flood Disaster Protection Act, (FDPA), was enacted. The purpose of this legislation was to require lenders to inform borrowers whether their property was in a flood hazard area. If the property was in a flood hazard area, borrowers were to be advised that in order to obtain a mortgage they had to covered by flood insurance.
Special flood hazard areas are identified by the Federal Emergency Management Agency, (FEMA) and designated on Flood Insurance Rate Maps, (FIRM). Areas A and V require flood insurance.
HOMEOWNERS PROTECTION ACT
A new federal law that assures that PMI be dropped when the LTV reaches 78%.
CONTRACTS
In order for a Florida real estate contract to be legally enforceable, it must be in writing and signed by both the seller and the buyer. LIEN AND TITLE THEORY
Florida is a lien theory state and as such uses mortgages as the security instrument.
C. REAL ESTATE CONTRACT (FAR/BAR)
This universally accepted document was created by the Florida Association of Realtors, (FAR) and the Florida Bar, (the legal community) (BAR). It is used as a contract for the sale and purchase of real property in Florida. The lender keeps the original FAR /BAR. Of significant interest is paragraph IV. related to financing. Paragraph IV states:
FINANCING:
(a) if the purchase price of any part is to be financed by a third-party, this contract is conditioned on buyer obtaining a written commitment within ______ days after effective date for (CHECK ONE: __ fixed or __ adjustable or __ a fixed or adjustable rate loan for the principal amount of $ _______ at an interest rate no to exceed ___%, discount and origination fees not to exceed ___% of the principal amount and a term of ___ years. Buyer will make application within ___ days after effective date and will use reasonable diligence to obtain the loan commitment and thereafter to satisfy the terms and conditions of the commitment and close the loan. Buyer shall pay all loan expenses. If the buyer fails to obtain the commitment or fails to waive Buyer's rights under this subparagraph within the time for obtaining the commitment or, after diligent effort, fails to meet the terms and conditions of the commitment, then either party thereafter, by written notice to the other, may cancel the Contract and Buyer shall be refunded the deposit.
(b) The existing mortgage described in Paragraph III(c) above has a (CHECK ONE ONLY ___ a variable interest rate, or ___ a fixed interest rate of ___% per annum. At time of title transfer, some fixed interest rates are subject to increase. If increased, the rate shall not exceed ___% per annum. Seller shall, within ___ days after Effective Date, furnish a from each mortgagee stating principal balance, method of payment, interest rate and status of mortgage. If buyer has agreed to assume a mortgage which requires approval of buyer by the mortgagee for assumption, the Buyer shall promptly obtain the necessary application and diligently complete and return it to the mortgagee.
Any mortgage charge(s) not to exceed $ _____ shall be paid by Buyer. If Buyer is not accepted by mortgagee or the requirements for assumption are not in accordance with the terms of this contract or mortgagee makes a charge in excess of the stated amount, Seller or Buyer may rescind this Contract by written notice to the other party unless either elects to pay the increase in interest rate of excess mortgage charges.
REAL ESTATE OWNERSHIP
Real property is land and everything that is permanently attached to it. Real property is normally transferred by a deed, while personal property is transferred by a bill of sale.
When people talk about ownership of land, they are talking about the type of interest they have in real estate. An estate is defined as an interest in real property which is measured by its potential duration. There are two recognized classifications of estate in real property; freehold and leasehold, (sometimes referred to as non-freehold).
FREEHOLD ESTATE
This classification is the highest form of interest possible in real property. It is an estate of indefinite duration. An example of a freehold estate would be fee simple absolute.
LEASEHOLD ESTATE
The owner of a leasehold estate only has the right of possession for a period of time. The owner of a leasehold estate cannot pass the interest on to his heirs. An example of a leasehold estate would be a tenant's interest in leased property, (rental).
FEE SIMPLE ABSOLUTE
The greatest possible interest in real estate is known as fee simple absolute. This means the owner possesses all the available rights to a piece of real property. If one, or more of the possible rights are not possessed, (for example the right to use the property for any use), then a fee simple absolute does not exist. This would be an example of a defeasible fee simple. (Leasehold has a determinable end, fee simple does not).
DEFEASIBLE FEE SIMPLE
Grantors of land may place restrictions on how the land may or may not be used. For example if a piece of real property is granted to someone with the stipulation that the property only be used for a church and the grantee used the property for some other use, then the property would revert back to the grantor, (or his heirs).
LIFE ESTATES
A life estate is a freehold estate that only lasts for the duration of the life of the person receiving the life estate.
SPECIFIC TYPES OF OWNERSHIP
1. TENANCY BY THE ENTIRETIES (The most common type of ownership) Can only be created by husbands and wives
2. TENANCY IN COMMON Two or more owners, with equal or unequal ownership. Each owner can sell, mortgage, etc. their share without disturbing the interests of the other owners. 3. JOINT TENANCY Two or more owners. When one owner dies his share of ownership is distributed to the other owners evenly.
4. PROPERTY IN SEVERENCE Only one person on the deed. Property goes to heirs. No heirs; to state, (escheat).
MORTGAGE DOCUMENTS
When a lender makes a loan to a borrower and the loan is secured by real property, this is commonly referred to a mortgage loan. A lender, of course wants to assure that he will be repaid and that he has recourse against the borrower in the event the borrower does not repay or does not pay in a timely manner. To this end, the lender would require that the borrower sign two, (among others), documents; the note and the mortgage.
THE NOTE (Typically, the note is not recorded) (The note serves as evidence of debt)
Commonly referred to as a promissory note, this document evidences that the borrower has a debt payable to the lender. This document also includes important provisions such as what is the interest rate, (the coupon rate), how many payments are to be made and when the first and subsequent payments should be received by the lender.
THE MORTGAGE (Pledge of property as security for the loan)
This instrument creates a security interest in the real estate that secures the loan. It is typically recorded to perfect the mortgagee's lien position. Basically, in Florida, it allows the lender to foreclose on the real property securing the promissory note if the borrower is not repaying the note as agreed. Most lenders use a common form for the mortgage instrument to assure that it can, (and probably will be), assigned to another lender or a member of the secondary market, (i.e. FNMA). Most all mortgages contain a number of clauses. Some of these clauses serve to protect the lender, and other serve to protect the borrower. These clauses include:
DEFEASANCE CLAUSE
Defeats the mortgage. This clause keeps the mortgagee from foreclosing as long as the borrower is repaying the note as agreed.
PREPAYMENT CLAUSE
This clause allows the borrower to pay all or part of the debt before it becomes due. This is always available on FHA and VA loans and usually available on conventional loans as well. A prepayment penalty clause will discourage a borrower from paying the mortgage loan ahead of the normal amortization schedule.
ACCELERATION CLAUSE
This clause allows the mortgagee, (lender), to accelerate the payment schedule, (to call the entire loan amount due), if payments are not received as agreed, (default by the borrower).
ALIENATION CLAUSE (DUE-ON-SALE CLAUSE)
A clause that specifically calls a mortgage loan due upon sale or transfer of the property. This clause makes the mortgage not assumable. Allows the lender to be paid immediately if the borrower transfers ownership of the mortgaged property without lender's approval.
ESCALATOR CLAUSE
Allows the mortgagee to increase the interest rate under certain circumstances.
SUBORDINATION CLAUSE
Allows this mortgage to be subordinated, (placed at a lower priority position voluntarily), to a junior mortgage. For example, to move from first mortgage to second mortgage position.
EXCULPATORY CLAUSE
Relieves the borrower from any personal liability in the event of a default.
CONVERSION CLAUSE
Allows an adjustable mortgage to be converted to a fixed rate mortgage.
PRE-PAYMENT PRIVILEDGE CLAUSE
Allows the borrower to prepay, (ahead of schedule), without a penalty. RELEASE, (OR PARTIAL RELEASE), CLAUSE
Allows for individual properties to be released from a multi-property mortgage.
CONTRACT FOR DEED (Land contract, agreement for deed)
A method of financing property whereby the buyer obtains possession, but the seller retains title. (This is not a type of deed)
DEED OF TRUST (Trust deed) (A third party holds on to the deed)
Some states have passed legislation that allows deeds of trust to exist. One of the basic differences between a mortgage and a deed of trust is the number of parties involved. When a mortgage is used, there are two parties; the mortgagee and the mortgagor. With a deed of trust a third party is involved. This party is commonly referred to as a trustee. The trustee holds title to the property while the payments are being made to the mortgagee. When all of the payments have been made, (satisfaction), then the title is conveyed to the mortgagor.
EQUITY OF REDEMPTION
The right of the mortgagor to cure a default anytime prior to foreclosure.
RIGHT OF REDEMPTION (Not in Florida)
The right of the mortgagor to reclaim, (redeem), their property even after default and foreclosure has taken place. Can be six months to two years, depending on state law.
DEFICIENCY JUDGMENT
A judgment or decree rendered by a court against a party when security pledged for a debt, (loan), is not sufficient to satisfy the debt after default and a foreclosure sale of the security property. For example, if a default takes place and the property is sold at foreclosure and brings a price of $50,000 and the outstanding debt is $60,000, a deficiency judgment could be ordered by a court for the remaining $10,000.
E. MORTGAGE BROKERAGE AGREEMENT
In order for a mortgage brokerage business, (and the mortgage broker associate), to receive a commission from a borrower for their services, there must be a written agreement between the business and the borrower. This agreement is known as a mortgage brokerage agreement. Basically the borrower is agreeing to pay a fee, (commission), to the mortgage brokerage business for obtaining a commitment from a qualified lender to make a specific loan to the borrower. II. THE APPLICATION PROCESS (15% OF THE STATE EXAM)
To help insure the integrity and completeness of each loan package delivered to FNMA, FNMA provides lenders with a standard credit documentation form. The Uniform Residential Loan Application, (Form 1003), is used throughout the mortgage industry. Form 1003 requests sufficient information concerning a borrower's financial position to enable underwriters, (those who do financial analysis to determine the borrower's ability to repay a loan), to make a prudent decision about the borrower's ability and willingness to repay the mortgage debt. The application is the most important document in the residential lending process.
INFORMATION REQUIRED AT TIME OF APPLICATION
Funds to cover appraisal and credit report. Residence addresses for the past 2 years, landlord name and addresses, past 2 years. Information on all real estate owned and existing mortgages. Name and address of each employer for the past two years. Two previous years W-2's and current pay stub for the last 30 days. Previous 3 months checking and savings statements. Names, addresses, account numbers, monthly payment and balances of all open loans and charge cards. Complete final Purchase Agreement and MLS sheet Driver's license and evidence of Social Security numbers.
IF APPLICABLE
Divorce Decree and proof of child support income or obligation. Bankruptcy papers. Full schedule and discharge and letter of explanation. Social Security or retirement benefit/award letters. Veterans certificate of eligibility and DD-214s
IF SELF-EMPLOYED OR COMMISSIONED
Past 2 years completed and signed Federal Income Tax Returns & YTD Profit and Loss statement.
CALCULATING A BORROWER'S INCOME
Underwriters must verify a borrower's wages and salary by using a Verification of Employment, (VOE - Form 1005), form, (see below). Earnings the borrower's employer reports on the VOE must be expressed in terms of gross monthly income, (GMI). If they are not, they must be converted to GMI by using one of the following methods:
Divide annual income by 12.
Multiply weekly income by 52 and then divide by 12.
Multiply hourly income by the number of hours worked per week, multiply by 52 and divide by 12.
OVERTIME AND BONUS INCOME
To consider overtime or bonus income, the borrower's employer must verify that the borrower has received such income for the past two years and the bonuses or overtime are likely to continue. To determine the amount of overtime or bonus income to consider, calculate a two-year average of the borrower's overtime and bonus income.
ALIMONY AND CHILD SUPPORT
To consider alimony or child support as income, the underwriter must ascertain that this income will continue for at least three years after the date of the mortgage application. Acceptable verification of such income is a photocopy of the divorce decree or separation agreement that specifies the amount of the award and the period of time over which it will be paid. The borrower must provide evidence that he or she has been receiving child support payments or alimony throughout the past 12 months. Copies of canceled checks or court records are the best verification source. Bank account statements are also acceptable if they indicate regular deposits that are consistent with the amount listed in the divorce decree or separation agreement. An underwriter may use tax returns to verify alimony received. However, tax returns do not reflect funds a borrower receives for child support. The recipient of child support and/or alimony need not disclose amounts received if they do not wish to do so.
DEFAULT
Any time a borrower does not honor all the terms and conditions of a mortgage he enters into a condition known as default. This is most often accomplished by not making periodic payments as agreed.
AMORTIZATION
Defined as repayment of a debt through regular, installment payments which are applied to both principal and interest (PI). Typically mortgage payments are a fixed amount with a portion going to principal, (repaying the amount borrowed) and a portion going to interest, (the cost of borrowing the money). Early in the mortgage term the amount going to principal is low and the amount going to interest is high. During the life of repayment these portions exchange places whereby late in the life of the loan the amount going to principal is high and the amount going to interest is low. These two parts together are referred to as PI, (principal and interest). (Fixed rate = level payments, increasing amount to principal reduction and a decreasing amount to interest)
ESCROW PAYMENTS
Since lenders are concerned about taxes being paid in a timely manner, (to assure that there is not a tax lien placed against the security property, since the tax lien would be the superior lien), they will often collect one twelfth of the anticipated annual tax bill along the PI payment. Similarly, lenders will very often collect one twelfth of the anticipated annual hazard insurance premium along with the PI payment, (to assure that the hazard insurance never lapses on the security property). These two payments are typically put into an escrow account. These two components of PITI are referred to as TI.
PRIVATE MORTGAGE INSURANCE (PMI)(PROTECTS THE LENDER CASE OF DEFAULT)
Private mortgage insurance provides mortgage insurance on high L-T-V conventional mortgages. The borrower pays for this insurance which allows lenders to provide higher L-T-V mortgages than they might otherwise be willing to offer. This mortgage insurance protects the lender against financial loss due to borrower default. PMI is usually required for loans with an L-T-V over 80%. Lenders are required to drop PMI coverage once a borrower has reached 78% L-T-V due the Homeowners Protection Act of 1998. This insurance protects the lender in case of a borrower default and should not be confused with mortgage credit life insurance, (see below).
MORTGAGE CREDIT LIFE INSURANCE
This insurance insures the borrower for the loan balance if death or disability occurs.
RESIDENCY FNMA will want to check residency for the borrower for the past two years. LESSON II
LOAN CLASSIFICATIONS
TYPE LENDER PROTECTION FNMA CLASSIFICATION MAXIMUM LOAN AMOUNT
FHA (FEDERAL HOUSING ADMINISTRATION)
INSURED (MIP) (MORTGAGE INSURANCE PREMIUM)
STANDARD
VARIES ACCORDING TO AREA
VA (VETERANS ADMINISTRATION)
GUARANTEED
N/A
CONVENTIONAL
INSURED (PMI) (PRIVATE MORTGAGE INSURANCE)
NEGOTIATED
NO CEILING
NOTES:
(1) FHA premiums are usually paid by the borrower.
(2) The current rate for MIP is 1.5% of the loan amount.
(3) MIP is required on all FHA loans with a L-T-V greater than 90%.
(4) Interest rates for all mortgages are set by the market, (supply and demand). FHA FACTS TO REMEMBER
1. FHA mortgage payments are due on the first and late after the 15th of the month.
2. FHA was created by the National Housing Act of 1934.
3. The original and most widely used section is 203(b).
4. FHA loans are insured. The insurance is known as MIP.
5. The maximum late charge is 4%.
6. HUD oversees the FHA.
7. MIP rate for FHA loans with a L-T-V of greater than 90% is 1.50%.
8. Qualifying ratios for FHA are 29 / 41.
9. Funds for FHA loans are provided by lenders.
10. Home inspection costs up to $200 can now be financed.
11. One discount point equals one percent of the loan amount.
12. The borrower usually pays the loan discount points.
13. Interest rates on HUD/FHA loans are negotiable.
14. All closing costs can now be financed except discount points.
15. HUD/FHA has stopped insuring loans for investment properties.
16. Q: Who makes FHA/VA loans ? A: D.E. (Direct Endorsement) lenders
17. Q: Who underwrites FHA/VA loans ? A: D.E. (Direct Endorsement) underwriters
18. FHA requires appraisers to perform a partial home inspection report.
19. Home inspections are now recommended by FHA.
20. The federal government agency which oversees FHA is HUD. FHA FINANCING QUESTIONS
1. The funds for making HUD/FHA insured mortgage loans are provided by:
a. FNMA b. Qualified lending institutions c. The Federal Housing Administration d. The Department of Housing and Urban Development
2. If a lender charges 5 discounts points to a borrower, then the borrower will have to pay how much on a $70,000 loan ?
a. $1,400.00 b. $2,500.00 c. $3,000.00 d. $3,500.00
3. Which of the following is correct ?
a. HUD/FHA insures new loans on investment properties b. The seller must pay all discount points on HUD/FHA loans c. The interest rate on HUD/FHA loans is negotiable d. All of the above. VA FACTS TO REMEMBER
1. The VA guarantees loans, (as opposed to insuring loans) , to veterans.
2. The VA appraises the house and issues a CRV, (Certificate of Reasonable Value).
3. A veteran does not pay a premium for this guarantee, unlike FHA insurance, but does pay a "funding fee". The funding fee is based on the amount of the loan.
4. VA guaranteed loans are for owner occupied 1 - 4 family residences.
5. The VA uses only a total obligations ratio of 41%. They are not concerned about the housing expense ratio.
6. The new name for the VA is the DVA, (Department of Veterans Affairs).
7. Certain unmarried spouses may be eligible for certificates of eligibility.
8. Certain reservists and national guard members are also eligible.
9. The VA, (DVA), guarantees a percentage (%) of the loan.
10. A certificate of eligibility is required to obtain a VA loan.
11. Many VA loans do not require a down payment making them attractive to buyers.
12. VA mortgages do not require MIP or PMI.
FIXED RATE MORTGAGES (Flat mortgages)
As the name implies, the interest rate is "fixed" during the life of the loan.
ADJUSTABLE RATE MORTGAGES (ARM'S)
As the name implies, the interest rate is adjustable. The most notable aspect of an ARM is that the interest rate is tied to an index. As the index moves up and down the interest rate moves up and down accordingly.
INDEX
A nationally published interest rate such as the 4th, 11th and 13th district cost of funds, (part of the Federal Reserve System). Treasury securities, (T-Bills) are often used as indexes. Most lenders tie interest rate changes for adjustable rate mortgages to an index. As the index moves up, the borrower's mortgage rate will move up as well. If the index moves down, the mortgage rate may go down. The index must be verifiable and not under the control of the lender.
MARGIN
Lenders add a few percentage points, called "margin" to the index to determine the rate they will charge on the ARM. This portion typically does not change.
R = I + M
The Rate you will pay is the sum of the Index and the Margin. As the index moves up your rate will move up. As the index moves down, your rate will move down.
INTEREST RATE CAPS
An interest rate cap places a limit on the amount the interest rate can increase. Two types of interest rate caps are used today to make ARM's attractive to consumers:
PERIODIC CAPS
Which limit the interest rate increase from one adjustment period to the next - a 2 percent cap is the most common.
LIFE-TIME CAPS
Which limits the interest rate increase over the life of the loan - a 6 percent cap is the most common today.
PAYMENT CAPS
Some ARM's have a provision for a payment cap. The payment is set at a fixed dollar amount. In other words, when the index moves up, (and therefore the interest rate moves up, but the payment does not move up since it is capped). This sometimes results in negative amortization, (see below).
NEGATIVE AMORTIZATION (THE MORTGAGE BALANCE IS INCREASING)
This occurs when the monthly mortgage payment is not sufficient to pay all the interest due on the mortgage, thus the mortgage balance is increasing.
DISCOUNTS
Some lenders offer initial ARM rates that are lower than the sum of the index and the margin. Such rates, call discounted rates, are often combined with large initial loan fees, ("points"), and with much higher interest rates after the discount expires. Very large discounts are often arranged by the seller. The seller pays an amount to the lender so that the lender can give the borrower a lower rate and lower payments early in the mortgage term. This arrangement is known as a "seller buydown". The seller may increase the sales price of the home to cover the cost of the buydown.
CONVERSION
Some ARM agreements have a clause that allows the borrower to convert the adjustable rate mortgage to a fixed rate mortgage at certain designated times. When this is done, the new rate is generally set at the current market rate for fixed rate mortgages.
OTHER LOAN PRODUCTS (MORTGAGES)
BUY DOWN MORTGAGE
A mortgage made by a lender with a below-market interest rate in return for an interest rate subsidy in the form of money received from a builder, seller, or in some situations, a home buyer.
REVERSE MORTGAGE
A mortgage arrangement established for elderly homeowners wherein the mortgagee makes equity advance payments to the mortgagors, then recoups the debt from the proceeds of the sale of the owner's property or estate.
TERM MORTGAGE
Non-amortized loan for a specified period of time in which interest only is paid per the agreement and the entire principal becomes due in full at maturity.
SUBORDINATED MORTGAGE
A mortgage of a higher priority which has been moved to a lower priority. (i.e. a first mortgage which is allowed to become a second mortgage)
WRAPAROUND MORTGAGE
A junior lien, usually given by the seller to the buyer, for the difference between the selling price and the buyer's down payment. In a wraparound arrangement, the seller continues his or her payments on the liability for senior liens of record, and the buyer's payments flow directly to the seller. For example, if a property had a selling price of $100,000 and an existing $50,000 mortgage, the borrower could give the seller $20,000 down payment and the wraparound mortgage amount would be for $80,000. Wraparound mortgages are second or third mortgages.
BALLOON MORTGAGE
The final payment of a loan, usually substantially larger than the previous installments, which repays the debt in full.
BI-WEEKLY MORTGAGE
A mortgage with payments due every two weeks totaling 26 payments a year.
GRADUATED PAYMENT MORTGAGE
A standard loan for families with low but increasing incomes.
SHARED APPRECIATION MORTGAGE
A first mortgage loan offered by a lender at a reduced interest rate in return for a "share" of the appreciation of the security property. If the "going rate" is 12%, the SAM rate might be 8%, (2/3) in return for 1/3 of the appreciation of the property over time.
DISCLOSURES
After completing a mortgage loan application, the borrower is required to receive various "disclosures" as outlined in numerous federal laws. These disclosures include:
ANTI-COERCION
The borrower acknowledges that they are not required by the lender to purchase insurance from any particular insurance company to protect the mortgaged property.
TRUTH-IN-LENDING
Designed to assure that borrower is made aware of the total costs to get a particular loan.
EQUAL CREDIT OPPORTUNITY ACT NOTICE
Designed to assure that all borrowers are made aware of their rights under the Equal Credit Opportunity Act which assures fair credit policies to all mortgage loan applicants.
CHARM, (CONSUMER HANDBOOK ON ADJUSTABLE RATE MORTGAGES)
Booklet detailing information to borrowers who select an adjustable rate mortgage.
GOOD FAITH ESTIMATE
Provided for in RESPA, this document is designed to inform a borrower of his or her estimated closing costs. Includes, (among others), the items listed below:
Loan charges, (i.e. loan origination fees and discount points) Third party fees (i.e. credit report fee, appraisal fee) Pre-paid items (i.e. mortgage insurance and hazard insurance) Reserves with lender (i.e. county taxes) Title charges (i.e. settlement or closing fee, title insurance fees) Recording fees (i.e. recording fees, documentary stamps) Additional charges (i.e. survey and pest inspection fees) Application fee (if any) (i.e. refundable or non-refundable)
MORTGAGE BROKERAGE AGREEMENT, (if applicable)
Document that sets forth the services to be performed by the mortgage broker and the costs to the borrower for the mortgage broker's services. This document is often combined with the good faith estimate mentioned above.
PRINCIPLE OF SUBSTITUTION
This is an appraisal theory that states that a borrower will pay no more for one house than for another house of equal value. In other words, if you could purchase two homes that were the same, you would purchase the lower priced one of the two.
IV. THE COMMITMENT / THE SECONDARY MARKET (5% OF THE STATE EXAM)
A. ISSUING THE COMMITMENT TO THE BORROWER
The letter of commitment will usually list a specific loan amount and term, expiration date of the commitment, loan type, interest rate, fees to be charged by the lender, and may list one or more requirements or contingencies that must be satisfied at or prior to closing. Normally, in a lending institution, it is the underwriter who assures that the contingencies have been remedied so that the loan can close. Examples of contingencies that must be resolved prior to closing are as follows:
Failure to receive credit approval by a PMI company W.D.O. termite infestation Evidence of payoff of certain debts of the borrower. Property in a flood zone. Survey reveals a curable/incurable encroachment problem. House repairs required prior to closing. CREDIT APPROVAL FROM A PMI COMPANY
Credit approval must be received if private mortgage insurance is required on a particular loan
A W.D.O. INSPECTION (Shows that the house is not presently infested)
A W.D.O., (wood destroying organisms) inspection must be completed to assure the property is free of these organisms, (termites). If active infestation is noted, treatment must occur before closing. A WDO clearance letter would then be required.
ROOF INSPECTION
A roof inspection is completed to assure that the roof is adequate and has a reasonable life expectancy. If work is needed and completed, a paid receipt and certificate showing that the roof has been repaired would be required prior to closing.
PROOF OF FLOOD INSURANCE
If such insurance is needed on a particular property, this insurance should name the lender, (the mortgagee), as the loss payee.
SURVEY
A survey must be ordered through and completed by a licensed surveyor. The survey should be paid for by the borrower and certified to the borrower, proposed lender and title company. The survey should indicate the boundaries, easements, improvements and township and range.
APPRAISALS COMPLETED "SUBJECT TO"
Certificates of completion for improvements must be received if the appraisal was completed "subject to" any such improvements. LOANS NOT APPROVED
In cases where a lender cannot issue a commitment for the original loan amount requested, the lender has two choices:
Propose a "counteroffer" typically with different terms than originally requested by the borrower, or notification of "adverse action". Applicants must be notified within 30 days after receipt of a completed application whether the loan has been approved substantially as requested or the if the lender is taking adverse action. An application is considered complete when all required information has been received by the lender. If the application is rejected, the lender must state a specific reason for the rejection. C. PRIMARY & SECONDARY MORTGAGE MARKETS
GNMA MORTGAGE BACKED SECURITIES
The way a GNMA MBS (mortgage-backed security) works is as follows. First, an issuer, most often a mortgage banker, will seek a commitment from GNMA to guarantee a pool of acceptable FHA, Farmers Home Administration, (FmHA), or VA mortgages. A nonrefundable fee of $500 for the first $1.5 million, and $200 for each additional million, must accompany the request. After receiving the guarantee, a security is issued, backed by a pool of FHA, FmHA, or VA mortgages that have either been originated for this purpose, or taken out of portfolio, or purchased on the secondary market. This MBS is sold through a licensed securities dealer to an investor based on the guarantee that the issuer will pay all principal and interest due even if not collected. This guarantee of the issuer is backed by GNMA, which, in turn, is backed by the full faith of and credit of the federal government. The ultimate investor is the security holder.
As it relates to MBS, (mortgage backed securities), what function does GNMA perform? They are the guarantor. Who sells MBS, (mortgage backed securities)? Licensed securities dealers. Who is the ultimate investor? The security holder. D. UNDERSTANDING THE COMPUTATION OF YIELDS TO INVESTORS
The highest returns to investors are received on loans with the highest interest rates and highest points with the shortest term. For example, a loan at 10%, 4 points and 5 years produces a higher rate of return to the investor than a loan of 10%, 4 points and 30 years. Each discount point increases the investors yield by approximately 1/8%. For example, the yield on an 8% loan with 1 point equals approximately 8 1/8%.
V. THE CLOSING (20% OF THE STATE EXAM)
A. PRE-CLOSING FUNCTIONS AND DOCUMENTATION (REQUIRED PRIOR TO CLOSING)
TITLE INSURANCE
The purpose of mortgagee title insurance is to protect the lender/investor in real estate against loss or damage due to defects in title within the limits of the title insurance policy. Examples of defects in title are unsatisfied mortgages or liens, judgments, forgery or fraud or other such matters that would not appear in public record.
CLOUD ON A TITLE
Any matter that makes title unclear is considered a "cloud on title".
SCHEDULE A OF A TITLE COMMITMENT (General information)
The first page of the title commitment is referred to as "Schedule A". Items that are on schedule A include:
Name of borrower Amount of the insurance, (purchase price) The name of the lender What type of estate that the owner has or will have in the real estate. (i.e. fee simple, life estate, etc.) Legal description of the subject property
Title insurance is a one-time payment that is paid at closing. Title insurance is not required by Florida law. SCHEDULE B OF A TITLE COMMITMENT (Contingencies, exceptions and liens)
(CEL BLOCK B - SCHEDULE B HAS CONTINGENCIES, EXCEPTIONS, AND LIENS)
The next page of the title commitment is referred to as "Schedule B". Items that are on schedule B include:
Contingencies that must be met before the lender will go to closing. Documents to be executed and recorded. Existing liens Standard exceptions (i.e. a mechanics lien, which can be eliminated upon the insurer's receipt of a "No-Lien Affidavit" from the seller/owners). Special exceptions, (i.e. if the proposed mortgage is a second or third mortgage, all previous mortgages would appear on schedule B as special exceptions).
In any event, the commitment should contain language that the restrictions, rights of way, and easements have not been violated and that any possible future violations will not cause reversion of title. This language is generally call "Affirmative Language".
OWNER'S TITLE INSURANCE Insures that the purchaser will have obtained title free and clear of any claims by any other parties in possession of the property. Written for the purchase price. The owner's policy is not assignable.
MORTGAGEE TITLE INSURANCE
Insures the mortgagee against all claims of other parties and verifies there are no liens that take precedence over their lien. This coverage is assignable. This coverage is placed on first and second mortgages. Written for the mortgage or loan amount.
SIMULTANEOUS ISSUE
These two policies are often issued at the same time. This is referred to as "simultaneous issue".
TITLE INSURANCE POLICIES
Title insurance policies are committed to the borrower, lender and title insurance company.
TYPES OF LIENS
A lien is defined as a hold or a claim which one person or a taxing authority has upon the property of another as security for some debt or charge. There are at least two types of liens; voluntary and involuntary. VOLUNTARY LIENS
These would include mortgages where the owner agrees to have a lien placed on his real property to secure a debt, (loan).
INVOLUNTARY LIENS
A lien imposed by law, for delinquent taxes
REAL ESTATE TAX LIEN
A real estate tax lien is a superior lien.
MECHANICS LIENS
Available to anyone who does work on a property, (i.e. contractors, suppliers, etc.)
SURVEY
Since the real estate is the loan security, it is in the mortgagee's interest that a survey be made to identify the property correctly and determine if any encroachments exist.
METES AND BOUNDS METHOD FOR COMPLETING A SURVEY
One method that surveyors use to describe irregularly shaped tracts of real estate is the metes and bounds methodology. Metes means measurements such as inches, feet, yards and miles. Bounds are both natural; such as rivers, lakes and trees and artificial; such as roads, fences and railroads. A survey of a parcel of real estate using this method starts at a point on the property which is known as the "point of beginning", (POB). From the point of beginning the survey then describes the perimeter of the property back to the point of beginning. This is the most accurate method of surveying.
CERTIFICATION
The survey is typically "certified" to the borrower, lender, title company and title insurance company.
B. PREPARATION OF CLOSING DOCUMENTS
As the closing date approaches, (but usually not later than the day before closing), either the lender or the title company will prepare some of all of the following:
Mortgage note Obligates the borrower to pay off the loan
Mortgage or Deed of Trust Filed with County Clerk or Recorders' Office, notifying the public that a lien is in existence on the borrower's property.
Truth-in-Lending disclosure Includes APR, finance charges, total of payments, amount financed and repayment schedule.
HUD-1 Settlement form Detailed listing of line item expenses. In a purchase transaction, the borrower has the right to inspect the HUD-1 the day before closing.
DUTIES OF THE CLOSING AGENT
At the actual closing, the closing agent, (i.e. attorney, title insurance agent, etc.), will assure that all appropriate documents are signed by the required parties and witnessed if necessary. Mortgage loan proceeds are dispersed in separate checks according to the settlement form. After the actual closing, the required documents are recorded in the public records and funds are completely disbursed pursuant to the closing . The final title policy is issued to the lender. The borrowers/buyers should appear as the title holders of record.
C. FUNDING THE LOAN
Certain Florida statutes dictate that the funds the borrower and lender bring to the closing table are "good funds", in other words funds that are considered collectable at the time of closing. If the funds are not considered "payable on demand" then these funds cannot be used for closing funds.
FUNDING FROM A "WAREHOUSE LINE".
A warehouse line is a line of credit provided to mortgage lenders. They can use this line of credit to fund loans. Typically the loans can be sold and the warehouse line repaid to keep the line of credit available for future loan funding.
ONLY THE BORROWER CAN WALK AWAY FROM A MORTGAGE ON THE DAY OF CLOSING
TABLE FUNDING
Table funding is where the lender funds the loan to the borrower and at the same time sells the loan, (i.e. to another lender or to the secondary market), to regain their "loanable" funds. By using this method a lender could continue to loan the same $100,000 over and over again.
FUNDING BY A DIRECT INVESTOR
Often mortgage broker businesses will place mortgages with direct investors when the borrower's qualifications do not meet the "conforming" guidelines. In this case the funding would be accomplished by the direct investor, (i.e. a non-institutional investor).
ASSIGNMENT OF MORTGAGES
Mortgages are typically written in such a way so as to ensure that they are assignable. By following this practice, a lender assures that he can retain a loan in his own portfolio, (the collection of loans kept "in-house" by a lender, in other words loans the lender makes, but does not sell to another party), or he can sell the loan to a permanent investor. FNMA can also assign mortgages.
DISBURSEMENT PROCEDURES
The closing agent is responsible to assure that all monies are disbursed to the appropriate parties represented at the loan closing.
D. EXPLAINING THE CLOSING DOCUMENTS
The closing agent should assure that the borrower understands the commitments he has made by signing the note and the mortgage. The note creates the obligation to repay the debt which is secured by the mortgage; it should state the amount of the loan, the term, the interest rate and any other pertinent conditions. The mortgage creates a security interest in the property for the mortgagee, (lender) and as such should be recorded at the county courthouse or wherever public records are kept.
The borrower should also understand that his first mortgage payment is due on the second first of the month after loan closing, (i.e. if the loan closing is on 3/13, the first payment is due on 5/1, if the loan closing is 7/22, the first payment is due on 9/1). The closing agent should also explain to the borrower when any interest rate adjustments made be made, (i.e. after one year or after two years), if the loan is an adjustable rate mortgage, (ARM).
The closing takes place where the monies are distributed. Then the documentary stamps are purchased and then the documents are recorded. The closing agent should also have the ability to explain to the borrower all of the charges located on the HUD-1 . These include, (along with many others), documentary stamps on the deed and mortgage, intangible tax on new mortgages only, daily interest calculations, tax prorations, mortgage brokerage fees, origination fees and/or discount points.
Although the borrower would sign the note and the mortgage, they would not sign the deed. The deed would be signed by the seller.
VI. BASICS OF MORTGAGE FINANCING
AD VALOREM TAXES ON FLORIDA REAL ESTATE
Ad valorem taxes are paid on Florida real estate. Taxes are determined by "assessed value", (what value the county property appraiser's office has placed on the real property) and by millage, (the rate of taxation to be paid). If a property was assessed to be worth $100,000 and the millage rate was 5.15, (.00515, each mil = .001) the taxes would amount to $515.00 per year.
HOMESTEAD TAX EXEMPTION
Some property owners in Florida can apply for and receive a "homestead" exemption for their property taxes. To receive this tax exemption, a person must be a head of family owning real property and residing therein. This exemption lowers the assessed value of your home by $25,000 and therefore lowers your total property taxes. If your annual property tax bill is lowered by applying for and receiving a homestead exemption, your monthly mortgage payment would also be lowered since the lender is taking a lessor amount each month to escrow for taxes.
ADDITIONAL INFORMATION ON AD VALOREM TAXES
Ad valorem means "according to value". As mentioned above, this means that ad valorem taxes are based on the assessed value of the real property. City and county taxes are calculated and charged annually. Real estate tax liens are filed against real property each year. In Florida, real property is assessed at just value, (the County Property Appraiser's assessed value of the property), as of January 1; taxes become a lien as of January 1; the taxes become due and payable on November 1; and become delinquent if not paid by April 1 of the following year. Therefore, real estate taxes are paid in arrears.
When are real estate taxes delinquent if due on November 1, 2000 April 1, 2001 TAX DISCOUNTS
Taxes are discounted at the following rates:
Paid in November 4% discount Paid in December 3% discount Paid in January 2% discount Paid in February 1% discount
MILLAGE RATES
A mil is defined as 1/10th of 1%, 3 mils = 3/10ths of 1% = .003 (20 mils = .020) (25 mils = .025)
RECORDING IN THE PUBLIC RECORDS
According to the Statute of Frauds, certain oral contracts are not enforceable. As such, lenders want to make sure that mortgage contracts are in writing and enforceable. To that end, documents are recorded with the Clerk of the Circuit Court in the county where the property is located to inform the public of certain facts relating to ownership and liens on real property. Deeds and mortgages are recorded to provide "constructive notice" which has the legal effect of showing the public a copy of the documents recorded.
MORTGAGE SERVICING
Mortgage servicing has to do with collecting the payments and taking action when payments are not received in a timely manner.
LATE CHARGES
Mortgage payments are due on the first of each month and late if they are received any day after the fifteenth of the month. Late charges are typically as follows:
FHA AND VA 4% (FHA payments due on the 1st, late after the 15th) CONVENTIONAL 5% (FNMA late charge is 5%, FNMA is conventional)
Late fees are typically charged on the PI, (principal and interest), portion of the mortgage payment only, not the full PITI amount.
ESCROWS FOR TAXES AND INSURANCE
Since lenders are concerned about taxes and hazard insurance premiums being paid on time, they will often escrow for these payments. The lender typically collects about 1/12th of the annual tax bill and about 1/12th of the anticipated annual hazard insurance premium each month along with the borrower's principal and interest payment, hence PITI, (T for taxes and the second I for hazard insurance). These tax and insurance payments are placed into an escrow account to assure that the necessary funds are available to pay the tax bill and insurance premium when they each become due. If the monies are escrowed by the lender to pay the taxes and the taxes are not paid in a timely manner, resulting in late penalties or tax penalties, the lender is responsible to pay these penalties from their own funds.
ANNUAL ESCROW ANALYSIS
As the name implies, the borrower is presented once a year with an analysis of his/her escrow account. Sometimes too much money has been collected over the course of the year to pay the tax and insurance bills. When this situation arises, the borrower can ask for and receive a refund of the excess amount of money in the escrow account. On the other hand, if too little money has been collected, the lender will typically increase the monthly amount for future PITI payments to assure that the escrow account maintains a positive balance after the tax and insurance bills are paid as required.
DEFAULT CONDITIONS / FORECLOSURES
When mortgage payments are not paid in a timely manner, (as agreed), the borrower is considered in default and the possibility of foreclosure exists. A default is normally caused by a nonpayment of principal and interest, but could also result from failure to pay taxes, provide hazard insurance or maintain the premises. In effect, a mortgagor is in default if he breaches any of the covenants in a mortgage.
After all attempts to cure a default fail, a mortgagee must move to foreclose and protect its investment. Most states provide for mortgage foreclosures through a court proceeding. If the decision of the court is in favor of the mortgagee, the decree of foreclosure terminates the equitable right of redemption, (see below), at the time of sale.
Any of the following could put a borrower into default; no mortgage payment, no hazard insurance payment or no real estate tax payment.
Annual escrow analysis shows any increase or decrease in real estate taxes and/or hazard insurance. DEFICIENCY JUDGMENT
A court order to pay the balance owed on loan if the proceeds from the sale of the security are insufficient to pay off the loan. Although it is not allowed in all states, it is allowed in Florida.
DEED IN LIEU OF FORECLOSURE
An alternative to foreclosure which can be of benefit to both the mortgagor and mortgagee would be the execution of a deed transferring the secured real estate to the mortgagee in lieu of foreclosure.
RIGHT OF REDEMPTION
The right allowed by law in some states, (not Florida), whereby a mortgagor may buy back property by paying the amount owed on a foreclosed mortgage, including interest and fees.
SATISFACTION OF MORTGAGE
A recordable instrument given by the lender to evidence payment in full of the mortgage debt.
CALCULATING MORTGAGE PAYOFFS
Since interest is paid in arrears, if a mortgagor requests a payoff figure from the mortgage servicing department, the servicing department would determine the principal remaining due after the last payment and then prorate the interest due based upon the number of days that have passed since the last payment due date and the payoff date.
ASSUMPTION OF THE MORTGAGE
When mortgaged real property is transferred from one owner to another, (i.e. sale of the property), one method involves the borrower assuming the existing mortgage loan. In this case the borrower assumes responsibility for the existing, (assumed), mortgage.
SUBJECT TO THE MORTGAGE (Old owner remains equally and fully liable)
In this case, the borrower pays the seller for his/her equity and keeps the original mortgage in place with the seller remaining liable for the existing mortgage.
NOVATION (Old owner is completely removed from any liability)
When novation occurs, the lender releases the original borrower from any obligation to the original mortgage.
TRANSFERS OF SERVICING RIGHTS
Very often the rights to service a loan are sold to another lender or servicing company. Typically smaller lenders do not have the resources or talent to service loans that many large servicing organizations might possess. If this situation arises, the borrower should be promptly notified and given the information necessary so that they can send their monthly payments to the new servicing organization. Loans are sometimes sold "servicing released" and other times sold "servicing retained". The loan can be sold any number of times. The lender cannot raise the interest rate.
LEVERAGE
Borrowing other people's money to purchase real estate is an example of leverage.
ESTOPPEL LETTER
A document that prevents its issuer from later asserting a different set of facts. A mortgage payoff letter would be a good example of an estoppel letter. Once the payoff figure is given in writing, the mortgagee cannot change the figure at a later date.
COMMITMENT
A lender's letter of commitment would include the interest rate, expiration of the commitment and other terms of the loan. It would not include the APR.
STANDBY COMMITMENT
A lender's written agreement to purchase a loan from another lender in the future.
TAKE-OUT
Commitment for permanent financing
FLOAT
The interest rate is not locked-in, if can "float" up or down.
FIRST TIME HOMEBUYER
A borrower who has not had ownership interest in property in the previous three years.
NON-PURCHASING SPOUSES
A non-purchasing spouse must sign the note if they are acting as a co-borrower.
INTEREST RATES
Interest rates are normally determined by the martket, (supply and demand).
PARTIES TO A DEED
Grantor Owner giving title Grantee New owner receiving title
PROFIT AND LOSS STATEMENT
This is used to show income and expenses over a period of time.
MORTGAGE PAYOFF LETTER
When you call for your mortgage payoff, the mortgage payoff letter will indicate the principal balance and a daily interest rate to be charged through the day of closing since mortgage interest is paid in arrears.
LENDER ESCROWS
If the lender requires that taxes and hazard insurance monies be put in escrow, it then becomes the lender's responsibility to assure that the taxes and hazard insurance are paid in a timely manner. If the taxes are paid late, the lender must pay any late fees or charges from their own funds, (not the borrower's funds).