forensic loan audit report - sample report 4-2009

Sample Report

For

Mortgage Forensic Analysis Report

Prepared for

Save Loan and Me Consultant

Tom Doe First Mortgage

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Sample Report

Table of Contents

Executive Summary

Forensic Audit Results

Observation

Document List For Examination

Forensic Examination

Assumption

Index Value

Transaction Parties

Borrowing Parties

Transaction Details

Subject Property

Loan Terms

Section A - Settlement Statement (HUD-1 or 1A)

Section B - Uniform Residential Loan Application

Section C - Good Faith Estimate or Mortgage Loan Disclosure Statement

Section D - Final Truth-In-Lending and Itemization of Amount Financed

Section E - HOEPA (Section 32), State High Cost Loan, and State Restricted Fees

Section F - Promissory Note, Mortgage/Deed of Trust, Riders, and Addendums

Section G - Mortgage Insurance

Section H - Title Insurance

Section I - Notice of Right to Cancel (Refinance Only)

Section J - Escrow Account (Monthly Payment with Tax and Insurance)

Section K - Purchase Agreement

Section L - Appraisal Report

Section M - Other Disclosures

Section N - Per Diem Interest Disclosure - California Loan Only

Mortgage Compliance Analysis Report

Risk Indicator

Funding Summary

Truth-In-Lending (TIL) Summary

Findings Detail

Loan Detail

Fees

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Table of Contents

Laws and Regulations References

Federal Laws and Regulations

12CFR226.4

12CFR226.18

12CFR226.19

12CFR226.22

12CFR226.32

State Laws and Regulations

CA AB 489/344 (Division 1.6 of the Financial Code)

California Civil Code Section 2948.5

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Sample Report

Executive Summary

Forensic Audit Results

Audit Area

State High Cost Home Loan Points and Fees Test

Federal (Section 32) Points and Fees Test Pass

CA AB 344 [CA FC §4970] -4.652% Pass

CA AB 344 [CA FC §4970] -$4,915.57 Pass

Federal TIL Finance Charge Test 12 CFR § 226.18(d)(1)

Federal High Cost (Section 32) APR Test 12 CFR § 226.32(a)(1)(i)

-$12,866.8112 CFR § 226.32(a)(1)(ii)

State High Cost Home Loan APR Test

Fail

-$58,820.33 Fail

-4.652% Pass

-0.148%

Variance Result

Federal TIL APR Test 12 CFR § 226.22(a)(2),(4)

The following are the results of the mortgage forensic analysis audit performed. At various points in your loan application process, you, the borrower(s), should have received various disclosures and documents from the mortgage broker (if applicable) and the lender under many difference Federal, State, and local laws and regulations. In addition, prior to the loan settlement (closing), additional final disclosures and loan documents should had been given to the borrower(s) for approval and signature. We have examined the loan documents and prepared this report.

Citation

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Observation1/ This is a cash out refinance. 2/ There are limited loan documents provided by the borrower. The audit is based on the limited documents and assumptions made by the auditor. 3/ The underwriting fee and tax related service fee charged to borrower were paid by the lender. The lender did not include the said fees in the TIL calculation. However, federal banking law 12CFR226.4 only exempts the fee from the finance charge that is paid by the seller. 4/ This loan failed the TILA finance charge test because the disclosed finance chargewas understated by $58,820.33.5/ The loan has a Good Faith Estimate disclosure date that is not within three business days after the applicationdate.6/ This is a negative amortization loan program. The principal balance of the loan could be increased even though the borrower is making the required monthly payments. If the monthly payment is not sufficient to pay monthly interest, the interest defers would be added to the principal balance. The borrower is required to make a full monthly payment on the fifth anniversary of the due date or the unpaid principal balance not exceed 115% of the original principal amount originally borrowed which ever come first.

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Sample Report

Loan Documents For Examination

Item

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

X

Itemization of Amount Financed

Final Truth-In-Lending Disclosure

Promissory Note

Lender’s Closing Instruction

X

X

X

XX

X

X

Home Equity Line Of Credit Disclosure

DU / LP Underwriting Findings (if any)

First Payment Letter To Borrower

X

X

Notice of Right To Cancel (For Primary Residence Refinance)Preliminary Title Report

X

Mortgage/Deed of Trust and Addendums

X

Initial Good Faith Estimate (Broker)

X

X

Mortgage Loan Disclosure Statement (For CA DRE Broker License)Initial Good Faith Estimate (Lender)

Initial TIL Disclosure (Lender)

X

Estimated Initial Monthly Payments

X

X

Section 32 Loan DisclosurePurchase Agreement (For Purchase Transaction)

X

Prepayment Rider/Addendum

Buy Down Agreement (For Buy Down Loan)

Mortgage Insurance Certificate

Escrow Account Disclosure Statement

Net Tangible Benefit

X

X

X

X

X

X

Variable Rate Mortgage Program Disclosure

Appraisal Report

Private Mortgage Insurance Disclosure

X

Loan Disbursement Summary

Rate Lock-In Agreement X

X

Final Loan Application

X

RemarksDocument Title Received

X

Estimated Closing Statement

Initial Loan Application

Final HUD-1 or 1A

This in-depth forensic analysis report is based on an examination of the mortgage loan documents presented by the Borrower(s). In order to determine the validity of a pending case, the following documents were reviewed and audited for their compliance to the applicable federal, state, and local laws and regulations related to consumer real estate lending practice.

Recommended

Disclosure Concerning The Charging Of Per Diem Interest X

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Forensic Examination

Assumption: The application has no borrower's signature and no signature date. The application date is one of the ComplianceAnalyzer system required data fields. Therefore, we have made an assumption that the applicationdate is 2/25/2005 (Assuming 30 days before the date of the Note). The loan documents provided were signed by the borrower but the date of signature is unknown. The closing/settlement date in the ComplianceAnalyzer (CA) system web form is the loan document signing date; therefore, we have made an assumption that the document signing date is the same as Escrow Officer's signature date on the Final HUD-1, 5/20/2007.

Historical Index Value: The "Twelve-Month Average" of the annual yields on actively traded United States Treasury securities adjusted to a constant maturity of one year, as published by the Federal Reserve Board.The date of the Adjustable Rate Note is 5/20/2007; therefore we selected the April 2007 index value of 5.0217% to perform the audit. The reason for selecting the April 2007 index value is because Clause 2 (C) on the Adjustable Rate Rider defines as ".... The most recent Index figure as the date 15 days before each Change Date is called the “Current Index.”

MTA Time Period: January, 2007 - May, 2007

Jan 2007 5.0217 Feb 2007 5.1708 Mar 2007 5.3467 Apr 2005 5.0217 May 2005 5.1333

Index Value

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Date:

Borrower Name

City County State

Cash out

6/2/2007

36 months

Yes

No

No

Yes

N/A

No

Yes

No

N/A

Yes

N/A

Yes

No

N/A

No

N/A

Yes

Yes

No

Yes

unknown

Yes

Section A Settlement Statement (HUD-1 or 1A)

Loan Agencies

Property Address:

Co-Borrower NameSocial Security No.

Lender Loan Number

Were fees duplicated on Final HUD-1 or 1A?

Is Estimated Settlement Statement signed by borrower(s)?

Is Final HUD-1 or 1A in the file?

Is Estimated Settlement Statement in the file?

Do fees on Final HUD-1 or 1A match Estimated Settlement Statement?

Is Yield Spread Premium paid to broker (POC) reflected correctly on the HUD?

Observation

Is any additional Good Faith Estimate prepared by mortgage lender in the file?

HELOC only - Is the Home Equity Line of Credit Disclosure in the file?

Was any additional Good Faith Estimate mailed to borrower within three business days after the application received from the mortgage broker?

Is the final typed loan application signed by borrower(s) ?

Stated Income only; does the monthly income (item V) on Final Application match Initial Application?

ObservationSection B Uniform Residential Loan Application

Section C Good Faith Estimate or Mortgage Loan Disclosure Statement Observation

Income in Initial Application

Does borrower signature in the initial application match the signature in the final application?

If No to the preceding item, Income in Final Application

Is the final typed loan application ( FNMA Form 1003) in the file?

123456789A (California Lending Inc.) Loan Originator (Interviewer's Employer)

OrangeOrange333X Angel Street

Closed Loan Audit Review

Form Revised 3/1/2009 Prepared for: 3/31/2009Save Loan and Me Consultant

Loan Information

Property Type Single Family Occupancy Status Owner Occupied Lien Type First Loan Purpose

LTV 100.00% Loan Amount (1st) $416,500.00 Settlement Date 5/20/2007 Disbursement Date

Is the payment schedule in the Final Truth-In-Lending calculated correctly?

Is Good Faith Estimate (GFE) or Mortgage Loan Disclosure Statement (MLDS)(CA DRE Broker only) prepared by mortgage broker in the file?

$19,629.00 $0.00

Was the Information For Government Monitoring (item X) completed?

Is the initial loan application ( FNMA Form 1003) in the file?

Is the initial loan application signed and dated by borrower(s) ?

Final Truth-In-Lending and Itemization of Amount Financed

Was the initial loan application complete?

Was the initial loan application signed and dated by Interviewer?

Observation

Is the Final Truth-In-Lending in the file?

Is the Itemization of Amount Financed in the file?

Are the closing fees classified correctly (PFC and non PFC) in the Itemization of Amount Financed?

Are any service providers owned (wholly or partial) by the lender or mortgage broker?

Are all required closing fees disclosed in the Itemization of Amount Financed?

Section D

Prepayment 100.00% Interest Rate 1.000%

Tom Doe

California

Social Security No.

Is Good Faith Estimate (GFE) or Mortgage Loan Disclosure Statement prepared by mortgage broker within three days of receiving a loan application? Is mortgage broker an exclusive agent of the mortgage lender.

CLTV AdjustableLoan Program

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Sample Report

Date:

Borrower Name

City County State

Cash out

6/2/2007

36 months

Loan Agencies

Property Address:


Lender Loan Number 123456789A (California Lending Inc.) Loan Originator (Interviewer's Employer)




Loan Information




Tom Doe

California

Social Security No.


Fail

Disclosed Calculated

Fail

Disclosed Calculated

Pass

Calculated Threshold

Pass


Pass


Pass


Yes

Yes

Yes

N/A

N/A

Yes

No

N/A

N/A

No

N/A

-0.148%

12 CFR § 226.22(a)(2),(4)

HOEPA (Section 32), State High Cost Loan, and State Restricted Fees Test Section E

Variance

8.038% Variance

Variance

Does the Certificate include borrower name, insured property address, and renew rate?

Variance

-4.652%

State High Cost Home Loan APR Test

State High Cost Home Loan Points and Fees Test CA AB 344 [CA FC §4970]

CA AB 344 [CA FC §4970]

-$12,866.81$31,804.95

Federal (Section 32) Points and Fees Test 12 CFR § 226.32(a)(1)(ii)

-$58,820.33$720,317.20 $779,137.53

Variance8.038% 12.690%

7.890%

Observation

Federal TIL APR Test

-$4,915.57$23,853.71

8.038%

Federal High Cost (Section 32) APR Test 12 CFR § 226.32(a)(1)(i)

Federal TIL Finance Charge Test 12 CFR § 226.18(d)(1)

$18,938.14

-4.652%

ObservationSection F Promissory Note, Mortgage/Deed of Trust, Riders & Addendums

Buy-down Loan Program: is the Buy-down Agreement in the file?

Is the Buy-down Agreement signed by borrower(s)?

Section G Mortgage Insurance (if applicable) Observation

Are all fees to be charged permitted in the applicable state?

Are each of the Note, Mortgage/Deed of Trust and related Riders or Addendums in the file?

Are the amount of loan, term, interest rate, and property address correctly disclosed in the Note?

Are each of the Note, Mortgage/Deed of Trust and related Riders or Addendums signed by borrower's)?

If Lender Paid Mortgage Insurance (LPMI); Is the LPMI Disclosure signed by borrower?

Other Mortgage Insurance; Is the Mortgage Insurance Disclosure signed by borrower?

Adjustable Rate Loan: Is the Consumer Handbook on adjustable rate mortgages in the file?

Is the Mortgage Insurance Certificate in the file? (if applicable)

Is the Adjustable Rate Disclosure signed by borrower (s)?

Is the Quit Claim Deed signed by Spouse?

When a spouse is not obligated for the loan and is included in the property title, does the spouse sign on the Mortgage/Deed of Trust & related documents?

Adjustable Rate Note: is the Adjustable Rate Disclosure in the file?

$18,938.14 Variance

12.690%

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Sample Report

Date:

Borrower Name

City County State

Cash out

6/2/2007

36 months

Loan Agencies

Property Address:






Loan Information




Tom Doe

California

Social Security No.


No

No

Yes

No

Yes

Yes

No

N/A

Is the Preliminary Title Report/Title Commitment/Title Search in the file?

ObservationSection I

Section H Title Insurance Observation

Section J

Were all liens, judgments, and taxes due paid off or addressed?

Did all borrowers have a vested &/or equitable interest in the property prior to closing?

Is the Loan Policy of Title Insurance in the file?Are the Name of Insured, Title vested, Legal Description, and Amount of Insurance correctly in Policy?

Notice of Right to Cancel (Refinance Only)

Is the Plat or Survey in file

ObservationSection K Purchase Agreement

Observation

Preliminary Title Report: Was the report less than 60 days old at funding?

Escrow Account Agreement: Has the borrower(s) initialed preference & signed the form?

Was the Doc Signing Date correct (the same date as shown next to the signatures on the document)?

Is the Escrow Waiver in the file?

Was the Final Date to Cancel completed and correct?

Was the funding date after the Final Date to Cancel?

Escrow Account (Monthly Payment with Tax and Insurance)

Is the Escrow Waiver signed by borrower(s)?

If the borrower(s) requested impounds: Is the correct amount entered on the final HUD?

Is the Purchase Contract in the file?

Did all parties sign the contract and addendum?

Does the property address match the HUD-1?

Does the sales price match the HUD-1 line 101?

Is the federal Notice of Right to Cancel in the file?

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Sample Report

Date:

Borrower Name

City County State

Cash out

6/2/2007

36 months

Loan Agencies

Property Address:






Loan Information




Tom Doe

California

Social Security No.


No

Yes

Yes

Yes

No

No

0

Yes

Observation

If there had been additions, were the building permits in the file?

Is any explanation provided on property values are declining and the housing demand is over supply?

Section L

Is any explanation provide on the marketing time over 6 months?

Is the appraisal report in the file?

Observation

Number of days of additional interest charged to borrower

Observation

Is the First Payment Letter To Borrower in the file?Do the first payment date, payment amount, and the mailing address of payment mail in the First Payment letter match the information in the Note?

If the first payment is due less than 30 days from close escrow: Is any Hardship Letter in the file?

If no building permits on the additions: Did the appraiser include the addition into gross living area?Are the comparables located within one mile circle to subject property?

Is the date of sale of each comparables less than 12 months?

Is the appraisal made "as is"?

Is the Borrower Signature Authorization signed and dated by borrower in the file?

Appraisal Report

Is the Hardship Letter signed and dated by the borrower(s)?

Is the interest (line 901) paid to lender more than one day prior to disbursement of fund?

No

Other Disclosures

Is the first payment due less than 30 days from close escrow?

Section M

Section N Per Diem Interest Disclosure - California Loan

Is the Disclosure Concerning The Charging Of Per Diem Interest in the file? Has the borrower agreed to pay additional interest?

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Sample Report

MORTGAGE COMPLIANCE ANALYSIS REPORT

CE ID: 179029U30G Client Name: Client Support CompanyUser Name: Company Administrator Lender Loan Number: 123456789AProduct Name: ComplianceAnalyzer®Report Type: Post-Close Mortgage Loan Borrower Name: Tom DoeReport Date/Time: 04/02/2009 03:22 AM (PDT) Property Address: 333X Angel StreetReport Version: 3 Orange, CA 92867

RiskIndicator HOEPA TILA RESPAState & Local

PredatoryStateRegs

ExceptionsInvestor/Custom

FINDINGS SUMMARY

Federal HOEPA (Section 32)Result Loan Data Comparison Data Variance

HOEPA High Cost Mortgage: NOHOEPA Rate-based Test: PASS 8.038% 12.690% -4.652%HOEPA Points and Fees Test: PASS $18,938.14 $31,804.95 -$12,866.81HOEPA Timing of Disclosure Test: N/AHOEPA Balloon Payment Test: N/AHOEPA Prepayment Penalties Test: N/A

Federal TILAResult Loan Data Comparison Data Variance

TILA Finance Charge Test: FAIL $720,317.20 $779,137.53 -$58,820.33TILA Rescission Finance Charge Test: FAIL $720,317.20 $779,137.53 -$58,820.33TILA Foreclosure Rescission Finance Charge Test: NOT TESTEDTILA APR Test: FAIL 7.890% 8.038% -0.148%TILA Right of Rescission Test: PASSTILA Disclosure Date Test: N/A

Federal RESPAResult Loan Data Comparison Data Variance

RESPA GFE Disclosure Date Test: FAIL

CA AB 489/344 (Division 1.6 of the Financial Code)Result Loan Data Comparison Data Variance

CA AB 489/344 Consumer Loan: YESCA AB 489/344 Consumer Loan Single Premium CreditInsurance Test:

PASS

CA AB 489/344 Covered Loan APR Threshold Test: PASS 8.038% 12.690% -4.652%CA AB 489/344 Covered Loan Points and FeesThreshold Test:

PASS $18,938.14 $23,853.71 -$4,915.57

CA AB 489/344 Covered Loan: NOCA AB 489/344 Covered Loan Prepayment Term Test: N/ACA AB 489/344 Covered Loan Balloon Payment Test: N/ACA AB 489/344 Covered Loan Subordinate Lien NegativeAmortization Test:

N/A

CA AB 489/344 Covered Loan DTI Presumption Test: N/ACA AB 489/344 Covered Loan Financing of Points andFees Test:

N/A

State Regulations

Sample Report

Result Loan Data Comparison Data VarianceInterest Rate Test: PASS 1.000%Grace Period Test: PASS 15 DaysLate Fees Test: PASS 5.000% 6.000% -1.000%Prepayment Term Test: PASS 36 Months 60 Months -24 Months

State Regulations Restricted FeesResult Loan Data Comparison Data Variance

Broker Fees Test: NOT TESTEDReconveyance Fee Alert: ALERT

IndexName Term Yield DateTreasury Security 30 Year 4.690% 03/15/2007

TIL SUMMARY

Annual Percentage Rate Finance Charge Amount Financed Total of Payments8.038%

Interest Rate1.000%

$779,137.53 $397,561.86 $1,176,699.39

Payment ScheduleNumber of Payments Amount of Payments1 $1,339.6311 $1,339.6312 $1,440.1012 $1,548.1111 $1,664.22301 $3,535.0111 $3,535.071 $3,535.11

FINDINGS DETAIL

Federal HOEPA (Section 32)Section 32 (High Cost) Mortgage (12 CFR § 226.32(a)(1)(i) and (ii)) [Amd. 2001] / [Original]The loan is not a Section 32 (High Cost) mortgage because it has terms that do not exceed either the HOEPA rate-based threshold or the HOEPA points and fees based threshold.

NO

This loan has terms that do not exceed the rate-based threshold. (12 CFR § 226.32(a)(1)(i)) [Amd. 2001] /[Original]The annual percentage rate (APR) at consummation is 8.038%, which does not exceed the yield of 4.690%, as ofMarch 15, 2007 on 30 year Treasury securities (the Treasury securities having comparable periods of maturity),plus 8.000 percentage points. The yield is as of the fifteenth day of the month immediately preceding the month ofthe application for extension of credit, which was received by the creditor on April 1, 2007.

PASS

This loan has terms that do not exceed the points and fees based threshold. (12 CFR § 226.32(a)(1)(ii))[Amd. 2001] / [Original]The total points and fees payable by the consumer at or before loan closing is $18,938.14, which does not exceedthe greater of 8 percent of the "total loan amount" (as defined in the official commentary to paragraph 32(a)(1)(ii)),or $547.00.

PASS

The timing of disclosure test is not applicable to this loan due to one or more of the following findings: (12CFR § 226.31(c))

Pre-close audits do not pertain to the consummation of a loan.The loan is not a high cost loan.

N/A

The balloon payment test is not applicable to this loan. (12 CFR § 226.32(a))The loan is not a high cost loan.

N/A

The prepayment penalties test is not applicable to this loan due to one or more of the following findings:(12 CFR § 226.32(a))

The loan is not a high cost loan.There is no prepayment term specified in the terms of the loan.

N/A

Sample Report

Federal TILAThis loan failed the TILA finance charge test. (12 CFR § 226.18(d)(1))The finance charge is $779,137.53. The disclosed finance charge of $720,317.20 is not considered accuratebecause it is understated by more than $100.

FAIL

This loan failed the TILA rescission finance charge test. (12 CFR § 226.23(g)(1))The finance charge is $779,137.53. The disclosed finance charge of $720,317.20 is not considered accurate forpurposes of rescission because it is understated by more than 1/2 of 1 percent of the face amount of the note or$100, whichever is greater.

FAIL

This loan was not tested against the TILA foreclosure rescission finance charge test due to one or more ofthe following findings: (12 CFR §226.23(h))

A disclosed finance charge was not provided; orYour company settings are not configured to run the TILA foreclosure rescission finance charge test as partof an audit report.

NOT TESTED

This loan failed the TILA APR test. (12 CFR § 226.22(a)(2),(4))The annual percentage rate (APR) is 8.038%. The disclosed APR of 7.890% is not considered accurate becauseit is more than 1/8 of 1 percentage point above or below the APR as determined in accordance with the actuarialmethod.

FAIL

This loan passed the TILA right of rescission test.Closed-end (12 CFR § 226.23(a)(3)) , Open-end (12 CFR § 226.15(a)(3))The funding date is not before the third business day following consummation.The consumer may exercise the right to rescind until midnight of the third business day following consummation,delivery of the notice required by 12 CFR §226.23 or §226.15, or delivery of all material disclosures, whicheveroccurs last.

PASS

The TILA Disclosure Date Test does not apply to this loan due to the following finding.Closed-end (12 CFR § 226.17(b)) , Open-end (12 CFR § 226.5b(1))The loan is not a "residential mortgage transaction," meaning it is not a transaction in which a mortgage, deedof trust, purchase money security interest arising under an installment sales contract, or equivalent consensualsecurity interest is created or retained in the consumer's principal dwelling to finance the acquisition or initialconstruction of that dwelling.

N/A

Federal RESPAThis loan failed the Good Faith Estimate disclosure date test. (12 CFR § 226.19(a))The loan has a Good Faith Estimate disclosure date that is not within three business days after the applicationdate, or is after the closing date.In a residential mortgage transaction subject to the Real Estate Settlement Procedures Act (12 U.S.C. 2601 etseq.) the creditor shall make good faith estimates of required disclosures before consummation, or shall deliveror place them in the mail not later than three business days after the creditor receives the consumer's writtenapplication, whichever is earlier. Calculations take into account a submitted preference that this test treat thecreditor's office as being open to the public on Saturdays for carrying on substantially all of its business functions,as described in 226.2(a)(6).

FAIL

CA AB 489/344 (Division 1.6 of the Financial Code)Consumer Loan (CA AB 344 §1 [CA FC §4970(d)])The loan is a consumer loan, as defined in the legislation, due to all of the following findings:

The loan is secured by a property intended to be used as the principal dwelling of the consumer.The loan is secured by property improved by a one-to-four residential unit.The loan is not a bridge loan, as defined in the legislation.

YES

This loan passed the single premium credit insurance test. (CA AB 344 §9 [CA FC §4979.7])The consumer loan does not finance credit life, credit disability, credit property, or credit unemployment insurancepremiums, or debt cancellation or suspension agreement fees.

PASS

This loan passed the APR threshold test. (CA AB 344 §1 [CA FC §4970(b)(1)(A)])The annual percentage rate at consummation does not exceed by more than 8% points the yield on Treasurysecurities having comparable periods of maturity on the 15th day of the month immediately preceding the month ofthe application date.

PASS

This loan passed the points and fees threshold test. (CA AB 344 §1 [CA FC §4970(b)(1)(B)])The total points and fees, as defined in the legislation, do not exceed 6% of the total loan amount, as defined inHOEPA (Section 32).

PASS

Covered Loan (CA AB 344 §1 [CA FC §4970(b)])The loan is not a covered loan, as defined in the legislation, due to one or more of the following findings:

The loan is not a consumer loan, as defined in the legislation.The loan does not exceed either the APR threshold or the points and fees threshold.If the latest available closing date is before January 1, 2006, the original principal balance of the loan doesexceed $250,000.

NO

Sample Report

If the latest available closing date is on or after January 1, 2006, the original principal balance of the loandoes exceed the most current conforming loan limit for a single-family first mortgage loan established by theFederal National Mortgage Association ($417,000.00).

The prepayment term test is not applicable to this loan. (CA AB 344 §2 [CA FC §4973(a)(1)])The loan is not a covered loan, as defined in the legislation.

N/A

The balloon payment test is not applicable to this loan. (CA AB 344 §2 [CA FC §4973(b)(1)])The loan is not a covered loan, as defined in the legislation.

N/A

The subordinate lien negative amortization test is not applicable to this loan. (CA AB 344 §2 [CA FC§4973(c)])The loan is not a covered loan, as defined in the legislation.

N/A

The DTI presumption test is not applicable to this loan. (CA AB 344 §2 [CA FC §4973(f)(1)])The loan is not a covered loan, as defined in the legislation.

N/A

The financing of points and fees test is not applicable to this loan. (CA AB 489 [CA FC §4979.6])The loan is not a covered loan, as defined in the legislation.

N/A

State RegulationsThis loan passed the interest rate test.The loan has an interest rate that conforms to the requirements for the lender's license type in the state where theproperty is located.

PASS

This loan passed the grace period test.The loan has a grace period that conforms to the requirements for the lender's license type in the state where theproperty is located.

PASS

This loan passed the late fees test.The loan has late fees that conform to the requirements for the lender's license type in the state where the propertyis located.

PASS

This loan passed the prepayment term test.The loan has a prepayment term that conforms to the requirements for the lender's license type in the state wherethe property is located.

PASS

State Regulations Restricted FeesThis loan is not tested by the broker fees test.The broker fees limitations depend on the license of the broker, which is not captured on the loan form.

A licensed Real Estate Broker, when acting as the broker, may receive commissions not exceeding thetotals outlined in CA Bus. Prof. Code §10242(b).A licensed Residential Mortgage Lender, when acting as the broker, may receive commissions notexceeding the totals outlined in CA Bus. Prof. Code §10242(b). (CA Bus. Prof. Code §50703)A licensed Finance Lender, when acting as the broker, may only broker loans to other licensed FinanceLenders (CA. Fin. Code §22059) and charge for services actually rendered (10 CCR §1451).

NOT TESTED

Reasonable Reconveyance FeeA borrower may be charged a "reasonable" reconveyance fee. A reconveyance fee that does not exceed $45 ispresumed to be reasonable. (CA Civil Code §2941(e))

ALERT

LOAN DETAIL

ClientCE ID: 179029U30G User Name: Company Administrator Client Name: Client Support CompanyReport Type: Post-Close Mortgage Loan

LenderLender Name: California Lending Inc. : Loan Modification Sample Inc.Lender Loan Number: 123456789A :Originator: Custom Label 3:MIN: Custom Label 4:License Type: California Residential Mortgage Lender LicenseDIDMCA Exempt: NoHUD Approved Lender: No

InvestorDefault:

BorrowerFirst Name: Tom Last Name: DoeTotal Income: $12,500.00 / month DTI Ratio: 0.000%

Sample Report

PropertyAddress:Number Street Name Type (St, Ave, etc.) Direction Unit #

333X Angel StreetCity County State Zip

Orange Orange CA 92867Type: Detached SFD Number of Units: 1Occupancy: Primary Residence

Loan InformationLoan Amount:(exclude PMI, MIP, Funding Fee financed)

$416,500.00 Loan Amount:(with Finance Charge)

$416,500.00

Program Type: ARM Interest Rate: 1.000%Loan Purpose: Refinance Undiscounted Rate:Purpose of Refinance: Cash-Out/Other Disclosed APR: 7.890%Refinancing Portfolio Loan: No Disclosed Finance Charge: $720,317.20LTV Ratio: 100.000% Irregular Payment Transaction: NoCLTV Ratio: 100.000% Maturity Term: 360 monthsLoan Type: Conventional Amortization Term: 360 monthsLien Type: First Mortgage Late Charges: 5.000%Document Type: Grace Period: 15 days

Prepayment PenaltyProgram Name: Not ProvidedPrepayment Penalty Program: Not ProvidedPrepayment Term: 36 months Max. Prepayment Penalty Amount:

(for high-cost points & fees)$8,745.80

Construction / Construction to PermanentRate: Construction Term:Estimate Interest on: Amount Advanced Interest Reserve:

Adjustable Rate MortgageARM Margin: 2.650% First Adjustment: Cap 0.000% Period 1 monthsARM Index: 5.021% Subsequent Adjustment: Cap PeriodCeiling: 9.950%Floor: 2.625% Adjustment Rounding: No rounding

Graduated Payment MortgageRate: Term:

Potential Negative Amortization (Option ARM)Negative AmortizationType:

Standard

Payment Adjustment: Cap: 7.500% orMultiplier:

1.075

Frequency: 12 monthsRecast: Beginning

Month:60 Stop

Month:348

Frequency: 60 monthsMaximum Balance: 115.000%

Recast at Maximum Balance Maximum Balance Can Be

Exceeded by One PaymentInterest Only Term:

Buydown1. Rate: Term:2. Rate: Term:3. Rate: Term:4. Rate: Term:5. Rate: Term:

Interest Only (excl. Negative Amortization and Option ARM)Term:

Dual AmortizationInitial Amortization Term: Period:Subsequent Amortization Term: Period:

Mortgage Insurance (PMI)Upfront Premium: Monthly Premium (Initial):

Sample Report

or Prepaid FinanceCharge

or Period

Cash/Credit Monthly Premium (Renew):Financed$0.00 or Period

Cancel atAdjust Payments Due

to Upfront PremiumCalculate Premiums UsingLoan Amount

Cancel At Midpoint

DatesApplication Date: 04/01/2007 Closing / Settlement Date: 05/20/2007Initial GFE Disclosure Date: 04/05/2007 Funding / Disbursement Date: 06/02/2007Initial TIL Disclosure Date: Rate Lock Date: 05/01/2007Sec. 32 (HOEPA) Disclosure Date:

Sample Report

800: Items payable in connection with loanPrepaidFinanceCharges

FinancedBy Lender

CompensationTo

801 Loan Origination Fee $ Lender802 Loan Discount Fee $ 2,082.50 bona fide Lender803 Appraisal Fee $ 350.00 Affiliate

of Lender804 Credit Report Fee $ 15.00 Other805 Lender Inspection Fee (performed prior to

closing)$ Lender

Lender Inspection Fee (performed postclosing)

$ Lender

806 Mortgage Insurance Application Fee $ Lender807 Assumption Fee $ Lender

Modification Fee $ LenderTie-in Fee $ OtherMortgage Broker Fee (Direct) $ 12,495.00Mortgage Broker Fee (Indirect / POC) $Yield Spread Premium (Indirect / POC) $ 13,200.00CLO Access Fee $ LenderApplication Fee $ LenderRate Lock Fee $ LenderCommitment Fee $ LenderProcessing Fee $ 995.00 BrokerUnderwriting Fee $ 350.00 LenderAdministration Fee $ 250.00 BrokerAppraisal Review Fee $ LenderAppraisal Re-Inspection Fee $ OtherFlood Determination - Initial Fee $ OtherFlood Determination - Life of Loan Fee $ 12.00 OtherDocument Preparation Fee $ 350.00 LenderDocument Signing Fee $ LenderCourier / Messenger Fee $ LenderTax Related Service Fee $ 75.00 LenderWire Transfer Fee $ LenderWarehousing Fee $ LenderAdvance Mortgage Payments $ LenderCredit Life Insurance Premium $ LenderAccident Insurance Premium $ LenderHealth Insurance Premium $ LenderLoss of Income Insurance Premium $ LenderDebt Cancellation Fee $ LenderPrepayment Penalty $ OtherCompliance Audit / Quality Control Fee $ LenderSeller-Paid Points and Fees $

$$$$$$$$

900: Items required by lender to be paid in advancePrepaidFinanceCharges

FinancedBy Lender

CompensationTo

Sample Report

901 Interest $ for day(s) Lender902 Mortgage Insurance Premium $ Other903 Hazard Insurance Premium $ 850.00 Other

County Property Taxes $ OtherFlood Insurance Premium $ Other

$$$$

1000: Reserves deposited with lenderPrepaidFinanceCharges

FinancedBy Lender

CompensationTo

1001 Hazard Insurance Reserve $ 135.00 Other1002 Mortgage Insurance Reserve $ Other1003 City Property Taxes Reserve $ Other1004 County Property Taxes Reserve $ 1,171.40 Other1005 Annual Assessments $ Other

$$$$$

1100: Title ChargesPrepaidFinanceCharges

FinancedBy Lender

CompensationTo

1101 Settlement / Closing / Escrow Fee $ 1,078.64 Other1102 Abstract / Title Search Fee $ Other1103 Title Examination Fee $ Other1104 Title Insurance Binder Fee $ Other1105 Title Document Preparation Fee $ Other1106 Notary Fee $ 120.00 Other1107 Attorney's Fee $ Excludable due to borrower

choice Other

Attorney's Fee (Other) $ Excludable due to borrowerchoice

Other

1108 Title Insurance $ 3,456.00 Other1109 Lender's Coverage $ Other1110 Owner's Coverage $ Other

Assignment Endorsement Fee $ 75.00 OtherSub-Escrow Fee $ 150.00 OtherReconveyance Fee $ OtherTitle Courier Fee $ 150.00 OtherFunding, Wire, or Disbursement Fee $ 100.00 OtherTie-in Fee $ 350.00 OtherE-doc Fee $ 150.00 Other

$$$

1200: Government Recording and Transfer ChargesPrepaidFinanceCharges

FinancedBy Lender

CompensationTo

Sample Report

1201 Recording Fee $ 150.00 Other1202 City / County / Tax / Stamps $ Other1203 State Tax / Stamps $ Other

Subordination Recording Fee $ OtherAssignment Recording Fee $ OtherRecording Service Fee $ OtherIntangible Tax $ Other

$$$$

1300: Additional Settlement ChargesPrepaidFinanceCharges

FinancedBy Lender

CompensationTo

1301 Survey Fee $ Other1302 Pest Inspection Fee $ Other

Architectural / Engineering Fee $ OtherBuilding Permit $ Other

$$$$$

If you have any questions or comments regarding this report, please contact ComplianceEase client support at 650.347.HELP (4357) or [email protected].

DISCLAIMER: Provision of this report and the content contained herein is made subject to the terms of the services agreement between LogicEase SolutionsInc. and the client for whom this report was prepared. LogicEase Solutions' services, particularly including its ComplianceAnalyzer® service, are protected bythe following U.S. patent and other patents pending: 7,386,505.

COPYRIGHT © 2001-2009 LOGICEASE SOLUTIONS INC. ALL RIGHTS RESERVED.

END OF REPORT

Sample ReportFederal Regulation 12CFR226. 1

Code of Federal Regulations [CITE: 12CFR226.18] [Title 12, Volume 3] [Revised as of January 1, 2008] From the U.S. Government Printing Office via GPO Access TITLE 12--BANKS AND BANKING CHAPTER II--FEDERAL RESERVE SYSTEM (C0NTINUED) PART 226_TRUTH IN LENDING (REGULATION Z)--Table of Contents Subpart C_Closed-End Credit Sec. 226.18 Content of disclosures. For each transaction, the creditor shall disclose the following information as applicable: (a) Creditor. The identity of the creditor making the disclosures. (b) Amount financed. The amount financed, using that term, and a brief description such as the amount of credit provided to you or on your behalf. The amount financed is calculated by: (1) Determining the principal loan amount or the cash price (subtracting any downpayment); (2) Adding any other amounts that are financed by the creditor and are not part of the finance charge; and (3) Subtracting any prepaid finance charge. (c) Itemization of amount financed. (1) A separate written itemization of the amount financed, including:\40\ ----------------------------------------------------------------------- \40\ Good faith estimates of settlement costs provided for transactions subject to the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) may be substituted for the disclosures required by paragraph (c) of this section. ----------------------------------------------------------------------- (i) The amount of any proceeds distributed directly to the consumer. (ii) The amount credited to the consumer's account with the creditor. (iii) Any amounts paid to other persons by the creditor on the consumer's behalf. The creditor shall identify those persons.\41\ ----------------------------------------------------------------------- \41\ The following payees may be described using generic or other general terms and need not be further identified: public officials or government agencies, credit reporting agencies, appraisers, and insurance companies. ----------------------------------------------------------------------- (iv) The prepaid finance charge. (2) The creditor need not comply with paragraph (c)(1) of this


section if the creditor provides a statement that the consumer has the right to receive a written itemization of the amount financed, together with a space for the consumer to indicate whether it is desired, and the consumer does not request it. (d) Finance charge. The finance charge, using that term, and a brief description such as ``the dollar amount the credit will cost you.'' (1) Mortgage loans. In a transaction secured by real property or a dwelling, the disclosed finance charge and other disclosures affected by the disclosed finance charge (including the amount financed and the annual percentage rate) shall be treated as accurate if the amount disclosed as the finance charge: (i) Is understated by no more than $100; or (ii) Is greater than the amount required to be disclosed. (2) Other credit. In any other transaction, the amount disclosed as the finance charge shall be treated as accurate if, in a transaction involving an amount financed of $1,000 or less, it is not more than $5 above or below the amount required to be disclosed; or, in a transaction involving an amount financed of more than $1,000, it is not more than $10 above or below the amount required to be disclosed. (e) Annual percentage rate. The annual percentage rate, using that term, and a brief description such as ``the cost of your credit as a yearly rate.'' \42\ ----------------------------------------------------------------------- \42\ For any transaction involving a finance charge of $5 or less on an amount financed of $75 or less, or a finance charge of $7.50 or less on an amount financed of more than $75, the creditor need not disclose the annual percentage rate. ----------------------------------------------------------------------- (f) Variable rate. (1) If the annual percentage rate may increase after consummation in a transaction not secured by the consumer's principal dwelling or in a transaction secured by the consumer's principal dwelling with a term of one year or less, the following disclosures:\43\ ----------------------------------------------------------------------- \43\ Information provided in accordance with Sec. Sec. 226.18(f)(2) and 226.19(b) may be substituted for the disclosures required by paragraph (f)(1) of this section. ----------------------------------------------------------------------- (i) The circumstances under which the rate may increase. (ii) Any limitations on the increase. (iii) The effect of an increase. (iv) An example of the payment terms that would result from an increase. (2) If the annual percentage rate may increase after consummation in a transaction secured by the consumer's principal dwelling with a term greater than one year, the following disclosures: (i) The fact that the transaction contains a variable-rate feature. (ii) A statement that variable-rate disclosures have been provided earlier. (g) Payment schedule. The number, amounts, and timing of payments scheduled to repay the obligation. (1) In a demand obligation with no alternate maturity date, the


creditor may comply with this paragraph by disclosing the due dates or payment periods of any scheduled interest payments for the first year. (2) In a transaction in which a series of payments varies because a finance charge is applied to the unpaid principal balance, the creditor may comply with this paragraph by disclosing the following information: (i) The dollar amounts of the largest and smallest payments in the series. (ii) A reference to the variations in the other payments in the series. (h) Total of payments. The total of payments, using that term, and a descriptive explanation such as ``the amount you will have paid when you have made all scheduled payments.'' \44\ ----------------------------------------------------------------------- \44\ In any transaction involving a single payment, the creditor need not disclose the total of payments. ----------------------------------------------------------------------- (i) Demand feature. If the obligation has a demand feature, that fact shall be disclosed. When the disclosures are based on an assumed maturity of 1 year as provided in Sec. 226.17(c)(5), that fact shall also be disclosed. (j) Total sale price. In a credit sale, the total sale price, using that term, and a descriptive explanation (including the amount of any downpayment) such as ``the total price of your purchase on credit, including your downpayment of $----.'' The total sale price is the sum of the cash price, the items described in paragraph (b)(2), and the finance charge disclosed under paragraph (d) of this section. (k) Prepayment. (1) When an obligation includes a finance charge computed from time to time by application of a rate to the unpaid principal balance, a statement indicating whether or not a penalty may be imposed if the obligation is prepaid in full. (2) When an obligation includes a finance charge other than the finance charge described in paragraph (k)(1) of this section, a statement indicating whether or not the consumer is entitled to a rebate of any finance charge if the obligation is prepaid in full. (l) Late payment. Any dollar or percentage charge that may be imposed before maturity due to a late payment, other than a deferral or extension charge. (m) Security interest. The fact that the creditor has or will acquire a security interest in the property purchased as part of the transaction, or in other property identified by item or type. (n) Insurance and debt cancellation. The items required by Sec. 226.4(d) in order to exclude certain insurance premiums and debt cancellation fees from the finance charge. (o) Certain security interest charges. The disclosures required by Sec. 226.4(e) in order to exclude from the finance charge certain fees prescribed by law or certain premiums for insurance in lieu of perfecting a security interest. (p) Contract reference. A statement that the consumer should refer to the appropriate contract document for information about nonpayment, default, the right to accelerate the maturity of the obligation, and prepayment rebates and penalties. At the creditor's option, the statement may also include a reference to the contract for further information about security interests and, in a residential mortgage transaction, about the creditor's policy regarding assumption of the


obligation. (q) Assumption policy. In a residential mortgage transaction, a statement whether or not a subsequent purchaser of the dwelling from the consumer may be permitted to assume the remaining obligation on its original terms. (r) Required deposit. If the creditor requires the consumer to maintain a deposit as a condition of the specific transaction, a statement that the annual percentage rate does not reflect the effect of the required deposit.\45\ ----------------------------------------------------------------------- \45\ A required deposit need not include, for example: (1) An escrow account for items such as taxes, insurance or repairs; (2) a deposit that earns not less than 5 percent per year; or (3) payments under a Morris Plan. [46 FR 20892, Apr. 7, 1981; 46 FR 29246, June 1, 1981, as amended at 52 FR 48670, Dec. 24, 1987; 61 FR 49246, Sept. 19, 1996]


Code of Federal Regulations [CITE: 12CFR226.19] [Title 12, Volume 3] [Revised as of January 1, 2008] From the U.S. Government Printing Office via GPO Access TITLE 12--BANKS AND BANKING CHAPTER II--FEDERAL RESERVE SYSTEM (C0NTINUED) PART 226_TRUTH IN LENDING (REGULATION Z)--Table of Contents Subpart C_Closed-End Credit Sec. 226.19 Certain residential mortgage and variable-rate transactions. (a) Residential mortgage transactions subject to RESPA--(1) Time of disclosures. In a residential mortgage transaction subject to the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) the creditor shall make good faith estimates of the disclosures required by Sec. 226.18 before consummation, or shall deliver or place them in the mail not later than three business days after the creditor receives the consumer's written application, whichever is earlier. (2) Redisclosure required. If the annual percentage rate at the time of consummation varies from the annual percentage rate disclosed earlier by more than \1/8\ of 1 percentage point in a regular transaction or more than \1/4\ of 1 percentage point in an irregular transaction, as defined in Sec. 226.22, the creditor shall disclose all the changed terms no later than consummation or settlement. (b) Certain variable-rate transactions.\45a\ If the annual percentage rate may increase after consummation in a transaction secured by the consumer's principal dwelling with a term greater than one year, the following disclosures must be provided at the time an application form is provided or before the consumer pays a non-refundable fee, whichever is earlier:\45b\ ----------------------------------------------------------------------- \45a\ Information provided in accordance with variable-rate regulations of other federal agencies may be substituted for the disclosures required by paragraph (b) of this section. \45b\ Disclosures may be delivered or placed in the mail not later than three business days following receipt of a consumer's application when the application reaches the creditor by telephone, or through an intermediary agent or broker. ----------------------------------------------------------------------- (1) The booklet titled Consumer Handbook on Adjustable Rate Mortgages published by the Board and the Federal Home Loan Bank Board, or a suitable substitute.


(2) A loan program disclosure for each variable-rate program in which the consumer expresses an interest. The following disclosures, as applicable, shall be provided: (i) The fact that the interest rate, payment, or term of the loan can change. (ii) The index or formula used in making adjustments, and a source of information about the index or formula. (iii) An explanation of how the interest rate and payment will be determined, including an explanation of how the index is adjusted, such as by the addition of a margin. (iv) A statement that the consumer should ask about the current margin value and current interest rate. (v) The fact that the interest rate will be discounted, and a statement that the consumer should ask about the amount of the interest rate discount. (vi) The frequency of interest rate and payment changes. (vii) Any rules relating to changes in the index, interest rate, payment amount, and outstanding loan balance including, for example, an explanation of interest rate or payment limitations, negative amortization, and interest rate carryover. (viii) At the option of the creditor, either of the following: (A) A historical example, based on a $10,000 loan amount, illustrating how payments and the loan balance would have been affected by interest rate changes implemented according to the terms of the loan program disclosure. The example shall reflect the most recent 15 years of index values. The example shall reflect all significant loan program terms, such as negative amortization, interest rate carryover, interest rate discounts, and interest rate and payment limitations, that would have been affected by the index movement during the period. (B) The maximum interest rate and payment for a $10,000 loan originated at the initial interest rate (index value plus margin, adjusted by the amount of any discount or premium) in effect as of an identified month and year for the loan program disclosure assuming the maximum periodic increases in rates and payments under the program; and the initial interest rate and payment for that loan and a statement that the periodic payment may increase or decrease substantially depending on changes in the rate. (ix) An explanation of how the consumer may calculate the payments for the loan amount to be borrowed based on either: (A) The most recent payment shown in the historical example in paragraph (b)(2)(viii)(A) of this section; or (B) The initial interest rate used to calculate the maximum interest rate and payment in paragraph (b)(2)(viii)(B) of this section. (x) The fact that the loan program contains a demand feature. (xi) The type of information that will be provided in notices of adjustments and the timing of such notices. (xii) A statement that disclosure forms are available for the creditor's other variable-rate loan programs. (c) Electronic disclosures. For an application that is accessed by the consumer in electronic form, the disclosures required by paragraph (b) of this section may be provided to the consumer in electronic form on or with the application. [Reg. Z, 52 FR 48670, Dec. 24, 1987; 53 FR 467, Jan. 7, 1988, as amended at 61 FR 49246, Sept. 19, 1996; 62 FR 63443, Dec. 1, 1997; 72 FR 63474, Nov. 9, 2007


Code of Federal Regulations [CITE: 12CFR226.22] [Title 12, Volume 3] [Revised as of January 1, 2008] From the U.S. Government Printing Office via GPO Access TITLE 12--BANKS AND BANKING CHAPTER II--FEDERAL RESERVE SYSTEM (C0NTINUED) PART 226_TRUTH IN LENDING (REGULATION Z)--Table of Contents Subpart C_Closed-End Credit Sec. 226.22 Determination of annual percentage rate. (a) Accuracy of annual percentage rate. (1) The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made. The annual percentage rate shall be determined in accordance with either the actuarial method or the United States Rule method. Explanations, equations and instructions for determining the annual percentage rate in accordance with the actuarial method are set forth in appendix J to this regulation.\45d\ ----------------------------------------------------------------------- \45d\ An error in disclosure of the annual percentage rate or finance charge shall not, in itself, be considered a violation of this regulation if: (1) The error resulted from a corresponding error in a calculation tool used in good faith by the creditor; and (2) upon discovery of the error, the creditor promptly discontinues use of that calculation tool for disclosure purposes and notifies the Board in writing of the error in the calculation tool. ----------------------------------------------------------------------- (2) As a general rule, the annual percentage rate shall be considered accurate if it is not more than \1/8\ of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section. (3) In an irregular transaction, the annual percentage rate shall be considered accurate if it is not more than \1/4\ of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section.\46\ ----------------------------------------------------------------------- \46\ For purposes of paragraph (a)(3) of this section, an irregular transaction is one that includes one or more of the following features: multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment). -----------------------------------------------------------------------


(4) Mortgage loans. If the annual percentage rate disclosed in a transaction secured by real property or a dwelling varies from the actual rate determined in accordance with paragraph (a)(1) of this section, in addition to the tolerances applicable under paragraphs (a)(2) and (3) of this section, the disclosed annual percentage rate shall also be considered accurate if: (i) The rate results from the disclosed finance charge; and (ii)(A) The disclosed finance charge would be considered accurate under Sec. 226.18(d)(1); or (B) For purposes of rescission, if the disclosed finance charge would be considered accurate under Sec. 226.23(g) or (h), whichever applies. (5) Additional tolerance for mortgage loans. In a transaction secured by real property or a dwelling, in addition to the tolerances applicable under paragraphs (a)(2) and (3) of this section, if the disclosed finance charge is calculated incorrectly but is considered accurate under Sec. 226.18(d)(1) or Sec. 226.23(g) or (h), the disclosed annual percentage rate shall be considered accurate: (i) If the disclosed finance charge is understated, and the disclosed annual percentage rate is also understated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section; (ii) If the disclosed finance charge is overstated, and the disclosed annual percentage rate is also overstated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section. (b) Computation tools. (1) The Regulation Z Annual Percentage Rate Tables produced by the Board may be used to determine the annual percentage rate, and any rate determined from those tables in accordance with the accompanying instructions complies with the requirements of this section. Volume I of the tables applies to single advance transactions involving up to 480 monthly payments or 104 weekly payments. It may be used for regular transactions and for transactions with any of the following irregularities: an irregular first period, an irregular first payment, and an irregular final payment. Volume II of the tables applies to transactions involving multiple advances and any type of payment or period irregularity. (2) Creditors may use any other computation tool in determining the annual percentage rate if the rate so determined equals the rate determined in accordance with appendix J, within the degree of accuracy set forth in paragraph (a) of this section. (c) Single add-on rate transactions. If a single add-on rate is applied to all transactions with maturities up to 60 months and if all payments are equal in amount and period, a single annual percentage rate may be disclosed for all those transactions, so long as it is the highest annual percentage rate for any such transaction. (d) Certain transactions involving ranges of balances. For purposes of disclosing the annual percentage rate referred to in Sec. 226.17(g)(4) (Mail or telephone orders--delay in disclosures) and (h) (Series of sales--delay in disclosures), if the same finance charge is imposed on all balances within a specified range of balances, the annual


percentage rate computed for the median balance may be disclosed for all the balances. However, if the annual percentage rate computed for the median balance understates the annual percentage rate computed for the lowest balance by more than 8 percent of the latter rate, the annual percentage rate shall be computed on whatever lower balance will produce an annual percentage rate that does not result in an understatement of more than 8 percent of the rate determined on the lowest balance. [46 FR 20892, Apr. 7, 1981, as amended at 47 FR 756, Jan. 7, 1982; 48 FR 14886, Apr. 6, 1983; 61 FR 49246, Sept. 19, 1996]


Code of Federal Regulations [CITE: 12CFR226.32] [Title 12, Volume 3] [Revised as of January 1, 2008] From the U.S. Government Printing Office via GPO Access TITLE 12--BANKS AND BANKING CHAPTER II--FEDERAL RESERVE SYSTEM (C0NTINUED) PART 226_TRUTH IN LENDING (REGULATION Z)--Table of Contents Subpart E_Special Rules for Certain Home Mortgage Transactions Sec. 226.32 Requirements for certain closed-end home mortgages. (a) Coverage. (1) Except as provided in paragraph (a)(2) of this section, the requirements of this section apply to a consumer credit transaction that is secured by the consumer's principal dwelling, and in which either: (i) The annual percentage rate at consummation will exceed by more than 8 percentage points for first-lien loans, or by more than 10 percentage points for subordinate-lien loans, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or (ii) The total points and fees payable by the consumer at or before loan closing will exceed the greater of 8 percent of the total loan amount, or $400; the $400 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index that was reported on the preceding June 1. (2) This section does not apply to the following: (i) A residential mortgage transaction. (ii) A reverse mortgage transaction subject to Sec. 226.33. (iii) An open-end credit plan subject to subpart B of this part. (b) Definitions. For purposes of this subpart, the following definitions apply: (1) For purposes of paragraph (a)(1)(ii) of this section, points and fees means: (i) All items required to be disclosed under Sec. 226.4(a) and 226.4(b), except interest or the time-price differential; (ii) All compensation paid to mortgage brokers; (iii) All items listed in Sec. 226.4(c)(7) (other than amounts held for future payment of taxes) unless the charge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the creditor; and (iv) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, or debt-cancellation coverage (whether or not the debt-cancellation coverage is insurance under applicable law) that provides for cancellation of all or part of the consumer's liability in


the event of the loss of life, health, or income or in the case of accident, written in connection with the credit transaction. (2) Affiliate means any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.). (c) Disclosures. In addition to other disclosures required by this part, in a mortgage subject to this section, the creditor shall disclose the following in conspicuous type size: (1) Notices. The following statement: ``You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.'' (2) Annual percentage rate. The annual percentage rate. (3) Regular payment; balloon payment. The amount of the regular monthly (or other periodic) payment and the amount of any balloon payment. The regular payment disclosed under this paragraph shall be treated as accurate if it is based on an amount borrowed that is deemed accurate and is disclosed under paragraph (c)(5) of this section. (4) Variable-rate. For variable-rate transactions, a statement that the interest rate and monthly payment may increase, and the amount of the single maximum monthly payment, based on the maximum interest rate required to be disclosed under Sec. 226.30. (5) Amount borrowed. For a mortgage refinancing, the total amount the consumer will borrow, as reflected by the face amount of the note; and where the amount borrowed includes premiums or other charges for optional credit insurance or debt-cancellation coverage, that fact shall be stated, grouped together with the disclosure of the amount borrowed. The disclosure of the amount borrowed shall be treated as accurate if it is not more than $100 above or below the amount required to be disclosed. (d) Limitations. A mortgage transaction subject to this section shall not include the following terms: (1)(i) Balloon payment. For a loan with a term of less than five years, a payment schedule with regular periodic payments that when aggregated do not fully amortize the outstanding principal balance. (ii) Exception. The limitations in paragraph (d)(1)(i) of this section do not apply to loans with maturities of less than one year, if the purpose of the loan is a ``bridge'' loan connected with the acquisition or construction of a dwelling intended to become the consumer's principal dwelling. (2) Negative amortization. A payment schedule with regular periodic payments that cause the principal balance to increase. (3) Advance payments. A payment schedule that consolidates more than two periodic payments and pays them in advance from the proceeds. (4) Increased interest rate. An increase in the interest rate after default. (5) Rebates. A refund calculated by a method less favorable than the actuarial method (as defined by section 933(d) of the Housing and Community Development Act of 1992, 15 U.S.C. 1615(d)), for rebates of interest arising from a loan acceleration due to default. (6) Prepayment penalties. Except as allowed under paragraph (d)(7) of this section, a penalty for paying all or part of the principal


before the date on which the principal is due. A prepayment penalty includes computing a refund of unearned interest by a method that is less favorable to the consumer than the actuarial method, as defined by section 933(d) of the Housing and Community Development Act of 1992. (7) Prepayment penalty exception. A mortgage transaction subject to this section may provide for a prepayment penalty otherwise permitted by law (including a refund calculated according to the rule of 78s) if: (i) The penalty can be exercised only for the first five years following consummation; (ii) The source of the prepayment funds is not a refinancing by the creditor or an affiliate of the creditor; and (iii) At consummation, the consumer's total monthly debts (including amounts owed under the mortgage) do not exceed 50 percent of the consumer's monthly gross income, as verified by the consumer's signed financial statement, a credit report, and payment records for employment income. (8) Due-on-demand clause. A demand feature that permits the creditor to terminate the loan in advance of the original maturity date and to demand repayment of the entire outstanding balance, except in the following circumstances: (i) There is fraud or material misrepresentation by the consumer in connection with the loan; (ii) The consumer fails to meet the repayment terms of the agreement for any outstanding balance; or (iii) There is any action or inaction by the consumer that adversely affects the creditor's security for the loan, or any right of the creditor in such security. [Reg. Z, 60 FR 15472, Mar. 24, 1995, as amended at 60 FR 29969, June 7, 1995; 66 FR 65617, Dec. 20, 2001]

Sample Report

CA AB 489/344 (Division 1.6 of the Financial Code)

Sample Report

92

Assembly Bill No. 344

CHAPTER 733

An act to amend Sections 4970, 4973, 4974, 4975, 4977, 4978,4978.6, 4979, and 4979.7 of the Financial Code, as added by AssemblyBill 489 of the 2001-02 Regular Session, relating to lending.

[Approved by Governor October 10, 2001. Filedwith Secretary of State October 11, 2001.]

LEGISLATIVE COUNSEL’S DIGEST

AB 344, Migden. Loans secured by real property.Existing law provides for regulation of banks and savings associations

by the Department of Financial Institutions. Existing law provides forregulation of real estate brokers by the Department of Real Estate.Existing law provides for regulation of finance lenders and residentialmortgage lenders by the Department of Corporations. Existing lawprovides that willful violations of provisions governing savingsassociations, real estate brokers, and residential mortgage lenders arecrimes.

AB 489 of the 2001–02 Regular Session would impose variousrequirements on consumer loans secured by specified real property,defined as ‘‘covered loans.’’ This bill would make various changes to theprovisions of AB 489 that apply to a covered loan for which anapplication is made on or after July 1, 2002.

The people of the State of California do enact as follows:

SECTION 1. Section 4970 of the Financial Code, as added byAssembly Bill 489 of the 2001–02 Regular Session, is amended to read:

4970. For purposes of this division:(a) ‘‘Annual percentage rate’’ means the annual percentage rate for

the loan calculated according to the provisions of the federal Truth inLending Act and the regulations adopted thereunder by the FederalReserve Board.

(b) (1) ‘‘Covered loan’’ means a consumer loan in which the originalprincipal balance of the loan does not exceed two hundred fifty thousanddollars ($250,000) in the case of a mortgage or deed of trust, and whereone of the following conditions are met:

(A) For a mortgage or deed of trust, the annual percentage rate atconsummation of the transaction will exceed by more than eightpercentage points the yield on Treasury securities having comparable

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periods of maturity on the 15th day of the month immediately precedingthe month in which the application for the extension of credit is receivedby the creditor.

(B) The total points and fees payable by the consumer at or beforeclosing for a mortgage or deed of trust will exceed 6 percent of the totalloan amount.

(2) The dollar amount specified in paragraph (1) shall be adjustedevery five years in accordance with the California Consumer PriceIndex.

(c) ‘‘Points and fees’’ shall include the following:(1) All items required to be disclosed as finance charges under

Sections 226.4(a) and 226.4(b) of Title 12 of the Code of FederalRegulations, including the Official Staff Commentary, as amended fromtime to time, except interest.

(2) All compensation and fees paid to mortgage brokers in connectionwith the loan transaction.

(3) All items listed in Section 226.4(c)(7) of Title 12 of the Code ofFederal Regulations, only if the person originating the covered loanreceives direct compensation in connection with the charge.

(d) ‘‘Consumer loan’’ means a consumer credit transaction that issecured by real property located in this state used, or intended to be usedor occupied, as the principal dwelling of the consumer that is improvedby a one-to-four residential unit. ‘‘Consumer loan’’ does not include areverse mortgage, an open line of credit as defined in Part 226 of Title12 of the Code of Federal Regulations (Regulation Z), or a consumercredit transaction that is secured by rental property or second homes.‘‘Consumer loan’’ does not include a bridge loan. For purposes of thisdivision, a bridge loan is any temporary loan, having a maturity of oneyear or less, for the purpose of acquisition or construction of a dwellingintended to become the consumer’s principal dwelling.

(e) ‘‘Original principal balance’’ means the total initial amount theconsumer is obligated to repay on the loan.

(f) ‘‘Licensing agency’’ shall mean the Department of Real Estate forlicensed real estate brokers, the Department of Corporations for licensedresidential mortgage lenders and licensed finance lenders and brokers,and the Department of Financial Institutions for commercial andindustrial banks and savings associations and credit unions organized inthis state.

(g) ‘‘Licensed person’’ means a real estate broker licensed under theReal Estate Law (Part 1 (commencing with Section 10000) of Division4 of the Business and Professions Code), a finance lender or brokerlicensed under the California Finance Lenders Law (Division 9(commencing with Section 22000)), a residential mortgage lender

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licensed under the California Residential Mortgage Lending Act(Division 20 (commencing with Section 50000)), a commercial orindustrial bank organized under the Banking Law (Division 1(commencing with Section 99)), a savings association organized underthe Savings Association Law (Division 2 (commencing with Section5000)), and a credit union organized under the California Credit UnionLaw (Division 5 (commencing with Section 14000)). Nothing in thisdivision shall be construed to prevent any enforcement by agovernmental entity against any person who originates a loan and whois exempt or excluded from licensure by all of the licensing agencies,based on a violation of any provision of this division. Nothing in thisdivision shall be construed to prevent the Department of Real Estatefrom enforcing this division against a licensed salesperson employed bya licensed real estate broker as if that salesperson were a licensed personunder this division. A licensed person includes any person engaged inthe practice of consumer lending, as defined in this division, for whicha license is required under any other provision of law, but whose licenseis invalid, suspended or revoked, or where no license has been obtained.

(h) ‘‘Originate’’ means to arrange, negotiate, or make a consumerloan.

(i) ‘‘Servicer’’ has the same meaning provided in Section 6 (i)(2) ofthe Real Estate Settlement Procedures Act of 1974.

SEC. 2. Section 4973 of the Financial Code, as added by AssemblyBill 489 of the 2001–02 Regular Session, is amended to read:

4973. The following are prohibited acts and limitations for coveredloans:

(a) (1) A covered loan shall not include a prepayment fee or penaltyafter the first 36 months after the date of consummation of the loan.

(2) A covered loan may include a prepayment fee or penalty up to thefirst 36 months after the date of consummation of the loan if:

(A) The person who originates the covered loan has also offered theconsumer a choice of another product without a prepayment fee orpenalty.

(B) The person who originates the covered loan has disclosed inwriting to the consumer at least three business days prior to loanconsummation the terms of the prepayment fee or penalty to theconsumer for accepting a covered loan with the prepayment penalty andthe rates, points, and fees that would be available to the consumer foraccepting a covered loan without a prepayment penalty.

(C) The person who originates the covered loan has limited theamount of the prepayment fee or penalty to an amount not to exceed thepayment of six months’ advance interest, at the contract rate of interest

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then in effect, on the amount prepaid in any 12-month period in excessof 20 percent of the original principal amount.

(D) A covered loan will not impose the prepayment fee or penalty ifthe covered loan is accelerated as a result of default.

(E) The person who originates the covered loan will not finance aprepayment penalty through a new loan that is originated by the sameperson.

(b) (1) A covered loan with a term of 5 years or less may not provideat origination for a payment schedule with regular periodic paymentsthat when aggregated do not fully amortize the principal balance as ofthe maturity date of the loan.

(2) For a payment schedule that is adjusted to account for the seasonalor irregular income of the consumer, the total installments in any yearshall not exceed the amount of one year’s worth of payments on the loan.This prohibition does not apply to a bridge loan. For purposes of thisparagraph, ‘‘bridge loan’’ means a loan with a maturity of less than 18months that only requires payments of interest until the time when theentire unpaid balance is due and payable.

(c) A covered loan shall not contain a provision for negativeamortization such that the payment schedule for regular monthlypayments causes the principal balance to increase, unless the coveredloan is a first mortgage and the person who originates the loan disclosesto the consumer that the loan contains a negative amortization provisionthat may add principal to the balance of the loan.

(d) A covered loan shall not include terms under which periodicpayments required under the loan are consolidated and paid in advancefrom the loan proceeds.

(e) A covered loan shall not contain a provision that increases theinterest rate as a result of a default. This provision does not apply tointerest rate changes in a variable rate loan otherwise consistent with theprovisions of the loan documents, provided the change in the interest rateis not triggered by the event of default or the acceleration for theindebtedness.

(f) (1) A person who originates covered loans shall not make orarrange a covered loan unless at the time the loan is consummated, theperson reasonably believes the consumer, or consumers, whenconsidered collectively in the case of multiple consumers, will be ableto make the scheduled payments to repay the obligation based upon aconsideration of their current and expected income, current obligations,employment status, and other financial resources, other than theconsumer’s equity in the dwelling that secures repayment of the loan. Inthe case of a covered loan that is structured to increase to a specificdesignated rate, stated as a number or formula, at a specific

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predetermined date not exceeding 37 months from the date ofapplication, this evaluation shall be based upon the fully indexed rate ofthe loan calculated at the time of application.

The consumer shall be presumed to be able to make the scheduledpayments to repay the obligation if, at the time the loan is consummated,the consumer’s total monthly debts, including amounts owed under theloan, do not exceed 55 percent of the consumer’s monthly gross income,as verified by the credit application, the consumer’s financial statement,a credit report, financial information provided to the person originatingthe loan by or on behalf of the consumer, or any other reasonable means.

(2) No presumption of inability to make the scheduled payments torepay the obligation shall arise solely from the fact that at the time theloan is consummated, the consumer’s total monthly debts, includingamounts owed under the loan, exceed 55 percent of the consumer’smonthly gross income.

(3) In the case of a stated income loan, the reasonable beliefrequirement in paragraph (1) shall apply, however, for stated incomeloans that belief may be based on the income stated by the consumer, andother information in the possession of the person originating the loanafter the solicitation of all information that the person customarilysolicits in connection with loans of this type. A person shall notknowingly or willfully originate a covered loan as a stated income loanwith the intent, or effect, of evading the provisions of this subdivision.

(g) A person who originates a covered loan shall not pay a contractorunder a home-improvement contract from the proceeds of a covered loanother than by an instrument payable to the consumer or jointly to theconsumer and the contractor or, at the election of the consumer, to athird-party escrow agent for the benefit of the contractor in accordancewith terms and conditions established in a written escrow agreementsigned by the consumer, the person who originates a covered loan, andthe contractor prior to the disbursement of funds. No payments, otherthan progress payments for home-improvement work that the consumercertifies is completed, shall be made to an escrow account or jointly tothe consumer and the contractor unless the person who originates theloan is presented with a signed and dated completion certificate by theconsumer showing that the home-improvement contract was completedto the satisfaction of the consumer.

(h) It is unlawful for a person who originates a covered loan torecommend or encourage a consumer to default on an existing consumerloan or other debt in connection with the solicitation or making of acovered loan that refinances all or any portion of the existing consumerloan or debt.

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(i) A covered loan shall not contain a call provision that permits thelender, in its sole discretion, to accelerate the indebtedness. Thisprohibition does not apply if repayment of the loan has been acceleratedin accordance with the terms of the loan documents (1) as a result of theconsumer’s default, (2) pursuant to a due-on-sale provision, or (3) dueto fraud or material misrepresentation by a consumer in connection withthe loan or the value of the security for the loan.

(j) A person who originates a covered loan shall not refinance orarrange for the refinancing of a consumer loan such that the new loan isa covered loan that is made for the purpose of refinancing, debtconsolidation or cash out, that does not result in an identifiable benefitto the consumer, considering the consumer’s stated purpose for seekingthe loan, fees, interest rates, finance charges, and points.

(k) (1) A covered loan shall not be made unless the followingdisclosure, written in 12-point font or larger, has been provided to theconsumer no later than three business days prior to signing of the loandocuments of the transaction:

CONSUMER CAUTION AND HOME OWNERSHIPCOUNSELING NOTICE

If you obtain this loan, the lender will have a mortgage on your home.You could lose your home, and any money you have put into it, if youdo not meet your obligations under the loan.

Mortgage loan rates and closing costs and fees vary based on manyother factors, including your particular credit and financialcircumstances, your earnings history, the loan-to-value requested, andthe type of property that will secure your loan. Higher rates and fees maybe justified depending on the individual circumstances of a particularconsumer’s application. You should shop around and compare loan ratesand fees.

This particular loan may have a higher rate and total points and feesthan other mortgage loans and is, or may be, subject to the additionaldisclosure and substantive protections under Division 1.6 (commencingwith Section 4970 of the Financial Code. You should considerconsulting a qualified independent credit counselor or other experiencedfinancial adviser regarding the rate, fees, and provisions of this mortgageloan before you proceed. For information on contacting a qualified creditcounselor, ask your lender or call the United States Department ofHousing and Urban Development’s counseling hotline at1-888-466-3487 or go to www.hud.gov/fha/sfh/hcc for a list ofcounselors.

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You are not required to complete any loan agreement merely becauseyou have received these disclosures or have signed a loan application.

If you proceed with this mortgage loan, you should also remember thatyou may face serious financial risks if you use this loan to pay off creditcard debts and other debts in connection with this transaction and thensubsequently incur significant new credit card charges or other debts. Ifyou continue to accumulate debt after this loan is closed and thenexperience financial difficulties, you could lose your home and anyequity you have in it if you do not meet your mortgage loan obligations.

Property taxes and homeowner’s insurance are your responsibility.Not all lenders provide escrow services for these payments. You shouldask your lender about these services.

Your payments on existing debts contribute to your credit ratings. Youshould not accept any advice to ignore your regular payments to yourexisting creditors.

(2) It shall be a rebuttable presumption that a licensed person has metits obligation to provide this disclosure if the consumer provides thelicensed person with a signed acknowledgment of receipt of a copy ofthe notice set forth in paragraph (1).

(l) (1) A person who originates a covered loan shall not steer,counsel, or direct any prospective consumer to accept a loan productwith a risk grade less favorable than the risk grade that the consumerwould qualify for based on that person’s then current underwritingguidelines, prudently applied, considering the information available tothat person, including the information provided by the consumer.

A person shall not be deemed to have violated this section if the riskgrade determination applied to a consumer is reasonably based on theperson’s underwriting guidelines if it is an appropriate risk gradecategory for which the consumer qualifies with the person.

(2) If a broker originates a covered loan, the broker shall not steer,counsel, or direct any prospective consumer to accept a loan product ata higher cost than that for which the consumer could qualify based onthe loan products offered by the persons with whom the broker regularlydoes business.

(m) A person who originates a covered loan shall not avoid, orattempt to avoid, the application of this division by doing the following:

(1) Structuring a loan transaction as an open-end credit plan for thepurpose of evading the provisions of this division when the loan wouldhave been a covered loan if the loan had been structured as a closed endloan.

(2) Dividing any loan transaction into separate parts for the purposeof evading the provisions of this division.

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(n) A person who originates a covered loan shall not act in anymanner, whether specifically prohibited by this section or of a differentcharacter, that constitutes fraud.


4974. (a) Any compliance failure that was not willful or intentionaland resulted from a bona fide error, that occurred notwithstanding themaintenance of procedures reasonably adopted to avoid those errors,including, but not limited to, those involving clerical, calculation,computer malfunction and programming, and printing errors shall becorrected no later than 45 days after receipt of the complaint or discoveryof the error. A person who originates a covered loan shall not beadministratively, civilly, or criminally liable for a bona fide errorcorrected pursuant to this section.

(b) If a person who originates covered loans makes a loan where theperson knew of and showed reckless disregard for a violation of thisdivision by a broker, the person and broker shall be jointly and severallyliable for all damages awarded under this division with respect to thebroker’s unlawful conduct.

This section does not impose or transfer liability for a breach of thebroker’s fiduciary duty.


4975. (a) (1) Any licensed person who violates any provision ofSection 4973, 4979.6, or 4979.7 shall be deemed to have violated thatperson’s licensing law.

(2) After a knowing and willful violation, the licensing agency maybring a proceeding to suspend the license of the licensed person for notless than six months and not more than three years.

(b) After a knowing and willful violation resulting in a second orsubsequent administrative or civil action, the licensing agency maybring a proceeding to permanently revoke the license of the licensedperson or impose any lesser licensed sanction for at least three years.

(c) A licensing agency may exercise any and all authority and powersavailable to it under any other provisions of law, to administer andenforce this division including, but not limited to, investigating andexamining the licensed person’s books and records, and charging andcollecting the reasonable costs for these activities. The licensing agencyshall not charge a licensed person twice for the same service. Any civil,criminal, and administrative authority and remedies available to thelicensing agency pursuant to its licensing law may be sought andemployed in any combination deemed advisable by the licensing agencyto enforce the provisions of this division.

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(d) Nothing in this section shall be construed to impair or impede alicensing agency’s authority under any other provision of law.


4977. (a) A licensing agency may, after appropriate notice andopportunity for hearing, by order levy administrative penalties againsta person who violates any provision of this division, and the person shallbe liable for administrative penalties of not more than two thousand fivehundred dollars ($2,500) for each violation. Except for licensingagencies exempt from the provisions of the Administrative ProcedureAct, any hearing shall be held in accordance with the AdministrativeProcedure Act (Chapter 5 (commencing with Section 11500) of Part 1of Division 3 of Title 2 of the Government Code), and the licensingagency shall have all the powers granted under that act.

(b) Any person who willfully and knowingly violates any provisionof this division shall be liable for a civil penalty of not more thantwenty-five thousand dollars ($25,000) for each violation which shall beassessed and recovered in a civil action brought in the name of the peopleof the State of California by the licensing agency in any court ofcompetent jurisdiction.

(c) Nothing in this section requires exhaustion of administrativeremedies prior to an injured party bringing a civil action.

(d) If the licensing agency determines that it is in the public interest,the licensing agency may include, in any action for penalties authorizedby subdivision (b), a claim for relief in addition to the penalties,including a claim for restitution or disgorgement, and the court shallhave jurisdiction to award the additional relief.

(e) Nothing in this section shall be construed to impair or impede theAttorney General from representing a licensing agency in bringing anaction to enforce this division at the request and on behalf of the licensingagency.

(f) In any action brought by the licensing agency, or the AttorneyGeneral acting at the request and on behalf of the licensing agency, underthis division in which a judgment against a person is rendered, thelicensing agency or the Attorney General shall be entitled to recovercosts which, in the discretion of the court, may include an amountrepresenting reasonable attorney’s fees and investigative expenses forservices rendered for deposit in the appropriate fund of that licensingagency.

(g) The amounts collected under subdivisions (a) and (b) shall bedeposited in the appropriate fund of the licensing agency to be used bythat licensing agency, subject to appropriation by the Legislature, for the

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purposes of education and enforcement in connection with abusivelending practices.


4978. (a) A person who fails to comply with the provisions of thisdivision is civilly liable to the consumer in an amount equal to any actualdamages suffered by the consumer, plus attorneys fees and costs. For awillful and knowing violation of this division, the person shall be liableto the consumer in the amount of fifteen thousand dollars ($15,000) orthe consumers actual damages, whichever is greater, plus attorneys feesand costs.

(b) (1) If a provision in a contract in a covered loan violatessubdivision (a), (b), (c), (d), (e), or (i) of Section 4973, Section 4979.6,or Section 4979.7, that provision is unenforceable. A court in which anyaction is brought by, or on behalf of, an aggrieved consumer for reliefmay issue an order or injunction to reform the terms of the covered loanto conform to the provisions of this division.

(2) A court may, in addition to any other remedy, award punitivedamages to the consumer upon a finding that such damages arewarranted pursuant to Section 3294 of the Civil Code.

(c) Nothing in this section is intended, nor shall be construed, toabrogate existing common law provisions prohibiting double recoveryof damages.

SEC. 7. Section 4978.6 of the Financial Code, as added byAssembly Bill 489 of the 2001–02 Regular Session, is amended to read:

4978.6. A person who originates covered loans shall inform anyemployee, who originates covered loans on behalf of the person, of theadministrative or civil penalties for a violation of this division.


4979. Upon request, a person who originates a covered loan shallprovide the licensing agency or the consumer, at no cost, documentationregarding his or her loan that clearly demonstrates whether any loan isa covered loan. This documentation shall include, but not be limited to,full disclosure of the original principal balance, the annual percentagerate, and the total points and fees, as defined in Section 4970.

SEC. 9. Section 4979.7 of the Financial Code, as added byAssembly Bill 489 of the 2001–02 Regular Session, is amended to read:

4979.7. On or after July 1, 2002, a person who originates a consumerloan shall not finance, directly or indirectly, into a consumer loan orfinance to the same borrower within 30 days of a consumer loan anycredit life, credit disability, credit property, or credit unemploymentinsurance premiums, or any debt cancellation or suspension agreement

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fees, provided that credit insurance premiums, debt cancellation, orsuspension fees calculated and paid on a monthly basis shall not beconsidered financed by the person originating the loan. For purposes ofthis section, credit insurance does not include a contract issued by agovernment agency or private mortgage insurance company to insure thelender against loss caused by a mortgagor’s default.

SEC. 10. All of the sections amended by this act shall apply only toa covered loan for which an application is made on or after July 1, 2002.

O

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California Civil Code Section 2948.5

(a) A borrower shall not be required to pay interest on a principal obligation under a promissory note secured by a mortgage or deed of trust on real property improved with between one to four residential dwelling units for any period that meets any of the following requirements: (1) Is more than one day prior to the date that the loan proceeds are disbursed from escrow. (2) In the event of no escrow, if a request for recording is made in connection with the disbursement, is more than one day prior to the date the loan proceeds are disbursed to the borrower, to a third party on behalf of the borrower, or to the lender to satisfy an existing obligation of the borrower. (3) In all other circumstances where there is no escrow and no request for recording, is prior to the date funds are disbursed to the borrower, to a third party on behalf of the borrower, or to the lender to satisfy an existing obligation of the borrower. (b) Interest may commence to accrue on the business day immediately preceding the day of disbursement, for obligations described in paragraphs (1) and (2) of subdivision (a) if both of the following occur: (1) The borrower affirmatively requests, and the lender agrees, that the disbursement will occur on Monday, or a day immediately following a bank holiday. (2) The following information is disclosed to the borrower in writing: (A) the amount of additional per diem interest charged to facilitate disbursement on Monday or the day following a holiday, as the case may be, and (B) that it may be possible to avoid the additional per diem interest charge by disbursing the loan proceeds on a day immediately following a business day. This disclosure shall be provided to the borrower and acknowledged by the borrower by signing a copy of the disclosure document prior to placing funds in escrow. (c) This section does not apply to a loan that is subject to subdivision (c) of Section 10242 of the Business and Professions Code.

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Documents

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