• Protect consumers against inaccurate and unfair credit billing and credit card practices;
• Provide consumers with rescission rights;
• Provide for rate caps on certain dwelling-secured loans; and
• Impose limitations on home equity lines of credit and certain closed-end home mortgages.

• Credit extended primarily for a business, commercial, or agricultural purpose;
• Credit extended to other than a natural person (including credit to government agencies or instrumentalities);
• Credit in excess of $25 thousand not secured by real or personal property used as the principal dwelling of the consumer;
• Public utility credit;
• Credit extended by a broker-dealer registered with the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), involving securities or commodities accounts;
• Home fuel budget plans; and
• Certain student loan programs.

• Any statement obtained from the consumer describing the purpose of the proceeds.
• For example, a statement that the proceeds will be used for a vacation trip would indicate a consumer purpose.
• If the loan has a mixed-purpose (e.g., proceeds will be used to buy a car that will be used for personal and business purposes), the lender must look to the primary purpose of the loan to decide whether disclosures are necessary. A statement of purpose from the consumer will help the lender make that decision.
• A checked box indicating that the loan is for a business purpose, absent any documentation showing the intended use of the proceeds, could be insufficient evidence that the loan did not have a consumer purpose.
• The consumer's primary occupation and how it relates to the use of the proceeds. The higher the correlation between the consumer's occupation and the property purchased from the loan proceeds, the greater the likelihood that the loan has a business purpose. For example, proceeds used to purchase dental supplies for a dentist would indicate a business purpose.
• Personal management of the assets purchased from proceeds. The lower the degree of the borrower's personal involvement in the management of the investment or enterprise purchased by the loan proceeds, the less likely the loan will have a business purpose. For example, money borrowed to purchase stock in an automobile company by an individual who does not work for that company would indicate a personal investment and a consumer purpose.
• The size of the transaction. The larger the size of the transaction, the more likely the loan will have a business purpose. For example, if the loan is for a $5,000,000 real estate transaction, that might indicate a business purpose.
• The amount of income derived from the property acquired by the loan proceeds relative to the borrower's total income. The lesser the income derived from the acquired property, the more likely the loan will have a consumer purpose. For example, if the borrower has an annual salary of $100,000 and receives about $500 in annual dividends from the acquired property, that would indicate a consumer purpose.

• Credit secured by real property or a dwelling (closed-end credit only):
• The disclosed finance charge is considered accurate if it does not vary from the actual finance charge by more than $100.
• Overstatements are not violations.
• Rescission rights after the three-business-day rescission period (closed-end credit only):
• The disclosed finance charge is considered accurate if it does not vary from the actual finance charge by more than one-half of 1 percent of the credit extended.
• The disclosed finance charge is considered accurate if it does not vary from the actual finance charge by more than 1 percent of the credit extended for the initial and subsequent refinancings of residential mortgage transactions when the new loan is made at a different financial institution. (This excludes high cost mortgage loans subject to §226.32, transactions in which there are new advances, and new consolidations.)
• Rescission rights in foreclosure:
• The disclosed finance charge is considered accurate if it does not vary from the actual finance charge by more than $35.
• Overstatements are not considered violations.
• The consumer can rescind if a mortgage broker fee is not included as a finance charge.

• The amount financed, which is not necessarily equivalent to the loan amount. If the consumer must pay at closing a separate 1 percent loan origination fee (prepaid finance charge) on a $100,000 residential mortgage loan, the loan amount is $100,000, but the amount financed would be $100,000 less the $1,000 loan fee, or $99,000.
• The finance charge, which is not necessarily equivalent to the total interest amount.
• If the consumer must pay a $25 credit report fee for an auto loan, the fee must be included in the finance charge. The finance charge in that case is the sum of the interest on the loan (i.e., interest generated by the application of a percentage rate against the loan amount) plus the $25 credit report fee.
• If the consumer must pay a $25 credit report fee for a home improvement loan secured by real property, the credit report fee may be excluded from the finance charge. The finance charge in that case would be only the interest on the loan.
• Interest, which is defined by state or other federal law, is not defined by Regulation Z.
• The payment schedule, which does not necessarily include only principal and interest (P + I) payments.
• If the consumer borrows $2,500 for a vacation trip at 14 percent simple interest per annum and repays that amount with 25 equal monthly payments beginning one month from consummation of the transaction, the monthly P + I payment will be $115.87, if all months are considered equal, and the amount financed would be $2,500. If the consumer’s payments are increased by $2.00 a month to pay a non-financed $50 loan fee during the life of the loan, the amount financed would remain at $2,500 but the payment schedule would be increased to $117.87 a month, the finance charge would increase by $50, and there would be a corresponding increase in the APR. This would be the case whether or not state law defines the $50 loan fee as interest.
• If the loan above has 55 days to the first payment and the consumer prepays interest at consummation ($24.31 to cover the first 25 days), the amount financed would be $2,500 - $24.31, or $2,475.69. Although the amount financed has been reduced to reflect the consumer’s reduced use of available funds at consummation, the time interval during which the consumer has use of the $2,475.69, 55 days to the first payment, has not changed. Since the first payment period exceeds the limitations of the regulation’s minor irregularities provisions (see §226.17(c)(4)), it may not be treated as regular. In calculating the APR, the first payment period must not be reduced by 25 days (i.e., the first payment period may not be treated as one month).

• Previous balance method. The balance on which the periodic finance charge is computed is based on the balance outstanding at the start of the billing cycle. The periodic rate is multiplied by this balance to compute the finance charge.
• Daily balance method. A daily periodic rate is applied to either the balance on each day in the cycle or the sum of the balances on each of the days in the cycle. If a daily periodic rate is multiplied by the balance on each day in the billing cycle, the finance charge is the sum of the products. If the daily periodic rate is multiplied by the sum of all the daily balances, the result is the finance charge.
• Average daily balance method. The average daily balance is the sum of the daily balances (either including or excluding current transactions) divided by the number of days in the billing cycle. A periodic rate is then multiplied by the average daily balance to determine the finance charge. If the periodic rate is a daily one, the product of the rate multiplied by the average balance is multiplied by the number of days in the cycle.

• A balance for each day in the billing cycle. The daily periodic rate is multiplied by the balance on each day and the sum of the products is the finance charge.
• A balance for each day in the billing cycle on which the balance in the account changes. The finance charge is figured by the same method as discussed previously, but the statement shows the balance only for those days on which the balance changed.
• The sum of the daily balances during the billing cycle. The balance on which the finance charge is computed is the sum of all the daily balances in the billing cycle. The daily periodic rate is multiplied by that balance to determine the finance charge.
• The average daily balance during the billing cycle. If this is stated, however, the financial institution must explain somewhere on the periodic statement or in an accompanying document that the finance charge is or may be determined by multiplying the average daily balance by the number of days in the billing cycle, rather than by multiplying the product by the daily periodic rate.

• A balance for each day in the billing cycle;
• A balance for each day in the billing cycle on which the balance in the account changes; or
• Two or more average daily balances. If the average daily balances are stated, the financial institution shall indicate on the periodic statement or in an accompanying document that the finance charge is or may be determined by multiplying each of the average daily balances by the number of days in the billing cycle (or if the daily rate varies, by multiplying the number of days that the applicable rate was in effect), multiplying each of the results by the applicable daily periodic rate, and adding the products together.

• The corresponding APR in the initial disclosures;
• The corresponding APR on periodic statements;
• The APR in early disclosures for credit card accounts;
• The APR in early disclosures for home-equity plans;
• The APR in advertising; and
• The APR in oral disclosures.

1. APR when finance charge is determined solely by applying one or more periodic rates:
1. Monthly periodic rates:
1. Monthly rate x 12 = APR
   or
2. (Total finance charge / applicable balance³ ) x 12 = APR
   This calculation may be used when different rates apply to different balances.
2. Daily periodic rates:
1. Daily rate x 365 = APR
   or
2. (Total finance charge / average daily balance) x 12 = APR
   or
3. (Total finance charge / sum of balances) x 365 = APR
2. APR when finance charge includes a minimum, fixed, or other charge that is not calculated using a periodic rate (and does not include charges related to a specific transaction, like cash advance fees):
1. Monthly periodic rates:
1. (Total finance charge / amount of applicable balance) x 12 = APR⁴
2. Daily periodic rates
1. (Total finance charge / amount of applicable balance) X 365 = APR
2. The following may be used if at least a portion of the finance charge is determined by the application of a daily periodic rate. If not, use the formula above.
1. (Total finance charge / average daily balance) x 12 = APR
   or
2. (Total finance charge / sum of balances) x 365 = APR
3. Monthly and daily periodic rates
If the finance charge imposed during the billing cycle does not exceed $.50 for a monthly or longer billing cycles (or pro rata part of $.50 for a billing cycle shorter than monthly), the APR may be calculated by multiplying the monthly rate by 12 or the daily rate by 365.
3. If the total finance charge included a charge related to a specific transaction (such as a cash advance fee), even if the total finance charge also included any other minimum, fixed, or other charge not calculated using a periodic rate, then the monthly and daily APRs are calculated as follows: (total finance charge / the greater of: the transaction amounts that created the transaction fees or the sum of the balances and other amounts on which a finance charge was imposed during the billing cycle⁵ ) X number of billing cycles in a year (12) = APR⁶

• Regular transactions (which include any single advance transaction with equal payments and equal payment periods, or an irregular first payment period and/or a first or last irregular payment), if it is within one-eighth of 1 percentage point of the APR calculated under Regulation Z (§226.22(a)(2)).
• Irregular transactions (which include multiple advance transactions and other transactions not considered regular), if it is within one-quarter of 1 percentage point of the APR calculated under Regulation Z (§226.22(a)(3)).
• Mortgage transactions, if it is within one-eighth of 1 percentage point for regular transactions or one-quarter of 1 percentage point for irregular transactions and:
1. The rate results from the disclosed finance charge; and
2. The disclosed finance charge would be considered accurate under §226.18(d)(1) or §226.23(g) or (h) (§226.22(a)(4)).

• As a single transaction, with one disclosure combining both phases.
• As two separate transactions, with one disclosure for each phase.
• As more than two transactions, with one disclosure for each advance and one for the permanent financing phase.

• The actuarial method, which is defined by Regulation Z and explained in appendix J to the regulation.
• The U.S. Rule, which is permitted by Regulation Z and briefly explained in appendix J to the regulation. The U.S. Rule is an accrual method that seems to have first surfaced officially in an early nineteenth century United States Supreme Court case, Story v. Livingston (38 U.S. 359).

• Disclosures for variable rate loans must be given for the full term of the transaction and must be based on the terms in effect at the time of consummation.
• If the variable rate transaction includes either a seller buydown that is reflected in a contract or a consumer buydown, the disclosed APR should be a composite rate based on the lower rate for the buydown period and the rate that is the basis for the variable rate feature for the remainder of the term.
• If the initial rate is not determined by the index or formula used to make later interest rate adjustments, as in a discounted variable rate transaction, the disclosed APR must reflect a composite rate based on the initial rate for as long as it is applied and, for the remainder of the term, the rate that would have been applied using the index or formula at the time of consummation (i.e., the fully indexed rate).
• If a loan contains a rate or payment cap that would prevent the initial rate or payment, at the time of the adjustment, from changing to the fully indexed rate, the effect of that rate or payment cap needs to be reflected in the disclosures.
• The index at consummation need not be used if the contract provides a delay in the implementation of changes in an index value (e.g., the contract indicates that future rate changes are based on the index value in effect for some specified period, like 45 days before the change date). Instead, the financial institution may use any rate from the date of consummation back to the beginning of the specified period (e.g., during the previous 45-day period).
• If the initial interest rate is set according to the index or formula used for later adjustments, but is set at a value as of a date before consummation, disclosures should be based on the initial interest rate, even though the index may have changed by the consummation date.

• A renewal of an obligation with a single payment of principal and interest or with periodic interest payments and a final payment of principal with no change in the original terms.
• An APR reduction with a corresponding change in the payment schedule.
• An agreement involving a court proceeding.
• Changes in credit terms arising from the consumer's default or delinquency.
• The renewal of optional insurance purchased by the consumer and added to an existing transaction, if required disclosures were provided for the initial purchase of the insurance.

• Actual damage, and
• The cost of any legal action together with reasonable attorney's fees in a successful action.

• In an individual action, twice the amount of the finance charge involved, but not less than $100 or more than $1,000. However, in an individual action relating to a closed-end credit transaction secured by real property or a dwelling, twice the amount of the finance charge involved, but not less than $200 or more than $2,000.
• In a class action, such amount as the court may allow. The total amount of recovery, however, cannot be more than $500,000 or 1 percent of the creditor's net worth, whichever is less.

• Patterns or practices of violations (e.g., errors that occurred, often with a common cause, consistently or frequently, reflecting a pattern with a specific type or types of consumer credit).
• Gross negligence.
• Willful noncompliance intended to mislead the person to whom the credit was extended.

• Preempted by federal law;
• Appropriate under state law and not preempted by federal law; or
• Substituted in lieu of TILA and Regulation Z requirements.

• Chapter 1, "General Provisions," which contains definitions and acceptable methods for determining finance charges and annual percentage rates. For example, a state law would be preempted if it required a bank to include in the finance charge any fees that the federal law excludes, such as seller's points.
• Chapter 2, "Credit Transactions," which contains disclosure requirements, rescission rights, and certain credit card provisions. For example, a state law would be preempted if it required a bank to use the terms "nominal annual interest rate" in lieu of "annual percentage rate."
• Chapter 3, "Credit Advertising," which contains consumer credit advertising rules and annual percentage rate oral disclosure requirements.

• Disclosure of information not otherwise required. A state law that requires disclosure of the minimum periodic payment for open-end credit, for example, would not be preempted because it does not contradict federal law.
• Disclosures more detailed than those required. A state law that requires itemization of the amount financed, for example, would not be preempted, unless it contradicts federal law by requiring the itemization to appear with the disclosure of the amount financed in the segregated closed-end credit disclosures.

• The APR at consummation will exceed by more than 8 percentage points for first-lien mortgage loans, or by more than 10 percentage points for subordinate-lien mortgage loans, the yield on Treasury securities having comparable periods of maturity to the loan’s maturity (as of the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor); or
• The total points and fees (see definition below) payable by the consumer at or before loan closing will exceed the greater of eight percent of the total loan amount or $480 for the calendar year 2002. (This dollar amount is adjusted annually based on changes in the Consumer Price Index. See staff commentary to 32(a)(1)(ii) for a historical list of dollar amount adjustments.) (§226.32(a)(1))

• Residential mortgage transactions (generally purchase money mortgages),
• Reverse mortgage transactions subject to §226.33, or
• Open-end credit plans subject to Subpart B of Regulation Z.

• All items required to be disclosed under §226.4(a) and (b), except interest or the time-price differential;
• All compensation paid to mortgage brokers; and
• All items listed in §226.4(c)(7), other than amounts held for future taxes, unless all of the following conditions are met:
• 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
• Premiums or other charges, paid at or before closing whether paid in cash or financed, for optional credit life, accident, health, or loss-of-income insurance, and other debt-protection or debt cancellation products written in connection with the credit transaction. (§226.32(b)(1))

1. Send the disclosure to the consumer’s electronic address; or
2. Make the disclosure available at another location such as an Internet web site; AND
1. Alert the consumer of the disclosure’s availability by sending a notice to the consumer’s electronic address (or to a postal address, at the financial institution’s option). The notice shall identify the account involved and the address of the Internet web site or other location where the disclosure is available; and
2. Make the disclosure available for at least 90 days from the date the disclosure first becomes available or from the date of the notice alerting the consumer of the disclosure, whichever comes later.
   
   When a disclosure provided by an electronic means is returned to a creditor as undeliverable, the creditor shall take reasonable steps to attempt redelivery using information in its files.

• §226.5a Credit and charge card applications and solicitations;
• §226.5b(d) certain disclosures related to Home Equity Plans;
• §226.5b(e) the home equity brochure published by the Federal Reserve Board;
• §226.16 open-end credit advertising rules;
• §226.17(g)(1) through (5) certain disclosures when a creditor receives a purchase order or request for an extension of credit by mail, telephone, or facsimile machine without face-to-face or direct telephone solicitation;
• §226.19(b) closed-end variable rate disclosures; and
• §226.24 closed-end advertising rules.

• Discovering the error before an action is brought against the financial institution, or before the consumer notifies the financial institution, in writing, of the error.
• Notifying the consumer of the error within 60 days of discovery.
• Making the necessary adjustments to the consumer's account, also within 60 days of discovery. (The consumer will pay no more than the lesser of the finance charge actually disclosed or the dollar equivalent of the APR actually disclosed.)

• Discussed in a final, written report of examination.
• Identified through the financial institution's own procedures.
• An inaccurately disclosed APR or finance charge included in a regulatory agency notification to the financial institution.

• For open-end credit, reimbursement applies to violations not older than two years.
• For closed-end credit, reimbursement is generally directed for loans with violations occurring since the immediately preceding examination.

1. To appraise the quality of the financial institution’s compliance management system for the Truth in Lending Act and Regulation Z.
2. To determine the reliance that can be placed on the financial institution’s compliance management system, including internal controls and procedures performed by the person(s) responsible for monitoring the financial institution’s compliance review function for the Truth In Lending Act and Regulation Z.
3. To determine the financial institution’s compliance with the Truth In Lending Act and Regulation Z.
4. To initiate corrective action when policies or internal controls are deficient, or when violations of law or regulation are identified.
5. To determine whether the institution will be required to make adjustments to consumer accounts under the restitution provisions of the Act.

1. Obtain information pertinent to the area of examination from the financial institution’s compliance management system program (historical examination findings, complaint information, and significant findings from compliance review and audit).
2. Through discussions with management and review of the following documents, determine whether the financial institution’s internal controls are adequate to ensure compliance in the area under review. Identify procedures used daily to detect errors/violations promptly. Also, review the procedures used to ensure compliance when changes occur (e.g., changes in interest rates, service charges, computation methods, and software programs).
• Organizational charts.
• Process flowcharts.
• Policies and procedures.
• Loan documentation and disclosures.
• Checklists/worksheets and review documents.
• Computer programs.
3. Review compliance review and audit work papers and determine whether:
1. The procedures used address all regulatory provisions (see Transactional Testing section on page V-1.27).
2. Steps are taken to follow up on previously identified deficiencies.
3. The procedures used include samples that cover all product types and decision centers.
4. The work performed is accurate (through a review of some transactions).
5. Significant deficiencies, and the root cause of the deficiencies, are included in reports to management/ board.
6. Corrective actions are timely and appropriate.
7. The area is reviewed at an appropriate interval.

4. Determine if the financial institution has changed any preprinted TILA disclosure forms or if there are forms that have not been previously reviewed for accuracy. If so:
• Verify the accuracy of each preprinted disclosure by reviewing the following:
• Note and/or contract forms (including those furnished to dealers).
• Standard closed-end credit disclosures (§226.17(a) and §226.18).
• ARM disclosures (§226.19(b)).
• High cost mortgage disclosures (§226.32(c)).
• Initial disclosures (§226.6(a)-(d)) and, if applicable, additional HELOC disclosures (§226.6(e)).
• Credit card application/solicitation disclosures (§226.5a(b)-(e)).
• HELOC disclosures (§226.5b(d) and (e)).
• Statement of billing rights and change in terms notice (§226.9(a)).
• Reverse mortgage disclosures (§226.33(b)).

1. Determine the disclosures are clear, conspicuous, grouped, and segregated. The terms Finance Charge and APR should be more conspicuous than other terms. (§226.17(a))
2. Determine the disclosures include the following as applicable. (§226.18)
1. Identity of the creditor;
2. Brief description of the finance charge;
3. Brief description of the APR;
4. Variable rate verbiage (§226.18(f)(1) or (2));
5. Payment schedule;
6. Brief description of the total of payments;
7. Demand feature;
8. Description of total sales price in a credit sale;
9. Prepayment penalty’s or rebates;
10. Late payment amount or percentage;
11. Description for security interest;
12. Various insurance verbiage (§226.4(d));
13. Statement referring to the contract;
14. Statement regarding assumption of the note; and
15. Statement regarding required deposits.
3. Determine all variable rate loans with a maturity greater than one year secured by a principal dwelling are given the following disclosures at the time of application. (§226.19)
1. Consumer handbook on adjustable rate mortgages or substitute;
2. Statement that interest rate payments and or terms can change;
3. The index/formula and a source of information;
4. Explanation of the interest rate/payment determination and margin;
5. Statement that the consumer should ask for the current interest rate and margin;
6. Statement that the interest rate is discounted, if applicable;
7. Frequency of interest rate and payment changes;
8. Rules relating to all changes;
9. Either a historical example based on 15 years, or the initial rate and payment with a statement that the periodic payment may substantially increase or decrease together with a maximum interest rate and payment;
10. Explanation of how to compute the loan payment, giving an example;
11. Demand feature, if applicable;
12. Statement of content and timing of adjustment notices; and
13. Statement that other variable rate loan program disclosures are available, if applicable.
4. Determine that the disclosures required for high-cost mortgage transactions clearly and conspicuously include the items below. [§226.32(c), see Form H-16 in Appendix H.]
1. The required 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.
3. Amount of the regular monthly (or other periodic) payment and the amount of any balloon payment. The regular payment should include amounts for voluntary items, such as credit life insurance or debt-cancellation coverage, only if the consumer has previously agreed to the amount. [See staff commentary to 32(c)(3)]
4. Statement that the interest rate may increase, and the amount of the single maximum monthly payment, based on the maximum interest rate allowed under the contract, if applicable.
5. For a mortgage refinancing, the total amount borrowed, 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 amount borrowed).

1. Determine the initial disclosure statement is provided before the first transaction under the account and ensure the disclosure includes the items below as applicable. (§226.6)
1. Statement of when the finance charge is to accrue and if a grace period exists;
2. Statement of periodic rates used and the corresponding APR;
3. Explanation of the method of determining the balance on which the finance charge may be computed;
4. Explanation of how the finance charge would be determined;
5. Statement of the amount of any other charges;
6. Statement of creditor’s security interest in the property;
7. Statement of billing rights (§226.12 and §226.13); and
8. Certain home equity plan information if not provided with the application in a form the consumer could keep. [§226.6(e)(7)]
2. Determine the following credit card disclosures were made clearly and conspicuously on or with a solicitation or an application. Disclosures in 12-point type are deemed to comply with the requirements. See staff comment 5a(a)(2)-1. The APR for purchases (other than an introductory rate that is lower than the rate that will apply after the introductory rate expires) must be in at least 18-point type. [§226.5a]
1. APR for purchases, cash advances, and balance transfers, including penalty rates that may apply. If the rate is variable, the index or formula, and margin must be identified;
2. Fee for issuance of the card;
3. Minimum finance charge;
4. Transaction fees;
5. Length of the "grace period";
6. Balance computation method;
7. Statement that charges incurred by use of the charge card are due when the periodic statement is received

NOTE: The above items must be provided in a prominent location in the form of a table. The remaining items may be included in the same table or clearly and conspicuously elsewhere on the same document. An explanation of specific events that may result in the imposition of a penalty rate must be placed outside the table with an asterisk inside the table (or other means) directing the consumer to the additional information.
8. Cash advance fees;
9. Late payment fees; and
10. Fees for exceeding the credit limit.
3. Determine that disclosure of items 1-7 in "b" above are made orally for creditor-initiated telephone applications and pre-approved solicitations. Also, determine for applications or solicitations made to the general public that the card issuer makes one of the optional disclosures. (§226.5a(d) and (e))
4. Determine the following home equity disclosures were made clearly and conspicuously, at the time of application. (§226.5b)
1. Home equity brochure;
2. Statement that the consumer should retain a copy of the disclosure;
3. Statement of the time the specific terms are available;
4. Statement that terms are subject to change before the plan opens;
5. Statement that the consumer may receive a full refund of all fees;
6. Statement that the consumer’s dwelling secures the credit;
7. Statement that the consumer could loose the dwelling;
8. Creditors right to change, freeze, or terminate the account;
9. Statement that information about conditions for adverse action are available upon request;
10. Payment terms including the length of the draw and repayment periods, how the minimum payment is determined, the timing of payments, and an example based on $10,000 and a recent APR;
11. A recent APR imposed under the plan and a statement that the rate does not include costs other than interest (fixed rate plans only);
12. Itemization of all fees paid to creditor;
13. Estimate of any fees payable to third parties to open the account and a statement that the consumer may receive a good faith itemization of third party fees;
14. Statement regarding negative amortization, as applicable;
15. Transaction requirements;
16. Statement that the consumer should consult a tax advisor regarding the deductibility of interest and charges under the plan; and
17. For variable rate home equity plans, disclose the following:
1. That the APR, payment, or term may change;
2. The APR excludes costs other than interest;
3. Identify the index and its source;
4. How the rate will be determined;
5. Statement that the consumer should request information on the current index value, margin, discount, premium, or APR;
6. Statement that the initial rate is discounted and the duration of the discount, if applicable;
7. Frequency of APR changes;
8. Rules relating to changes in the index, APR, and payment amount;
9. Lifetime rate cap and any annual caps, or a statement that there is no annual limitation;
10. The minimum payment requirement, using the maximum APR, and when the maximum APR may be imposed;
11. A table, based on a $10,000 balance, reflecting all significant plan terms; and
12. Statement that rate information will be provided on or with each periodic statement.
5. Determine when the last statement of billing rights was furnished to customers and whether the institution used the short form notice with each periodic statement. (§226.9(a))
6. Determine that the notice of any change in terms was provided 15 days prior to the effective date of the change. (§226.9(b))
7. Determine that disclosure of items 1-7 in "b" above are provided if the account is renewed. Additionally, the disclosure provided upon renewal must disclose how and when the cardholder may terminate the credit to avoid paying the renewal fee. (§226.9(e))
8. Determine that a statement of the maximum interest rate that may be imposed during the term of the obligation is made for any loan in which the APR may increase during the plan. (§226.30(b))

1. Determine that the disclosures required for reverse mortgage transactions are substantially similar to the model form in Appendix K and include the items below.
1. A statement that the consumer is not obligated to complete the reverse mortgage transaction merely because he or she has received the disclosures or signed an application.
2. A good faith projection of the total cost of the credit expressed as a table of "total annual loan cost rates" including payments to the consumer, additional creditor compensation, limitations on consumer liability, assumed annual appreciation, and the assumed loan period.
3. An itemization of loan terms, charges, the age of the youngest borrower, and the appraised property value.
4. An explanation of the table of total annual loan costs rates.
NOTE: Forms that include or involve current transactions, such as change in terms notices, periodic billing statements, rescission notices, and billing error communications, are verified for accuracy when the file review worksheets are completed.

5. Review financial institution policies, procedures, and systems to determine, either separately, or when completing the actual file review, whether the applicable disclosures listed below are furnished when required by Regulation Z. Take into account products that have different features, such as closed-end loans or credit card accounts that are fixed or variable rate.
1. Credit card application and solicitation disclosures—On or with the application. [§226.5a(b)]
2. HELOC disclosures--At the time the application is provided or within three business days under certain circumstances. (§226.5b(b))
3. Open-end credit initial disclosures --Before the first transaction is made under the plan. (§226.5(b)(1))
4. Periodic disclosures--At the end of a billing cycle if the account has a debit or credit balance of $1 or more or if a finance charge has been imposed. (§226.5(b)(2))
5. Statement of billing rights--At least once per year. (§226.9(a))
6. Supplemental credit devices-- Before the first transaction under the plan. (§226.9(b))
7. Open-end credit change in terms-- 15 days prior to the effective change date. (§226.9(c))
8. Finance charge imposed at time of transaction--Prior to imposing any fee. (§226.9(d))
9. Disclosures upon renewal of credit or charge card--30 days or one billing cycle, whichever is less before the delivery of the periodic statement on which the renewal fee is charged. Alternatively, notice may be delayed until the mailing or delivery of the periodic statement on which the renewal fee is charged to the accounts if the notice meets certain requirements. (§226.9(e))
10. Change in credit account insurance provider--Certain information 30 days before the change in provider occurs and certain information 30 days after the change in provider occurs. The institution may provide a combined disclosure 30 days before the change in provider occurs. (§226.9(f))
11. Closed-end credit disclosures-- Before consummation. (§226.17(b))
12. Disclosures for certain closed-end home mortgages- -Three business days prior to consummation. (§226.31(c)(1))
13. Disclosures for reverse mortgages --Three days prior to consummation of a closed-end credit transaction or prior to the first transaction under an open-end credit plan. (§226.31(c)(2))
14. Disclosures for adjustable-rate mortgages—At least once each year during which an interest rate adjustment is implemented without an accompanying payment change, and at least 25, but no more than 120 calendar days before a new payment amount is due, or in accordance with other variable-rate subsequentdisclosure regulations issued by a supervisory agency. (§226.20(c))

6. Review the financial institution’s record retention practices to determine whether evidence of compliance (for other than the advertising requirements) is retained for at least two years after the disclosures was required to be made or other action was required to be taken. (§226.25)

7. Review the financial institution’s policies and procedures with regard to the electronic delivery of disclosures. If disclosures are provided electronically, determine if the procedures adequately ensure compliance with §226.36.

8. Sample advertising copy, including any Internet advertising, since the previous examination and verify that the terms of credit are specific. If triggering terms are used, determine the required disclosures are made. (§226.16 and §226.24)
For advertisements for closed-end credit, determine:


• if a rate of finance charge was stated, that it was stated as an APR.
• if an APR will increase after consummation, a statement to that fact is made.

9. For each type of closed-end loan being tested, determine the accuracy of the disclosures by comparing the disclosures to the contract and other financial institution documents. (§226.17)
10. Determine whether the required disclosures were made before consummation of the transaction and ensure the presence and accuracy of the items below, as applicable. (§226.18)
1. Amount financed;
2. Itemization of the amount financed (RESPA GFE may substitute);
3. Finance charge;
4. APR;
5. Variable rate verbiage as follows for loans not secured by a principal dwelling or with terms of one year or less:
1. Circumstances which permit rate increase;
2. Limitations on the increase (periodic or lifetime);
3. Effects of the increase;
4. Hypothetical example of new payment terms;
6. Payment schedule including amount, timing and number of payments.
7. Total of payments.
8. Total sales price (credit sale).
9. Description of security interest.
10. Credit life insurance premium included in the finance charge unless:
1. Insurance is not required;
2. Premium for the initial term is disclosed; and
3. Consumer signs or initials an affirmative written request for the insurance.
11. Property insurance available from the creditor excluded from the finance charge if the premium for the initial term of the insurance is disclosed.
12. Required deposit.
11. Determine for adjustable rate mortgage loans secured by the borrower's principal dwelling with maturities of more than one year that the required early and subsequent disclosures are complete, accurate, and timely. Early disclosures required by §226.19(a) are verified during the closed-end credit forms review. Subsequent disclosures should include the items below, as applicable. (§226.20(c))
1. Current and prior interest rates;
2. Index values used to determine current and prior interest rates;
3. Extent to which the creditor has foregone an increase in the interest rate;
4. Contractual effects of the adjustment (new payment and loan balance); and
5. Payment required to avoid negative amortization.

NOTE: The accuracy of the adjusted interest rates and indexes should be verified by comparing them with the contract and early disclosures. Refer to the Additional Variable Rate Testing section of these examination procedures on page V-1.29.
12. Determine, for each type of closed-end rescindable loan being tested, two copies of the rescission notice are provided to each person whose ownership interest is or will be subject to the security interest. The rescission notice must disclose the items below. (§226.23(b))
1. Security interest taken in the consumer’s principal dwelling;
2. Consumer’s right to rescind the transaction;
3. How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor’s place of business;
4. Effects of rescission; and
5. Date the rescission period expires.
13. Ensure funding was delayed until the rescission period expired. (§226.23(c))
14. Determine if the institution has waived the three-day right to rescind since the previous examination. If applicable, test rescission waivers. (§226.23(e))
15. Determine whether the maximum interest rate in the contract is disclosed for any adjustable rate consumer credit contract secured by a dwelling. (§226.30(a))

16. For each open-end credit product tested, determine the accuracy of the disclosures by comparing the disclosure with the contract and other financial institution documents. (§226.5(c))
17. Review the financial institution’s policies, procedures, and practices to determine whether it provides appropriate disclosures for creditor-initiated direct mail applications and solicitations to open charge card accounts, telephone applications and solicitations to open charge card accounts, and applications and solicitations made available to the general public to open charge card accounts. (§226.5a(b), (c), and (d))
18. Determine for all home equity plans with a variable rate that the APR is based on an independent index. Further, ensure home equity plans are terminated or terms changed only if certain conditions exist. (§226.5b(f))
19. Determine that, if any consumer rejected a home equity plan because a disclosed term changed before the plan was opened, all fees were refunded. Verify that non-refundable fees were not imposed until three business days after the consumer received the required disclosures and brochure. (§226.5b(g) and (h))
20. Review consecutive periodic billing statements for each major type of open-end credit activity offered (overdraft and home-equity lines of credit, credit card programs, etc.). Determine whether disclosures were calculated accurately and are consistent with the initial disclosure statement furnished in connection with the accounts (or any subsequent change in terms notice) and the underlying contractual terms governing the plan(s). The periodic statement must disclose the items below, as applicable. (§226.7)
1. Previous balance;
2. Identification of transactions;
3. Dates and amounts of any credits;
4. Periodic rates and corresponding APRs, if variable rate plan, must disclose that the periodic rates may vary;
5. Balance on which the finance charge is computed and an explanation of how the balance is determined;
6. Amount of finance charge with an itemization of each of the components of the finance charge;
7. Annual percentage rate;
8. Itemization of other charges;
9. Closing date and balance;
10. Payment date, if there is a "free ride" period; and
11. Address for notice of billing errors.
21. Verify the institution credits a payment to the open-end account as of the date of receipt. (§226.10)
22. Determine institution’s treatment of credit balances. Specifically, if the account’s credit balance is in excess of $1, the institution must disclose the items below. (§226.11)
1. Credit the amount to the consumer’s account;
2. Refund any part of the remaining credit balance within seven business days from receiving a written request from the consumer; and
3. Make a good faith effort to refund the amount of the credit to a deposit account of the consumer if the credit remains for more than six months.
23. Review a sample of billing error resolution files and a sample of consumers who have asserted a claim or defense against the financial institution for a credit card dispute regarding property or services. Verify the following. (§226.12 and §226.13)
1. Credit cards are issued only upon request;
2. Liability for unauthorized credit card use is limited to $50;
3. Disputed amounts are not reported delinquent unless remaining unpaid after the dispute has been settled;
4. Offsetting credit card indebtedness is prohibited; and
5. Errors are resolved within two complete billing cycles.
24. Determine, for each type of open-end rescindable loan being tested, two copies of the rescission notice are provided to each person whose ownership interest is or will be subject to the security interest and perform items 11, 12, and 13 under Closed-End Credit.

25. Verify that when accounts were opened or loans were consummated that loan contract terms were recorded correctly in the financial institution’s calculation systems (e.g., its computer). Determine the accuracy of the following recorded information:
1. Index value;
2. Margin and method of calculating rate changes;
3. Rounding method; and
4. Adjustment caps (periodic and lifetime).
26. Using a sample of periodic disclosures for open-end variable rate accounts (e.g., home equity accounts) and closed-end rate change notices for adjustable rate mortgage loans:
1. Compare the rate-change date and rate on the credit obligation to the actual rate-change date and rate imposed.
2. Determine that the index disclosed and imposed is based on the terms of the contract (example: the weekly average of one-year Treasury constant maturities, taken as of 45 days before the change date.). (§226.7(g) and §226.20(c)(2))
3. Determine that the new interest rate is correctly disclosed by adding the correct index value with the margin stated in the note, plus or minus any contractual fractional adjustment. (§226.7(g) and §226.20 (c)(1))
4. Determine that the new payment disclosed (§226.20(c)(4)) was based on an interest rate and loan balance in effect at least 25 days before the payment change date (consistent with the contract). (§226.20(c))

27. Determine whether the financial institution originates consumer credit transactions subject to Subpart E of Regulation Z; specifically, certain closed-end home mortgages (high-cost mortgages (§226.32) and reverse mortgages (§226.33).
28. Examiners may use the attached worksheet as an aid for identifying and reviewing high-cost mortgages. (Page V-1.32)
29. Review both high-cost and reverse mortgages to ensure the following:
1. Required disclosures are provided to consumers in addition to, not in lieu of, the disclosures contained in other subparts of Regulation Z. (§226.31(a))
2. Disclosures are clear and conspicuous, in writing, and in a form that the consumer may keep. (§226.31(b))
3. Disclosures are furnished at least three business days prior to consummation of a mortgage transaction covered by §226.32 or a closed-end reverse mortgage transaction (or at least three business days prior to the first transaction under an open-end reverse mortgage). (§226.31(c))
4. Disclosures reflect the terms of the legal obligation between the parties. (§226.31(d))
5. If the transaction involves more than one creditor, only one creditor shall provide the disclosures. Where the obligation involves multiple consumers, the disclosures may be provided to any consumer who is primarily liable on the obligation. However, for rescindable transactions, the disclosures must be provided to each consumer who has the right to rescind. (§226.31(e))
6. The APR is accurately calculated and disclosed in accordance with the requirements and within the tolerances allowed in §226.22. (§226.31(g))
30. For high-cost mortgages (§226.32), ensure that:
1. In addition to other required disclosures, the creditor discloses the following at least three business days prior to consummation: [See model disclosure at App. H-16]
1. Notice containing the prescribed language.(§226.32(c)(1))
2. Annual percentage rate. (§226.32(c)(2))
3. Amount of regular loan payment and the amount of any balloon payment. (§226.32(c)(3))
4. For variable rate loans, a statement that the interest rate and monthly payment may increase, and the amount of the single maximum monthly payment allowed under the contract. (§226.32(c)(4))
5. For a mortgage refinancing, the total amount the consumer will borrow (the face amount) and if this amount includes premiums or other charges for optional credit insurance or debt-cancellation coverage, that fact is stated. This disclosure shall be treated as accurate if within $100. (§226.32(c)(5))
6. A new disclosure is required if, subsequent to providing the additional disclosure but prior to consummation, there are changes in any terms that make the disclosures inaccurate. For example, if a consumer purchases optional credit insurance and, as a result, the monthly payment differs from the payment previously disclosed, redisclosure is required and a new three-day waiting period applies. (§226.31(c)(1)(i))
7. If a creditor provides new disclosures by telephone when the consumer initiates a change in terms, then at consummation: (§226.31(c)(1)(ii)) The creditor must provide new written disclosures and both parties must sign a statement that these new disclosures were provided by telephone at least three days prior to consummation.
8. If a consumer waives the right to a three-day waiting period to meet a bona fide personal financial emergency, the consumer’s waiver must be a dated written statement (not a pre-printed form) describing the emergency and bearing the signature of all entitled to the waiting period (a consumer can waive only after receiving the required disclosures and prior to consummation). (§226.31(c)(1)(iii))
2. High-cost mortgage transactions do not provide for any of the following loan terms:
1. Balloon payment (if term is less than 5 years, with exceptions). (§226.32(d)(1)(i) and (ii))
2. Negative amortization. (§226.32(d)(2))
3. Advance payments from the proceeds of more than 2 periodic payments. (§226.32(d)(3))
4. Increased interest rate after default. (§226.32(d)(4))
5. A rebate of interest, arising from a loan acceleration due to default, calculated by a method less favorable than the actuarial method. (§226.32(d)(5))
6. Prepayment penalties (but permitted in the first five years if certain conditions are met). (§226.32(d)(6) and (7))
7. A due-on-demand clause permitting the creditor to terminate the loan in advance of maturity and accelerate the balance, with certain exceptions. (§226.32(d)(8))
3. The creditor is not engaged in the following acts and practices for high-cost mortgages:
1. Home improvement contracts – paying a contractor under a home improvement contract from the proceeds of a mortgage unless certain conditions are met. (§226.34(a)(1))
2. Notice to assignee – selling or otherwise assigning a high-cost mortgage without furnishing the required statement to the purchaser or assignee. (§226.34(a)(2))
3. Refinancing within one year of extending credit – within one year of making a high-cost mortgage loan, a creditor may not refinance any high-cost mortgage loan to the same borrower into another high-cost mortgage loan that is not in the borrower’s interest. This also applies to assignees that hold or service the high-cost mortgage loan. Commentary to 34(a)(3) has examples applying the refinancing prohibition and addressing "borrower’s interest." (§226.34(a)(3))
4. Consumers’ ability to repay – engaging in a pattern or practice of extending high-cost mortgages based on the consumer’s collateral without regard to repayment ability, including the consumer’s current and expected income, current obligations, and employment. A violation is presumed if there is a pattern or practice of making such mortgage loans without verifying and documenting consumers’ repayment ability.
1. A creditor may consider any expected income of the consumer, including:
1. Regular salary or wages;
2. Gifts;
3. Expected retirement payments; and
4. Income from self-employment.
2. Equity income that would be realized from the collateral may not be considered.
3. Creditors may verify and document a consumer’s income and obligations through any reliable source that provides the creditor with a reasonable basis for believing that there are sufficient funds to support the loan. Reliable sources include:
1. Credit reports;
2. Tax return;
3. Pension statements; or
4. Payment records for employment income.
4. If a loan transaction includes a discounted introductory rate, the creditor must consider the consumer’s ability to repay based on the nondiscounted or fully indexed rate.
NOTE: Commentary to 34(a)(4) contains guidance on income that may be considered, on "pattern or practice," and on "verifying and documenting" income and obligations. (§226.34(a)(4))
31. Ensure that the creditor does not structure a home-secured loan as an open-end plan ("spurious open-end credit") to evade the requirements of Regulation Z. See staff commentary to 34(b) for factors to be considered. (§226.34(b))

32. If there is noncompliance involving understated finance charges or understated APRs subject to reimbursement under the FFIEC Policy Guide on Reimbursement (policy guide), continue with step 33.
33. Document the date on which the administrative enforcement of the TILA policy statement would apply for reimbursement purposes by determining the date of the preceding examination.
34. If the noncompliance involves indirect (third-party paper) disclosure errors and affected consumers have not been reimbursed:
1. Prepare comments, discussing the need for improved internal controls to be included in the report of examination.
2. Notify your supervisory office for follow up with the regulator that has primary responsibility for the original creditor.

If the noncompliance involves direct credit:

3. Make an initial determination whether the violation is a pattern or practice.
4. Calculate the reimbursement for the loans or accounts in an expanded sample of the identified population.
5. Estimate the total impact on the population based on the expanded sample.
6. Inform management that reimbursement may be necessary under the law and the policy guide, and discuss all substantive facts including the sample loans and calculations.
7. Inform management of the financial institution’s options under §130 of the TILA for avoiding civil liability and of its option under the policy guide and §108 (e)(6) of the TILA for avoiding a regulatory agency’s order to reimburse affected borrowers.

• Requests that can be processed under delegated authority by the Regional Director and Regional Counsel must be completed within 60 days after receipt unless the institution has agreed in writing to an extension of time to make the determination.
• Requests requiring action by the Washington Office will be referred by the Regional Office to the Washington Office within 45 days of receipt. A decision will be made within 45 days of receipt in Washington.

• The error resulted from a unique circumstance;
• The disclosure violations are clearly technical and non-substantive;
• The disclosure violations do not adversely affect information provided to the consumer; and
• The disclosure violations have not misled or otherwise deceived the consumer.

• Notify the consumer of the error, and
• Reimburse the consumer for overcharges

• If the frequency of a violation represents at least ten percent of the credit transactions sampled that have the same features or that are subject to the same regulatory requirements; and
• Within the given category of credit transactions two or more violations of the same type have been identified; then
• Examiners should determine if the cause of the violation is other than a random error. This may require the examiner to expand the sample of types of loans with violations to verify if the hypothesis of a particular pattern or practice is correct. In situations involving small samples where the number or percentage of violations noted are within the lower ranges of the minimum frequency requirements, examiners should always review additional files of the same type (if available) to confirm or refute the initial hypothesis.

• Conduct grounded in written or unwritten policy, procedure or established practice.
• Similar conduct by an institution toward multiple consumers.
• Conduct having some common source or cause within the institution’s control.

• For example, samples of unsecured installment loans are normally separated from home mortgage loans, but it may be reasonable to combine them when a violation is discovered that involves the same or similar omission of credit-insurance disclosures, even though the types of loans are quite different. A review of two mortgage loans and three unsecured consumer loans, where credit life insurance was financed as part of the transactions, all lacked the affirmative written request for insurance and accompanying initials or signature, thereby reflecting a pattern or practice leading to the violations.
• In other cases, some combinations or separations of samples may be impacted by findings concerning the separation of banking functions, such as between employees or between different branch offices of the institution. For example, it is discovered that a new loan officer in the installment loan area has not been disclosing the amount of the premiums for disability insurance to customers, yet the mortgage loan department provides the correct disclosure when offering that insurance to customers. In this situation, it would be more appropriate to combine the samples from both departments because the cause of the error is solely within the installment loan area and confined to one loan officer.
• In another example, in a review of 65 consumer loans, errors in credit insurance disclosures were discovered in all six loans involving consumer purchases of credit life insurance; however, no errors were discovered in 59 loans where the consumer did not purchase credit insurance. The frequency of violations in this case is 100 percent (six of six instances) as these were the loans where the disclosures were required to be made but were not made correctly.
• Another example would be where violations are found involving private mortgage insurance (PMI). To further test whether this error would constitute a pattern or practice, the examiner should sample additional mortgage loans where the purchase of PMI was required. It would not be appropriate to consider loans where PMI was not a requirement for the loan.

• A 1-4 family structure is located or is to be constructed using proceeds of the loan (including individual units of condominiums and cooperatives), or
• A manufactured home is located or is to be constructed using proceeds of the loan; and to which any of the following applies:
• Loans made by a lender⁸ , creditor⁹ , dealer¹⁰ ;
• Loans made or insured by an agency of the federal government;
• Loans made in connection with a housing or urban development program administered by an agency of the federal government;
• Loans made and intended to be sold by the originating lender or creditor to FNMA, GNMA, or FHLMC (or its successor)¹¹ ;
• Loans which are the subject of a home equity conversion mortgage or reverse mortgage issued by a lender or creditor subject to the regulation; or
• Installment sales contracts, land contracts or contracts for deed on otherwise qualifying residential property if the contract is funded in whole or in part by proceeds of a loan made by a lender, dealer or creditor subject to the regulation.

• A loan on property of 25 acres or more (whether or not a dwelling is located on the property).
• A loan primarily for business, commercial or agricultural purposes (definition identical to Regulation Z, 12 CFR §226.3(a)(1)).
• A temporary loan, such as a construction loan. (The exemption does not apply if the loan is used as, or may be converted to, permanent financing by the same financial institution.) If the lender issues a commitment for permanent financing, it is covered by the regulation. Any construction loan with a term of two years or more is covered by the regulation, unless it is made to a bonafide contractor. "Bridge" or "swing" loans are not covered by the regulation.
• A loan secured by vacant or unimproved property where no proceeds of the loan will be used to construct a 1- 4 family residential structure. If the proceeds will be used to locate a manufactured home or construct a structure within two years from the date of settlement, the loan is covered.
• An assumption, unless the mortgage instruments require lender approval for the assumption and the lender actually approves the assumption.
• A renewal or modification where the original obligation (note) is still in effect but modified.
• A bona fide transfer of a loan obligation in the secondary market (however, the mortgage servicing transfer disclosure requirements of 24 CFR 3500.21 still apply). Mortgage broker transactions which are table funded (the loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds) are not secondary market transactions and therefore covered by RESPA. The exemption does not apply if there is a transfer of title to the property.

• An application includes the submission of a borrower's financial information, either written or computer-generated, for a credit decision on a federally related mortgage loan. To be considered a written application, the submission must state or identify a specific property. The subsequent addition of an identified property to the submission converts the submission to an application for a federally related mortgage loan. [§3500.2(b)]
• A financial institution that complies with Regulation Z (12 CFR §226.5b) for open-end home equity plans is deemed to have complied with this section.
• The booklet does not need to be given for refinancing transactions, closed-end subordinate lien mortgage loans and reverse mortgage transactions, or for any other federally related mortgage loan not intended for the purchase of a one-to-four family residential property.

• A financial institution that complies with Regulation Z (12 CFR §226.5b) for open-end home equity plans is deemed to have complied with this section.
• For "no cost" or "no point" loans, the GFE must disclose any payments to be made to affiliated or independent settlement service providers. These payments should be shown as P.O.C. (Paid Outside of Closing).
• For dealer loans, the institution is responsible for providing the GFE either directly or by the dealer.
• For brokered loans, if the mortgage broker is the exclusive agent of the institution either the institution or the broker shall provide the GFE within three business days after the broker receives or prepares the application. When the broker is not the exclusive agent of the institution, the institution is not required to provide the GFE if the broker has already provided the disclosure, but the funding lender must ascertain that the GFE has been delivered.

• A statement that use of the provider is required and that the
• estimate is based on the charges of the designated provider.
The name, address and telephone number of the designated provider.
• A description of the nature of any relationship between each such provider and the institution. A relationship exists if:
• The provider is an associate of the institution, as defined in [§3(8) of RESPA (12 USC 2602(8))];
• The provider has maintained an account with the institution or had an outstanding loan or credit arrangement with the institution within the last twelve months; or,
• The institution has repeatedly used or required borrowers to use the provider's services within the last twelve months.
• The statement that, except for a provider that is the institution's chosen attorney, credit reporting agency, or appraiser, if the institution is in an affiliated business relationship with the provider, the institution may not require use of that provider (24 CFR §3500.15).
• If the institution maintains a controlled list of required providers (five or more for each discrete service) or relies on a list maintained by others and at the time of application has not decided which provider will be selected, the institution may comply with this section by:
• Providing a written statement that the institution will require a particular provider from an approved list, and
• Disclosing in the GFE the range of costs for the required providers and providing the name of the specific provider and the actual cost on the HUD settlement statement.

• Civil liability to the parties affected, equal to three times the amount of any charge paid for such settlement service.
• The possibility that the costs associated with any court proceeding together with reasonable attorney's fees could be recovered.
• A fine of not more than $10,000 or imprisonment for not more than 1 year or both, for each violation.

• The nature of the relationship (explaining the ownership and financial interest) between the provider and the financial institution; and
• The estimated charge or range of charges generally made by such provider.

• Where a payee offers the option of installment disbursements or a discount for annual disbursements, the servicer should make disbursements on an installment basis, but may, at the servicers’ discretion, make annual disbursements, in order to take advantage of the discount for the borrower; HUD encourages servicers to follow the preference of the borrower.
• Where the payee offers the option of either annual disbursements with no discount or installment payments, the servicer is required to make installment payments.

• the servicer may allow the shortage to exist and do nothing to change it;
• the servicer may require the borrower to repay the shortage amount within 30 days; or,
• the servicer may require the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period.

• the servicer may allow the shortage to exist and do nothing to change it; or,
• the servicer may require the borrower to repay the shortage in equal monthly payments over at least a 12-month period.

• may allow the deficiency to exist and do nothing to change it;
• may require the borrower to repay the deficiency within 30 days; or,
• may require the borrower to repay the deficiency in two or more equal monthly payments.

• The effective date of the transfer.
• The name, address for consumer inquiries, and toll-free or collect-call telephone number of the transferee servicer.
• A toll-free or collect-call telephone number for an employee by the transferor servicer that can be contacted by the borrower to answer servicing questions.
• The date on which the transferor servicer will cease accepting payments relating to the loan and the date on which the transferee servicer will begin to accept such payments. The dates must either be the same or consecutive dates.
• Any information concerning the effect of the transfer on the availability of optional insurance and any action the borrower must take to maintain coverage.
• A statement that the transfer does not affect the terms or conditions of the mortgage (except as related to servicing).
• A statement of the borrower’s rights in connection with complaint resolution.

• Transfers between affiliates
• Transfers resulting from mergers or acquisitions of servicers or subservicers
• Transfers between master servicers, when the subservicer remains the same

• To determine if the financial institution has established procedures to ensure compliance with RESPA.
• To determine whether the financial institution engages in any practices prohibited by RESPA, such as kickbacks, payment or receipt of referral fees or unearned fees, or excessive escrow assessments.
• To determine if the Special Information Booklet, Good Faith Estimate, Uniform Settlement Statement (Form HUD-1 or HUD 1A), mortgage servicing transfer disclosures, and other required disclosures are in a form that complies with Regulation X, are properly completed, and provided to borrowers within prescribed time periods.
• To determine if the institution is submitting the required initial and annual escrow account statements to borrowers as applicable and complying with established limitations on escrow account arrangements.
• To determine whether the institution is responding to borrower inquiries for information relating to the servicing of their loans in compliance with the provisions of RESPA.

1. Review the types of loans covered by RESPA and applicable exemptions.
2. Review the Special Information Booklet, Good Faith Estimate (GFE) form, Uniform Settlement Statement form (HUD-1 or HUD-1A), mortgage servicing transfer disclosure forms, and affiliated business arrangement disclosure form for compliance with the requirements of Regulation X. Review model forms in the appendices to the regulation and after §3500.21.
3. Review written loan policies and operating procedures in connection with federally related mortgage loans and discuss them with institution personnel.
4. Interview mortgage lending personnel to determine:
1. Identity of persons or entities referring federally related mortgage loan business;
2. The nature of services provided by referral sources, if any;
3. Settlement service providers used by the institution;
4. When the Special Information Booklet is given;
5. The timing of the good faith estimate and how fee information is determined;
6. Any providers whose services are required by the institution;
7. How borrower inquiries regarding loan servicing are handled and within what time frames; and
8. Whether escrow arrangements exist on mortgage loans.
5. Assess the overall level of knowledge and understanding of mortgage lending personnel.

6. Determine through discussion with management and review of credit files whether the Special Information Booklet, if required, is provided within 3 business days after the financial institution or broker receives a written application for a loan. [§3500.6(a)(1)]

7. Determine whether the financial institution provides a good faith estimate of charges for settlement services, if required, within three business days after receipt of a written application. [§3500.7(a)]
8. Review Appendix C of Regulation X to determine if the good faith estimate appears in a similar form and contains the following required elements: [§3500.7(c) and (d)]
1. The lender’s name. If the GFE is being given by a broker, instead of the lender, the GFE must contain a legend in accordance with Appendix C.
2. An estimate of all charges listed in Section L of the HUD-1 or HUD-1A, expressed either as a dollar amount or range. For "no cost" or "no point" loans, charges to be shown on the GFE including payments to be made to affiliated or independent settlement service providers (shown on HUD-1 or HUD-1A as "paid outside of closing").
3. An estimate of any other charge the borrower will pay based upon common practice in the locality of the mortgaged property.
9. Review Form HUD-1 or HUD-1A prepared in connection with the transaction to determine if amounts shown on the GFE are reasonably similar to fees actually paid by the borrower. [§3500.7(c)(2)]

NOTE: the definition of "reasonably" is subject to interpretation by HUD.

10. Determine through review of the institution’s good faith estimates, HUD-1 and HUD-1A forms, and discussions with management whether the financial institution requires the borrower to use the services of a particular individual or firm for settlement services. [§3500.7(e)]
1. In cases where the lender requires the use of a particular provider of a settlement service (except the lender’s own employees) AND requires the borrower to pay any portion of the cost, determine if the GFE includes:
1. The fact that the particular provider is required;
2. The fact that the estimate is based on the charges of the designated provider;
3. The name, address, and telephone number of each provider; and
4. The specific nature of any relationship between the provider and the lender. [§3500.7(e)(2)]
11. If the lender maintains a list of required providers (five or more for each service) and, at the time of application has not chosen the provider to be selected from the list, determine that the lender satisfies the GFE requirements by providing a written statement that the lender will require a particular provider from a lender-controlled list and by providing the range of costs for the required providers. The name and actual cost must be reflected on the HUD-1 or HUD-1A.

12. Determine if the financial institution uses the current Uniform Settlement Statement (HUD-1 or HUD-1A) as appropriate [§3500.8 (a)] and that:
1. Charges are properly itemized for both borrower and seller in accordance with the Instructions for completion of the HUD-1 or HUD-1A (Appendix A).
2. All charges paid to one other than the lender are itemized and the recipient named. [§3500.8(b); Appendix A]
3. Charges required by the financial institution but paid outside of closing are itemized on the settlement statement, marked as "paid outside of closing" or "P.O.C.," but not included in totals. [§3500.8(b); Appendix A]
13. If the financial institution conducts settlement, determine whether:
1. The borrower, upon request, is allowed to inspect the HUD-1 or HUD-1A at least one business day prior to settlement. [§3500.10(a)]
2. The HUD-1 or HUD-1A is provided to the borrower and seller at or before settlement. [§3500.10(b)]
3. In cases where the right to delivery is waived or the transaction is exempt, the statement is mailed as soon as possible after settlement. [§3500.10(b), (c), and (d)]
14. Determine whether HUD-1 and HUD-1A forms are retained for 5 years. If the financial institution disposes of its interest in the mortgage and does not service the loan, the HUD-1 or HUD-1A form must be transferred with the loan file. [§3500.10(e)]

15. Determine whether the disclosure form is in substantial conformance with either the model disclosure in Appendix MS-1 to §3500.21 or section 6(a) of RESPA, 12 USC §2605(a).
16. Determine that the applicant received the mortgage servicing transfer disclosure at the time of application or with the GFE. If the application was not taken face-to-face, the disclosure must have been provided within three business days after receipt of the application or with the GFE.
17. Determine that the disclosure states whether the loan may be assigned or transferred while outstanding. [§3500.21(b)(3)]

18. Determine whether the institution has transferred or received mortgage servicing rights.
19. If it has transferred servicing rights, determine whether notice to the borrower was given at least 15 days prior to the transfer. [§3500.21(d)(2)]
20. If it has received servicing rights, determine whether notice was given to the borrower within 15 days after the transfer. [§3500.21(d)(2)]
21. Determine whether the notice by transferor and transferee includes the following information. Sample language for the notice of transfer is contained in Appendix B. [§3500.21(d)(3)]
1. The effective date of the transfer;
2. The name, consumer inquiry addresses (including, at the option of the servicer, a separate address where qualified written requests must be sent), and a toll-free or collect call telephone number for an employee or department of the transferee servicer;
3. A toll-free or collect call telephone number for an employee or department of the transferor servicer that can be contacted by the borrower for answers to servicing transfer inquiries;
4. The date on which the present servicer will cease accepting payments and the date the new servicer will begin accepting payments relating to the transferred loan;
5. Any information concerning the effect of the transfer on the availability of terms of optional insurance and any action the borrower must take to maintain coverage;
6. A statement that the transfer does not affect the terms or conditions of the mortgage, other than terms directly related to its servicing; and,
7. A statement of the borrowers rights in connection with complaint resolution. (Appendix MS-2)

22. Through a review of late notices or otherwise if the transferor servicer received payment, determine that no late fees have been imposed and that no payments have been treated as late within 60 days following a transfer of servicing. [§3500.21(d)(5)]
23. Determine that the institution, as loan servicer for mortgage loans and refinancings subject to RESPA, responds to borrower inquiries relating to these loans as prescribed in the regulation, including:
1. Provide the notice of receipt of inquiry for qualified written correspondence from borrowers within 20-business days (unless the action requested is taken within that period and the borrower is notified in writing of that action); [§3500.21(e)(1)]
2. Provide written notification of the corrections taken on the account, or statement of the reasons the account is correct or explanation why the information requested is unavailable not later than 60-business days after receipt of the qualified written correspondence from the borrower; and [§3500.21(e)(3)]
3. Determine that the institution does not provide information to any consumer reporting agency regarding overdue payment when investigating a qualified written request from borrower regarding disputed payments during this 60-business day period. [§3500.21(e)(4)(I)]

24. Determine whether the financial institution charges a fee specifically for preparing and distributing the HUD-1 forms, escrow statements or documents required under the Truth in Lending Act. [§3500.12]

25. When the financial institution owns the property being sold, determine whether it requires or gives the impression that title insurance is required from a particular company. [§3500.16]

26. Determine if management is aware of the prohibitions against payment or receipt of kickbacks and unearned fees. [RESPA Section 8; §3500.14]
27. Through interviews with institution management and personnel, file reviews, review of good faith estimates, and HUD-1 and HUD-1A, determine if federally related mortgage loan transactions are referred by brokers, affiliates, or other parties. Identify those parties. Also, identify persons or entities to which the institution refers services in connection with a federally related mortgage transaction.
1. Identify the types of services rendered by the broker, affiliate, or service provider.
2. By a review of the institution’s general ledger or otherwise, determine if fees were paid to the institution or any parties identified.
3. Confirm that any fees paid to the broker, affiliate, service provider, or other party meet the requirements of §3500.14(g) and are for goods or facilities actually furnished or services actually performed. This includes payments to an affiliate or the affiliate’s employees.

28. Determine from the HUD-1 or HUD-1A and from interviews with institution management if an affiliated business arrangement exists between a referring party and any provider of settlement services. (§3500.15). If so, determine which providers the lender requires and that the Affiliated Business Arrangement disclosures statement (Appendix D) was provided as required by §3500.15(b)(1).
29. Other than an attorney, credit reporting agency, or appraiser representing the lender, was the use of a provider required. [§3500.15(b)(2)]

30. Determine whether the institution performed an initial escrow analysis [§3500.17(c)(2)] and provided the initial escrow statement required by §3500.17(g). The statement must contain the following:
1. Amount of monthly payment
2. Portion of the monthly payment being placed in escrow
3. Charges to be paid from the escrow account during the first 12 months
4. Disbursement dates
5. Amount of cushion
31. Determine if the statement was given to the borrower at settlement or within 45 days after the escrow account was established. This statement may be incorporated into the HUD-1 statement. [§3500.17(g)(1)]
32. Determine whether the institution performs an annual analysis of the escrow account. [§3500.17(c)(3) and (7), and §3500.17(i)]
33. Determine whether the annual escrow account statement is provided to the borrower within 30 days of the end of the computation year [§3500.17(i)]
34. Determine if the annual escrow statement contains the following:
1. Amount of monthly mortgage payment and portion that was placed in escrow;
2. Amount of past year’s monthly mortgage payment and portion that went into escrow;
3. Total amount paid into escrow during the past computation year;
4. Total amount paid out of escrow account during same period for taxes, insurance, and other charges;
5. Balance in the escrow account at the end of the period;
6. How a surplus, shortage, or deficiency is to be paid/ handled; and,
7. If applicable, the reason why estimated low monthly balance was not reached.
35. Determine whether monthly escrow payments following settlement are within the limits of §3500.17(c).

• The loan is secured by the homeowner’s principal residence;
• The home loan is not assisted by the Farmers Home Administration; and
• The homeowner is, or is expected to be, unable to make payments, correct a home loan delinquency within a reasonable time, or resume full home loan payments due to a reduction in the homeowner’s income because of:
• An involuntary loss of, or reduction in, the homeowner’s employment, the homeowner’s self-employment, or income from the pursuit of the homeowner’s occupation; or
• Any similar loss or reduction experienced by any person who contributes to the homeowner’s income.

• notify the homeowner of the availability of any homeownership counseling offered by the creditor; and
• provide either a list of HUD-approved nonprofit homeownership counseling organizations or the toll-free number¹⁴ HUD has established through which a list of such organizations may be obtained.

• the availability of any homeownership counseling offered by the creditor; and
• the availability of any homeownership counseling by nonprofit organizations approved by HUD or the toll-free telephone number through which the homeowner can obtain a list of such organizations.

• A "residential mortgage" or a "residential mortgage transaction";
• Defined as high risk (either by the lender in the case of non-conforming loans, or Fannie Mae and Freddie Mac in the case of conforming loans);
• Financed under a fixed or an adjustable rate; or
• Covered by borrower-paid private mortgage insurance (BPMI) or lender-paid private mortgage insurance (LPMI).¹⁹

• the borrower submits a written cancellation request;
• the borrower has a good payment history;²²
• the borrower is current;²³ and
• the borrower satisfies any requirement of the mortgage holder for: (i) evidence of a type established in advance that the value of the property has not declined below the original value; and (ii) certification that the borrower’s equity in the property is not subject to a subordinate lien (12 USC §4902(a)(4)).

• the principal balance of the mortgage is first scheduled to reach 78 percent of the original value of the secured property (based solely on the initial amortization schedule in the case of a fixed rate loan or on the amortization schedule then in effect in the case of an adjustable rate loan, irrespective of the outstanding balance), if the borrower is current; or
• if the borrower is not current on that date, on the first day of the first month following the date that the borrower becomes current (12 USC §4902(b)).

• The borrower’s right to request cancellation of PMI, and, based on the initial amortization schedule, the date the loan balance is scheduled to reach 80 percent of the original value of the property;
• The borrower’s right to request cancellation on an earlier date, if actual payments bring the loan balance to 80 percent of the original value of the property sooner than the date based on the initial amortization schedule;
• That PMI will automatically terminate when the LTV ratio reaches 78 percent of the original value of the property and the specific date that is projected to occur (based on the initial amortization schedule); and,
• The Act provides for exemptions to the cancellation and automatic termination provisions for high risk mortgages and whether these exemptions apply to the borrower’s loan (12 USC §4903(a)(1)(A)).

• The borrower’s right to request cancellation of PMI on (i) the date the loan balance is first scheduled to reach 80 percent of the original value of the property based on the amortization schedule then in effect or (ii) the date the balance actually reaches 80 percent of the original value of the property based on actual payments. The notice must also state that the servicer will notify the borrower when either (i) or (ii) occurs;
• That PMI will automatically terminate when the loan balance is first scheduled to reach 78 percent of the original value of the property based on the amortization schedule then in effect. The notice must also state that the borrower will be notified when PMI is terminated (or that termination will occur when the borrower becomes current on payments); and,
• That there are exemptions to the cancellation and automatic termination provisions for high-risk mortgages and whether such exemptions apply to the borrower’s loan (12 USC §4903(a)(1)(B)).

• States that PMI may be canceled with the consent of the lender or in accordance with state law; and
• Provides the servicer’s address and telephone number, so that the borrower may contact the servicer to determine whether the borrower may cancel PMI (12 USC §4903(b)).

• PMI has terminated and the borrower no longer has PMI; and
• No further premiums, payments or other fees are due or payable by the borrower in connection with PMI (12 USC §4904(a)).

• Differs from BPMI because it cannot be canceled by the borrower or automatically terminated as provided under the Act;
• Usually results in a mortgage having a higher interest rate than it would in the case of BPMI; and,
• Terminates only when the mortgage is refinanced (as that term is defined in the Truth in Lending Act, 15 U.S..C. §1601 et seq., and Regulation Z, 12 CFR §226.20), paid off, or otherwise terminated.

• That LPMI and BPMI have both benefits and disadvantages;
• A generic analysis of the costs and benefits of a mortgage in the case of LPMI versus BPMI over a ten-year period, assuming prevailing interest and property appreciation rates; and,
• That LPMI may be tax-deductible for federal income taxes, if the borrower itemizes expenses for that purpose (12 USC §4905(c)(1)).

• Individual Action
• In the case of individual borrowers:
• Actual damages (including interest accruing on such damages);
• Statutory damages not to exceed $2,000;
• Costs of the action, and
• Reasonable attorney fees.
• Class Action
• In the case of a class action suit against a defendant that is subject to section 10 of the Act, (i.e., regulated by the federal banking agencies, NCUA or the Farm Credit Administration):
• Such statutory damages as the court may allow up to the lesser of $500,000 or 1 percent of the liable party’s net worth;
• Costs of the action; and
• Reasonable attorney fees.
• In the case of a class action suit against a defendant that is not subject to section 10 of the Act, (i.e., not regulated by the federal banking agencies, NCUA, or the Farm Credit Administration):
• Actual damages (including interest accruing on such damages);
• Statutory damages up to $1,000 per class member but not to exceed the lesser of $500,000; or 1 percent of the liable party’s gross revenues;
• Costs of the action; and
• Reasonable attorney fees (12 USC §4907(a)).

• Notify applicable lenders or servicers of any failure to comply with the Act;
• Require the lender or servicer, as applicable, to correct the borrower’s account to reflect the date on which PMI should have been canceled or terminated under the Act; and,
• Require the lender or servicer, as applicable, to return unearned PMI premiums to a borrower who paid premiums after the date on which the borrower’s obligation to pay PMI premiums ceased under the Act (12 USC §4909).

1. To determine the financial institution’s compliance with the Homeowners Protection Act of 1998 (HOPA), as amended.
2. To assess the quality of the financial institution’s policies and procedures for implementing the HOPA.
3. To determine the reliance that can be placed on the financial institution’s internal controls and procedures for monitoring the institution’s compliance with the HOPA.
4. To initiate corrective action when violations of HOPA are identified, or when policies or internal controls are deficient.

1. Through discussions with management and review of available information, determine if the institution’s internal controls are adequate to ensure compliance with the HOPA. Consider the following:
1. Organization charts;
2. Process flowcharts;
3. Policies and procedures;
4. Loan documentation;
5. Checklists;
6. Training; and,
7. Computer program documentation.
2. Review any compliance audit material, including work papers and reports, to determine whether:
1. The institution’s procedures address all applicable provisions of HOPA;
2. Steps are taken to follow-up on previously identified deficiencies;
3. The procedures used include samples covering all product types and decision centers;
4. The compliance audit work performed is accurate;
5. Significant deficiencies and their causes are included in reports to management and/or to the Board of Directors;
6. Corrective action is taken in a timely and appropriate manner; and
7. The frequency of compliance review is appropriate.
3. Obtain a sample of recent residential mortgage transactions, including those serviced by the bank and conducted electronically, if applicable. Complete the Homeowners Protection Act worksheet (page V-5.8). Also, obtain a copy of the bank’s disclosure and notification forms and policies and procedures to complete the worksheet. As applicable, the forms should include:
1. Initial disclosures for: (i) fixed rate mortgages; (ii) adjustable rate mortgages; (iii) high risk loans; and (iv) lender-paid mortgage insurance.
2. Annual notices for: (i) fixed and adjustable rate mortgages and high-risk loans and (ii) existing residential mortgages.
3. Notices of: (i) cancellation; (ii) termination; (iii) grounds for not canceling PMI; (iv) grounds for not terminating PMI; (v) cancellation date for adjustable rate mortgages; and (vi) termination date for lender paid mortgage insurance.
4. Using the above sample and bank policies and procedures, determine that borrowers are not charged for any required disclosures or notifications (12 USC §4906).
5. Obtain and review a sample of recent written requests from borrowers to cancel their private mortgage insurance (PMI) on "non-high risk" residential mortgage transactions. Verify that the insurance was canceled on either: (a) the date on which the principal balance of the loan was first scheduled to reach 80 percent of the original value of the property based on the initial amortization schedule (in the case of a fixed rate loan) or the amortization schedule then in effect (in the case of an adjustable rate loan); or (b) the date on which the principal balance of the loan actually reached 80 percent of the original value of the property based on actual payments, in accordance with the applicable provisions in 12 USC §4902(a) of HOPA (i.e., good payment history, current payments and, if required by the lender, evidence that the value of the mortgaged property did not decline, and certification that the borrower’s equity was unencumbered by a subordinate lien) (12 USC §4902(a)).
6. Obtain and review a sample of "non-high risk" PMI residential mortgage transactions where the borrower did not request cancellation. Select loans from the sample that have reached a 78 percent or lower LTV ratio based on the original value of the property and that are current. Verify that PMI was terminated, based on the initial amortization schedule (in the case of a fixed rate loan) or the amortization schedule then in effect (in the case of an adjustable rate loan) on the date that the principal balance of the loan was first scheduled to reach 78 percent of the original value of the mortgaged property (if the borrower was current) or on the first day of the first month after the date that the borrower became current (12 USC §4902(b)).
7. Obtain a sample of PMI-covered residential mortgage transactions (including high risk loans, if any) that are at or beyond the midpoint of their amortization period. Determine whether PMI was terminated by the first day of the following month if the loan was current. If the loan was not current at the midpoint, determine that PMI was terminated by the first day of the month following the day the loan became current. If, at the time of the examination, a loan at the midpoint is not current, determine whether the financial institution is monitoring the loan and has systems in place to ensure that PMI is terminated when the borrower becomes current (12 USC §4902(c) and 12 USC §4902(g)(2)).
8. Obtain a sample of any lender defined "high risk" PMI residential mortgage transactions that have a 77 percent or lower LTV based on the original value of the property. Verify that PMI was canceled, based on the initial amortization schedule (in the case of a fixed rate loan) or the amortization schedule then in effect (in the case of an adjustable rate loan), on the date that the principal balance of the loan was scheduled to reach 77 percent of the original value of the mortgaged property (12 USC §4902(g)(1)(B)).
9. Obtain a sample of loans that have had PMI canceled or terminated (the samples obtained above can be used). For PMI loans canceled upon the borrowers’ requests, determine that the financial institution did not require any PMI payment(s) beyond 30 days of the borrower satisfying the evidence and certification requirements to cancel PMI (12 USC §4902(e)(1)). For the PMI loans that received automatic termination or final termination, determine that the financial institution did not require any PMI payment(s) beyond 30 days of termination (12 USC §4902(e)(2) and 12 USC §4902(e)(3)).
10. Using the samples in steps 5, 6, and 7, determine if the financial institution returned unearned premiums, if any, to the borrower within 45 days after cancellation or termination (12 USC §4902(f)(1)).

11. Summarize all violations and internal deficiencies.
12. If the violation(s) or internal deficiencies noted above represent(s) a pattern or practice, determine the root cause by identifying weaknesses in internal controls, compliance review, training, management oversight, or other factors.
13. Identify action needed to correct violations and weaknesses in the institution’s compliance system, as appropriate.
14. Discuss findings with the institution’s management and obtain a commitment for corrective action.
15. Determine if enforcement action is appropriate. If so, contact appropriate agency personnel for guidance. Section 10(c) of the Act contains a provision requiring restitution of unearned PMI premiums.

• Provide flood insurance to owners of improved real estate located in SFHAs of communities participating in the NFIP.
• Require communities to enact measures designed to reduce or avoid future flood losses as a condition for making federally subsidized flood insurance available.
• Require federal financial regulatory agencies to adopt regulations prohibiting their regulated lending institutions from making, increasing, extending or renewing a loan secured by improved real estate or a mobile home located or to be located in an SFHA of a community participating in the NFIP, unless the property securing the loan is covered by flood insurance.
• Require federal agencies, such as the Federal Housing Administration (FHA), Small Business Administration (SBA) and the Department of Veterans’s Affairs (VA) not to subsidize, insure, or guarantee any loan if the property securing the loan is in an SFHA of a community not participating in the NFIP.

• Identifying communities with SFHAs.
• Issuing flood boundary and flood rate maps for flood-prone areas.
• Making flood insurance available through the NFIP "Write Your Own" Program (WYO) which enables the public to purchase NFIP coverage from private companies that have entered into agreements with FIA.
• Assisting communities in adopting flood plain management requirements.
• Administering the insurance program. Licensed property and casualty insurance agents and brokers provide the primary connection between the NFIP and the insured party. Licensed agents sell flood insurance, complete the insured party’s application form, report claims and followup with the insured for renewals of the policies.

• The Emergency Program is for communities that first enter the NFIP. It is an interim program that provides lower levels of flood insurance on eligible structures at subsidized rates. FEMA issues flood hazard boundary maps with this program to determine whether properties are located in a flood plain area. A community that is in the Emergency Program will be admitted to the Regular Program upon completion of specific requirements.
• A community enters the Regular Program once a detailed study has been completed and a flood insurance rate map for the area has been issued by FEMA. The maps delineate communities by degrees of probable flood hazard and include more specific area identification than do the flood hazard boundary maps. They also indicate base flood elevations depicting depth or elevation of flooding. The Regular Program provides full insurance coverage for eligible structures and it requires additional flood-plain management responsibilities for the community.

• Residential, industrial, commercial, and agricultural buildings that are walled and roofed structures that are principally above ground.
• Buildings under construction where a development loan is made to construct insurable improvements on the land. Insurance can be purchased to keep pace with the new construction.
• Mobile homes that are affixed to a permanent site, including mobile homes that are part of a dealer’s inventory and affixed to permanent foundations. Condominiums.
• Co-operative buildings.
• Flood insurance coverage is also available for personal property and other insurable contents contained in real property or mobile homes located in SFHAs. The property must be insured in order for the contents to be eligible.

• Unimproved land, bridges, dams and roads.
• Mobile homes not affixed to a permanent site.
• Travel trailers and campers.
• Converted buses or vans.
• Buildings entirely in, on, or over water into which boats are floated.
• Buildings newly constructed or substantially improved on or after October 1, 1983, in an area designated as an undeveloped coastal barrier with the Coastal Barrier Resource System established by the Coastal Barrier Resources Act (Public Law 97-348).

• The institution makes, increases, extends, or renews any loan(s) (commercial or consumer) secured by improved real estate or a mobile home that is affixed to a permanent foundation ("security property");
• The property securing the loan is located or will be located in an SFHA as identified by FEMA; and
• The community participates in the NFIP.

• Loans on state-owned property covered under an adequate policy of self-insurance satisfactory to the Director of FEMA. The Director will periodically publish a list of state property falling within this exemption.
• Loans with an original principal balance of $5,000 or less, and having an original repayment term of one year or less.

• $250,000 for residential property structures and $100,000 for personal contents
• $500,000 for non-residential structures and $500,000 for contents.

• When there is an existing policy and an additional amount of insurance is required in connection with the making, increasing, extension, or renewal of a loan, such as a second mortgage, home equity, or refinancing,
• When an additional amount of insurance is required as a result of a map revision,
• When an additional amount of insurance is being obtained in connection with the renewal of an existing policy, or
• When flood insurance is required as a result of a lender determining that a loan which does not have flood insurance coverage should be protected by insurance (forced placement).

• To inform the agent of the intention to obtain a loan involving a subordinate lien
• To obtain verification of the existence of a flood insurance policy, and
• To check whether the amount of insurance covers all loan amounts.

• Review its records periodically so that as draws are made against the line or repayments made to the account, the appropriate amount of insurance coverage can be maintained; or
• Upon origination, require the purchase of flood insurance for the total amount of the loan or the maximum amount of flood insurance coverage available, whichever is less.

• Multiple Structures—Multiple structures that secure a loan located in an SFHA generally must each be covered by flood insurance, even though the value of one structure may be sufficient to cover the loan amount. FEMA does permit borrowers to insure nonresidential buildings using one policy with a schedule separately listing each building. Loans secured by agricultural properties and improvements may be particularly assisted through this practice.
• Other Real Estate Owned—An institution with other real estate owned (OREO) in flood hazard areas should, as a prudent practice, purchase flood insurance policies on its OREO property, although it is not required to do so by the regulation.

Federal Emergency Management Agency
Map Services Center
P.O. Box 1038
Jessup, MD 20794-1038

• The previous determination is not more than seven years old, and
• The basis for it was recorded on the SFHDF mandated by the Reform Act.

• If FEMA’s map revisions or updates show that the security property is now located in an SFHA, or
• If the lender contacts FEMA and discovers that map revisions or updates affecting the security property have been made after the date of the previous determination.

• The borrower initiates a transaction (making, increasing, extending, or renewing a loan) that triggers a flood hazard determination;
• There is a revision or updating of floodplain areas or risk zones by FEMA;
• The determination is due to FEMA’s publication of a notice that affects the area in which the loan is located; or
• The determination results in the purchase of flood insurance under the forced placement provision.

• A warning that the building or mobile home is or will be located in a SFHA.
• A description of the flood purchase requirements contained in §102(b) of the FDPA, as amended.
• A statement whether flood insurance coverage is available under the NFIP and may also be available from private insurers.
• A statement whether Federal disaster relief assistance may be available in the event of damage to the building or mobile home, caused by flooding in a Federally declared disaster.

• The borrower has the opportunity to become aware of the borrower’s responsibilities under the NFIP; and
• Where applicable, the borrower can purchase flood insurance before completion of the loan transaction.

• Copies of completed SFHD forms, in either hard copy or electronic form, for as long as the institution owns the loan; and
• Records of the receipt of the notice to the borrower and the servicer for as long as the institution owns the loan.

• A borrower’s signed acknowledgment on a copy of the notice,
• A borrower-initialed list of documents and disclosures that the lender provided the borrower, or
• A scanned electronic image of a receipt or other document signed by the borrower.

• Escrow requirements;
• Notice requirements; and
• Forced placement requirements.

Federal Emergency Management Agency Federal Insurance Administration
500 C Street, S.W.
Washington, DC 20472
1-800-621-FEMA (1-800-621-3362)

1. To determine whether an institution performs required flood determinations for loans secured by improved real estate or a mobile home affixed to a permanent foundation in accordance with the final rule.
2. To determine if the institution requires flood insurance in the correct amount when it makes, increases, extends, or renews a loan secured by improved real estate or a mobile home located or to be located in a SFHA.
3. To determine if the institution provides the required notices to the borrower, servicer and to the Director of FEMA whenever flood insurance is required as a condition of the loan.
4. To determine if the institution requires flood insurance premiums to be escrowed when flood insurance is required on a residential building and other items are required to be escrowed.
5. To determine if the institution complies with the forced placement provisions if at any time during the term of a loan it determines that flood insurance on the loan is not sufficient to meet the requirements of the regulation.
6. To initiate corrective action when policies or internal controls are deficient, or when violations of law or regulation are identified.

• By reviewing previous examinations and supervisory correspondence;
• By obtaining and reviewing the institution’s policies, procedures and other pertinent information;
• By reviewing the institution’s system of internal controls;
• Through discussions with management; and
• By reviewing a sample of loan files.

1. Determine the method(s) used by the institution to ascertain whether improved real estate or mobile homes are or will be located in a special flood hazard area.
2. Verify that the process used accurately identifies special flood hazard areas.
3. For those special flood hazard areas identified, determine if the communities in which they are located participate in the National Flood Insurance Program (NFIP).
4. If the institution provides "table funding" to close loans originated by mortgage brokers or dealers, verify that it complies with regulatory requirements.
5. If the institution purchases servicing rights, review the contractual obligations placed on the institution as servicer by the owner of the loans to ascertain if flood insurance requirements are identified and compliance responsibilities are adequately addressed.
6. If the institution utilizes a third party to service loans, review the contractual obligations between the parties to ascertain that flood insurance requirements are identified and compliance responsibilities are adequately addressed.

1. Verify that flood zone determinations are accurately prepared on the Standard Flood Hazard Determination Form (SFHDF).
2. Verify that the institution only relies on a previous determination if it is not more than seven years old, is recorded on the SFHDF and that it is not in a community that has been remapped.
3. If the institution utilizes a third party to prepare flood zone determinations, review the contractual obligations between the parties to ascertain that flood insurance requirements are identified and compliance responsibilities are adequately covered, including the extent of the third party’s guarantee of work and the procedures in place to resolve disputes relating to determinations.
4. Verify that the institution retains a copy of the completed SFHDF, in either hard copy or electronic form, for as long as it owns the loan.

1. For loans that require flood insurance, determine that sufficient insurance was obtained prior to loan closing and is maintained for the life of the loan.
2. If the institution makes loans insured or guaranteed by a government agency (SBA, VA or FHA) determine how it complies with the requirement not to make these loans if the security property is in a SFHA within a nonparticipating community.

1. Determine that any fees charged to the borrower by the institution for flood zone determinations (absent some other authority such as contract language) are charged only when a loan:
• Is made, increased, renewed or extended;
• Is made in response to a remapping by FEMA; or
• Results in the purchase of flood insurance under the forced placement provisions.
2. If other authority permits the institution to charge fees for determinations in situations other than the ones listed above, determine if the institution is consistent in this practice.
3. Determine the reasonableness of any fees charged to a borrower for flood determinations by evaluating the method used by the institution to determine the amount of the charge. Consider, for example, the relationship of the fees charged to the cost of services provided.

1. Ascertain that written notice is mailed or delivered to the borrower within a reasonable time prior to loan closing.
2. Verify that the notice contains:
• A warning that the property securing the loan is or will be located in a SFHA;
• A description of the flood insurance purchase requirements;
• A statement , where applicable, that flood insurance coverage is available under the NFIP and may also be available from private insurers, if applicable; and
• A statement whether Federal disaster relief assistance may be available in the event of damage to the property caused by flooding in a Federally declared disaster, if applicable.
3. If the seller or lessor provided the notice to the purchaser or lessee, verify that the institution obtained satisfactory written assurance that the notice was provided within a reasonable time before the completion of the sale or lease transaction.
4. Verify that the institution retains a record of receipt of the notice provided to the borrower for as long as it owns the loan.
5. If applicable, verify that the institution provided written notice to the servicer of the loan within the prescribed time frames and that the institution retains a record of receipt of the notice for as long as it owns the loan.
6. If the institution transfers servicing of loans to another servicer, ascertain whether it provides notice of the new servicer’s identity to the flood insurance carrier (Director of FEMA’s designee) within prescribed time frames.

1. If the institution’s policies or loan documents require the escrow of funds to cover charges such as taxes, premiums for hazard insurance or other fees, verify that the institution requires the escrow of funds for loans secured by residential improved real estate to cover premiums and other charges associated with flood insurance.
2. For loans closed after October 1, 1996, where flood insurance is required and where the loan is subject to RESPA, verify that the institution’s escrow procedures comply with Section 10 of RESPA.

1. If the institution determines that flood insurance coverage is less than the amount required by the FDPA, ascertain that is has appropriate policies and procedures in place to exercise its forced placement authority.
2. If the institution is required to force place insurance, verify:
• That it provides written notice to the borrower that flood insurance is required, and
• That if the required insurance is not purchased by the borrower within 45 days from the time that the institution provides the written notice, that the institution purchases the required insurance on the borrower’s behalf.

1. Does the institution offer or extend credit (consumer or commercial) that is secured by improved real estate or mobile homes as defined in the regulation? If yes, complete the remainder of this checklist.
2. If the institution provides "table funding" to close loans originated by mortgage brokers or dealers, does it have procedures to ensure that the requirements of the regulation are followed?
3. If the institution purchases servicing rights to loans covered by the regulation, do the documents between the parties specify the contractual obligations on the institution with respect to flood insurance compliance?
4. If the institution utilizes third parties to service loans covered by the regulation, do the contractual documents between the parties meet the requirements of the regulation?

1. If the institution utilizes a third-party to prepare flood zone determinations, do the contractual documents between the parties:
• Provide for the third-party’s guarantee of work?
• Contain provisions to resolve disputes relating to determinations, to allocate responsibility for compliance, and to address which party will be responsible for penalties incurred for noncompliance?
2. Are the determinations prepared on the Standard Flood Hazard Determination Form developed and authorized by FEMA?
• If the form is maintained in an electronic format does it contain the elements required by FEMA?
3. Does the institution maintain a record of the Form either in hard copy or electronic form for as long as it owns the loan?
4. Does the institution rely on a prior determination only if it is made on the SFHDF, is no more than seven years old and the community has not been remapped?

1. Absent some other authority (such as contract language) does the institution charge a fee to the borrower for a flood determination only when:
• It is made when a loan is made, increased, renewed or extended, or
• It is made in response to a remapping by FEMA, or
• It results in the purchase of flood insurance under the forced placement provisions?
2. If the institution has other authority to charge fees for determinations in situations other than those noted above, is the practice followed consistently?
3. If the institution requires the borrower to obtain life-of-loan monitoring and passes that charge along to the borrower:
• Does it either break out the original determination charge from the charge for life-of-loan monitoring or include the full amount of the charge as a finance charge for those loans subject to TILA?
4. Are the fees charged by the institution for making a flood determination reasonable?

1. Are borrowers whose security property is located in a Special Flood Hazard Area (SFHA) provided written notice within a reasonable time prior to loan closing?
2. Does the notice contain the following required information?
• A warning that the building or mobile home is located in a SFHA;
• A description of the flood insurance requirements;
• A statement that flood insurance is available under the NFIP and is also available from private insurers; and
• A statement whether federal disaster relief assistance may be available in the event of damage to a building or mobile home caused by flooding in a Federally-declared disaster.
3. If the institution uses the alternate notice procedures in certain instances as permitted by the regulation, does it obtain the required satisfactory written assurance from the seller or lessor?
4. Does the institution provide a copy of the borrower notification to the servicer of the loan within the required time frames?
5. Does the institution retain a record of receipt of the notifications provided to the borrower and the servicer for as long as it owns the loan?

1. If an improved property or mobile home is located in a SFHA and flood insurance is required, does the institution have the borrower obtain a policy, with the institution as loss payee, in the correct amount prior to closing?
2. Where multiple properties securing the loan are located in SFHAs, does the institution have sufficient insurance either through a single policy with a scheduled list of several buildings or multiple policies, to meet the minimum requirements of the regulation? (See narrative for description of minimum requirements)

1. Does the institution have policies requiring escrows for property taxes, hazard insurance or other fees on residential buildings?
• If yes, does the institution escrow premiums for flood insurance on those loans closed on or after October 1, 1996?
2. If the institution has no specific policies regarding escrows, does its loan documents permit the institution to escrow for the above items?
• If yes, does the institution escrow premiums for flood insurance on those loans closed on or after October 1, 1996?
3. On loans closed on or after October 1, 1996, that are subject to RESPA and, where flood insurance is required, does the institution comply with the provisions of §10 of RESPA (§3500.17 of Regulation X) for those escrows?

1. If at any time during the life of the loan, the institution determines that property securing a designated loan lacks adequate flood insurance coverage:
• Does the institution provide written notice to the borrower stating that the necessary coverage must be obtained within 45 days of the notice or the institution will purchase it on the borrower’s behalf?
• Does the institution purchase the coverage on the borrower’s behalf if the borrower does not obtain the required policy within the required time period?

1. Does the institution provide the appropriate notice to the carrier of the insurance policy (the Director of FEMA’s designee) regarding the identity of the servicer of a designated loan?
2. If the institution sells or transfers the servicing of designated loans to another party, does it have procedures in place to provide the appropriate notice to the Director’s designee within 60 days of the effective date of the transfer of the servicing?

• Select a sample of commercial and consumer loans secured by improved real estate or a mobile home.

NOTE: Loans not requiring the purchase of flood insurance include those:

• Secured by state-owned property subject to an acceptable self insurance policy; or
• — With original amounts less than $5,000 and an original term of less than 1 year.

• Answer the questions as appropriate.

• Race or color,
• Religion,
• National origin,
• Sex,
• Marital status,
• Age (provided the applicant has the capacity to contract),
• The applicant’s receipt of income derived from any public assistance program, or
• The applicant’s exercise, in good faith, of any right under the Consumer Credit Protection Act.

• Examiners must review compliance with these provisions in all compliance examinations that include review of bank loan files, and they may elect to do so as part of a regular, scheduled supervisory activity that includes a review of fair lending risk.
• Examiners should use copies of the technical compliance checklist to review in detail approved and denied consumer, business, and residential real estate files. If there appear to be any technical violations in those files, the violations should be written up and discussed with management. The examiners should maintain one master checklist to note any observed recurrence of the violations which would aid a comparative file review (if there is one).

• Audit
• Bank Policies
• Transaction Testing

• Making loans to buy, build, repair or improve a dwelling;
• Purchasing real estate loans;
• Selling, brokering, or appraising residential real estate; and
• Selling or renting a dwelling.

• Race or color;
• National origin;
• Religion;
• Sex;
• Familial status (defined as children under the age of 18 living with a parent or legal custodian, pregnant women, and people securing custody of children under 18); or
• Handicap.

• Examiners must review compliance with these provisions in all compliance examinations that include review of files, and they may elect to do so as part of a regular, scheduled supervisory activity that includes a review of fair lending risk.
• Examiners must determine whether the financial institution’s policies, procedures, and internal controls are adequate for compliance with FHAct.

• Race/national origin
• Sex
• Marital status
• Age

• Refers any applicants to a controlled entity, and
• Purchases any home loans or home improvement loans (as defined by Regulation C) originated by the controlled entity as a condition to transacting any business with the controlled entity.

• Comply with §338.3, §338.4, and §338.7, and if otherwise subject to Regulation C Home Mortgage Disclosure, §338.8 (§338.9(a));
• Provide its books and records for examination by the FDIC (§338.9(b)); and
• Comply with all instructions and orders issued by the FDIC with respect to its home loan practices (§338.9(b)).

1. If a printed advertisement of a loan for the purpose of purchasing, constructing, improving, repairing, or maintaining a dwelling or any loan secured by a dwelling is used, determine whether the Equal Housing Lender or Equal Housing Opportunity logotype and legend are appropriately used.

   NOTE: The Equal Housing Lender (symbol of house) with legend (the phrase "Equal Housing Lender") or the Equal Housing Opportunity (symbol of house) with the legend (the phrase "Equal Housing Opportunity") must be used together, respectively. (§338.3)

   NOTE: This section may be satisfied in an oral advertisement by stating "Equal Housing Lender" or "Equal Housing Opportunity."

2. Determine that the required Fair Housing Poster, either the Equal Housing Lender poster or HUD’s Equal Housing Opportunity poster is:
• 11 x 14 inches in size;
• Conspicuously displayed in a central location within the bank where deposits are received or residential real estate-related transactions are made (§338.4); and
• The Equal Housing Lender poster contains the correct text in the proper format of §338.4(b) or 24 CFR Part 110.25(a) for HUD’s Equal Housing Opportunity poster.

• on the preceding December 31, had assets in excess of the annually published asset threshold;
• on the preceding December 31, had a home or branch office in an MSA;
• in the preceding calendar year, originated at least one first-lien home purchase loan (including or a refinancing of such loan) on a one-to-four-family dwelling; and
• meets one of the following criteria: (1) the institution is federally insured or regulated; (2) the mortgage loan referred to is federally guaranteed, insured, or supplemented; or (3) the institution intended to sell the loan to Fannie Mae or Freddie Mac.

• in the preceding calendar year, it originated home purchase loans (including refinancings of home purchase loans) that either: (1) equaled ten percent or more of its loan origination volume, measured in dollars; or (2) equaled $25 million or more;
• on the preceding December 31, had a home or branch office in an MSA⁴⁰ ; and
• either: (1) on the preceding December 31, had total assets of more than $10 million, counting the assets of any parent corporation; or (2) in the preceding calendar year, originated at least 100 home purchase loans, or including refinancings of home purchase loans.

• loans originated or purchased by the institution acting as trustee or in some other fiduciary capacity;
• loans on unimproved land;
• temporary financing (such as bridge or construction loans);
• the purchase of an interest in a pool of loans (such as mortgage-participation certificates);
• the purchase of mortgage loan servicing rights; or
• loans acquired as part of a merger or acquisition or acquisition of all the assets and liabilities of a branch office.

1. To appraise the quality of the financial institution’s compliance management system to ensure compliance with the Home Mortgage Disclosure Act and Regulation C.
2. To determine the reliance that can be placed on the financial institution’s compliance management system, including internal controls, policies, procedures, and compliance review and audit functions for the Home Mortgage Disclosure Act and Regulation C.
3. To determine the accuracy and timeliness of the financial institution’s submitted HMDA-LAR.
4. To initiate corrective action when policies or internal controls are deficient, or when violations of law or regulation are identified.

1. Initial Procedures
   Depository Institutions
1. Determine whether the depository institution is subject to the requirements of HMDA and Regulation C by determining if the regulatory criteria addressed in §203.2(e)(1)(i) - §203.2(e)(1)(iv) are met.
Non-depository Institutions
2. Determine whether the depository institution has a majority- owned mortgage subsidiary that meets relevant criteria contained in §203.2(e)(2)(iii)(A) – §203.2(e)(2)(iii)(B). If all relevant criteria are met, then the subsidiary is subject to the requirements of HMDA and Regulation C.
3. Determine whether there were any mergers or acquisitions since January 1 of the preceding calendar year.
1. Determine whether all required HMDA data for the acquired financial institutions were reported separately or in consolidation. Examination procedures that follow concerning accuracy and disclosure also apply to an acquired financial institution’s data, even if separately reported.
NOTE: If HMDA and Regulation C are applicable, then the following examination procedures should be performed separately for the depository institution and any of its majority-owned mortgage subsidiaries; and a separate checklist should be completed for each institution subject to HMDA and Regulation C. Also, when determining whether a financial institution is subject to HMDA, the examiner should remain cognizant of any newly created MSAs and changes in MSA boundaries, including counties which may have been added or deleted from an MSA, thus causing a financial institution either to become a new HMDA reporter or no longer be a HMDA reporter. Refer to the FFIEC’s web site and to the booklet, "A Guide to HMDA Reporting, Getting It Right!" This can be a source of reference, as it lists counties in an MSA by state.
2. Evaluation of Compliance Management
Examiners should obtain necessary information necessary in order to make a reasonable assessment regarding the institution’s ability to collect data regarding applications for, and originations and purchases of, home purchase loans, home improvement loans, and refinancings for each calendar year in accordance with the requirements of the HMDA and Regulation C.


Examiners should determine, through a review of written policies, internal controls, the HMDA Loan Application Register (HMDA-LAR), and discussions with management, whether the financial institution has adopted and implemented comprehensive procedures to ensure adequate compilation of home mortgage disclosure information in accordance with §203.4(a)-(e).


During the review of the financial institution’s system for maintaining compliance with HMDA and Regulation C obtain and review policies and procedures along with any applicable audit and compliance program materials to determine whether:


1. Policies and procedures and training are adequate, on an ongoing basis, to ensure compliance with the Home Mortgage Disclosure Act and Regulation C.
2. Internal review procedures and audit schedules comprehensively cover all of the pertinent regulatory requirements associated with HMDA and Regulation C.
3. The audits or internal analysis performed include a reasonable amount of transactional analysis, written reports that detail findings and recommendations for corrective actions.
4. Internal reviews include any regulatory changes that may have occurred since the prior examination.
5. The financial institution has assigned one or more individuals responsibility for oversight, data update, and data entry, along with timeliness of the financial institution’s data submission. Also determine whether the Board of Directors is informed of the results of all analyses.
6. The individuals who have been assigned responsibility for data-entry receive appropriate training in the completion of the HMDA-LAR and receive copies of Regulation C, Instructions for Completion of the HMDA-LAR (Appendix A of Regulation C), the Staff Commentary to Regulation C, and the FFIEC’s "Guide to HMDA Reporting, Getting it Right!" in a timely manner.
7. The institution has ensured effective corrective action in response to previously identified deficiencies.
8. The financial institution performs HMDA-LAR volume analysis from year-to-year to detect increases or decreases in activity for possible omissions of data.
9. The financial institution maintains documentation for those loans it packages and sells to other institutions.
3. Evaluation of Policies and Procedures Evaluate whether the institution’s informal procedures and internal controls are adequate to ensure compliance with HMDA and Regulation C. Consider the following:
1. Whether the individual(s) assigned responsibility for the institution’s compliance with HMDA and Regulation C possesses an adequate level of knowledge and has established a method for staying abreast of changes to laws and regulations.
2. If the institution ensures that individuals assigned compliance responsibilities receive adequate training to ensure compliance with the requirements of the regulation.
3. Whether the individuals assigned responsibility for the institution’s compliance with HMDA and Regulation C know whom to contact, at the financial institution or their supervisory agency, if they have questions not answered by the written materials.
4. If the institution has established and implemented adequate controls to ensure that separation of duties exists (e.g. data entry, review, oversight, and approval).
5. Any internal reports or records documenting policies and procedures revisions as well as any informal self-assessment of the institution’s compliance with the regulation.
6. If the institution offers pre-approvals, whether the institution’s pre-approval program meets the specifications detailed in the HMDA regulation. If so, whether the institution’s policies and procedures provide adequate guidance for the reporting of pre-approval requests that are approved or denied in accordance with the regulation.
7. Whether the institution’s policies and procedures address the reporting of (1) non-dwelling secured loans that are not dwelling-secured that are originated in whole or in part for home improvement and classified as such by the institution; and (2) dwelling-secured loans that are originated in whole or in part for home improvement, whether or not classified as such.
8. Whether the institution established a method for determining and reporting the lien status for all originated loans and applications.
9. Whether the institution’s policies and procedures contain guidance for collecting ethnicity, race and sex for all loan applications, including, particularly, applications made by telephone, mail and Internet.
10. Whether the institution’s policies and procedures address the collection of the rate spread or (difference between the APR on the loan and the comparable Treasury yield) and whether the institution has established a system for tracking rate lock dates and calculating the rate spread adequately determining the APR spread.
11. Whether the institution’s policies and procedures address how to determine if a loan is subject to the Home Ownership and Equity Protection Act and the reporting of applications involving manufactured home loans.
12. Whether the HMDA-LAR is updated within 30 days after the end of each calendar quarter, beginning each January 1 of each calendar year.
13. Whether data are collected at all branches, and if so, whether the appropriate personnel are sufficiently trained to ensure that all branches are reporting data under the same guidelines.
14. Whether the financial institution’s loan officers (including loan officers in the commercial loan department who may handle loan applications reportable under HMDA, including loans and applications for multi-family or mixed-use properties and small business refinances secured by residential real estate) are informed of the reporting requirements necessary to assemble the information.
15. Whether the Board of Directors has established an independent review of the policies, procedures, and HMDA data to ensure compliance and accuracy, and is advised each year of the accuracy and timeliness of the financial institution’s data submissions.
16. What procedures the institution has put in place to comply with the requirement to submit data in machine-readable form and whether the institution has some mechanism in place to ensure the accuracy of the data that are submitted in machine-readable form.
17. Whether the financial institution’s loan officers are familiar with the disclosure, reporting and retention requirements associated with the loan application registers and the FFIEC public disclosure statements.
18. Whether the financial institution’s loan officers are familiar with the disclosure statements that will be produced from the data.
19. Whether the financial institution’s loan officers are aware that civil money penalties may be considered imposed when an institution has submitted erroneous data and has not established adequate procedures to ensure the accuracy of the data.
20. Whether the financial institution’s loan officers are aware that correction and resubmission of erroneous data may be considered required when data are incorrectly reported for at least 5 percent of the loan application records.
4. Transaction Testing
Verify that the financial institution accurately compiled home mortgage disclosure information on a register in the format prescribed in Appendix A of Regulation C, by testing a sample of loans and applications.


The review of the HMDA-LAR, for submitted data, should include a sample of the applications represented on the HMDA-LAR to verify the accuracy of each entry. A sample of the current year’s data should also be reviewed. The samples may include the following:


1. Approved and denied transactions subject to HMDA
2. Housing-related purchased loans
3. Withdrawn housing- related loan applications
NOTE: Current calendar year LAR recording errors may also be violations of Section 338.8 of Fair Housing. When conducting the review of the LAR for accuracy, the examiner should review each line and column. Errors in the following data columns would significantly affect the decision of whether to require resubmission: race, sex, income, ethnicity, rate spread, Home Ownership and Equity Protection Act status, type of action taken, census trace, property type, pre-approval indicator, and lien status. Therefore, these areas should be closely reviewed.


5. Disclosure and Reporting
1. Determine whether the financial institution:
1. Submits its HMDA-LAR to the appropriate supervisory agency no later than March 1 following the calendar year for which the data are compiled and maintains its HMDA-LAR for at least three years thereafter.
   NOTE: Financial institutions that report twenty-five or fewer entries on their HMDA-LAR may collect and report HMDA data in a paper form. Any financial institution opting to submit its data in such a manner must send two copies that are typed or computer printed. They must use the format of the HMDA-LAR, but need not use the form itself.
2. Makes its FFIEC disclosure statement available to the public at its home office no later than three business days after receiving its statement from the FFIEC.
3. Either (1) makes its FFIEC disclosure statement available to the public in at least one branch office in each additional metropolitan area MSA or MD where the financial institution has offices within ten business days after receiving the disclosure statement from the FFIEC; or (2) posts the address for sending written requests for the disclosure statement in the lobby of each branch office in additional metropolitan areas MSAs or MDs where the institution has offices and mails or delivers a copy of the disclosure statement within 15 calendar days of receiving the written request.
4. Makes its modified HMDA-LAR (loan application number, date application received, and date action taken excluded from the data) available to the public by March 31 for requests received on or before March 1, and within 30 days for requests received after March 1.
5. Has maintained its modified HMDA-LAR for 3 years and its disclosure statement for 5 years. It has policies and procedures to ensure its modified HMDA-LAR and disclosure statement are available to the public during those terms.
6. Makes available the modified HMDA-LAR and disclosure statement for inspection and copying during the hours the office is normally open to the public for business. If it imposes a fee for costs incurred in providing or reproducing the data, the fee is reasonable.
7. Posts a general notice about the availability of its HMDA data in the lobby of its home office and of each branch office located in an MSA metropolitan area.
8. Provides promptly upon request the location of the institution’s offices where the statement is available for inspection and copying, or includes the location in the lobby notice.
2. If the financial institution has a subsidiary covered by HMDA, determine that the subsidiary completed a separate HMDA-LAR and either submitted it directly or through its parent to the parent’s supervisory agency.
3. Determine that the HMDA-LAR transmittal sheet is accurately completed and that an officer of the financial institution signed and certified to the accuracy of the data contained in their register. (Appendix A of Regulation C) Note: If the HMDA-LAR was submitted via the Internet, this signature should be retained on file at the institution.
4. Review the financial institution’s last disclosure statement, HMDA-LAR, modified HMDA-LAR, and any applicable correspondence, such as notices of noncompliance. Determine what errors occurred during the previous reporting period. If errors did occur, determine what steps the financial institution took to correct and prevent such errors in the future.
   NOTE: Significant errors should be corrected and resubmitted to:
   
   Federal Reserve Board
   Attention: FDIC HMDA Processing
   Fifth Floor
   1709 New York Avenue, NW
   Washington, D.C., 20006
   (202) 452-2016 (HMDA Assistance Line)
   
   Adequate notation of errors and omissions should be made on all records currently available to the public. Financial institution controls should be revised and corrected to prevent recurrence. The institution should review 1-3 years of HMDA-LAR data to correct significant inaccuracies.
5. Determine if the financial institution has the necessary tools to compile the geographic information.
1. Determine if the financial institution uses the U.S. Census Bureau’s Census Tract Street Address Lookup Resources for 2000, the Census Bureau’s 2000 Census Tract Outline Maps, LandView 5 equivalent materials available from the Census Bureau or from a private publisher, or an automated geocoding system in order to obtain the proper census tract numbers.
2. If the financial institution relies on outside assistance to obtain the census tract numbers (for example, private "geocoding" services or real estate appraisals), verify that adequate procedures are in place to ensure that the census tract numbers are obtained in instances where they are not provided by the outside source. For example, if the financial institution usually uses property appraisals to determine census tract numbers, it must have procedures to obtain this information if an appraisal is not received; such as in cases where a loan application is denied before an appraisal is made.
3. Verify that the financial institution has taken steps to ensure that the provider of outside services is using the appropriate 2000 Census Bureau data.
4. Verify that the financial institution uses current MSA and MD definitions to determine the appropriate MSA and MD numbers and boundaries. MSA definitions and numbers (and state and county codes) are available from the supervisory agency, the "FIPS PUB 8-6, Metropolitan Statistical Areas" (as updated periodically), or "A Guide to HMDA Reporting, Getting it Right!"
6. For banks and savings associations required to report data on small-business, small-farm, and community development lending under the CRA, verify that they also collect accurate data on property located outside metropolitan areas MSAs or MDs in which the institution has a home or branch office, or outside any metropolitan areaMSAs or MDs.

1. Summarize the findings, supervisory concerns, and regulatory violations.
2. For the violations noted, determine the root cause by identifying weaknesses in internal controls, audit and compliance reviews, training, management oversight, or other factors; also, determine whether the violation(s) are repetitive or systemic.
3. Identify action needed to correct violations and weaknesses in the institution’s compliance system.
4. Discuss findings with the institution’s management and obtain a commitment for corrective action.

• for the use of personal property by an individual (natural person),
• to be used primarily for personal, family, or household purposes,
• for a period of more than 4 months (week-to-week and month-to-month leases do not meet this criterion, even though they may be extended beyond 4 months), and
• with a total contractual cost of no more than $25,000.

• for business, agricultural or made to an organization or government,
• for real property,
• for personal property which are incidental to the lease of real property, subject to certain conditions, and
• for credit sales, as defined in Regulation Z. §226.2(a)(16).

• that the transaction is for a lease
• the total amount due prior to or at lease signing or delivery
• the number, amounts and due dates or periods of the scheduled payments
• a statement of whether or not a security deposit is required.

• If lessors give a percentage rate in an advertisement, the rate cannot be more prominent than any of the other required disclosures. They must also include a statement that "this percentage may not measure the overall cost of financing this lease." The lessor cannot use the term "annual percentage rate," "annual lease rate," or any equivalent term.
• Some fees (license, registration, taxes, and inspection fees) may vary by state or locality. An advertisement may exclude these third-party fees from the disclosure of a periodic payment or total amount due at lease signing or delivery, provided the ad states that these have been excluded. Otherwise, an ad may include these fees in the periodic payment or total amount due, provided it states that the fees are based on a particular state or locality and indicates that the fees may vary.

1. To assess the quality of the institution’s compliance management system for the Consumer Leasing Act.
2. To determine that lessees of personal property are given meaningful and accurate disclosures of lease terms.
3. To determine if the limits of liability are clearly indicated to the lessees and correctly enforced by the institution.
4. To ensure that the financial institution provides accurate disclosures of its leasing terms in all advertising.

1. Review the institution’s procedures for providing disclosures to ensure that there are adequate controls and procedures to effect compliance.
2. Review the disclosures provided by the institution.
1. Are the disclosures clear and conspicuous and provided in writing in a form the consumer may keep? Alternatively, are they provided electronically where agreed to by the consumer? (§213.3(a) & §213.3(a)(5))⁴⁵
2. Are the disclosures given in a dated statement and in the prescribed are in the format prescribed? (§213.3(a)(1))
3. Is the information required by §213.4(b) through (f), (g)(2), (h)(3), (i)(1), (j), and (m)(1) segregated and in a form substantially similar to the model in Appendix A? (§213.3(a)(2))
4. Are the disclosures timely? (§213.3(a)(3))
5. If the lease involves more than one lessee, are the disclosures provided to any lessee who is primarily liable? (§213.3 (c))
6. If additional information is provided, is it provided in a manner such that it does not mislead or confuse the lessee? (§213.3(b))
7. Are all estimates clearly identified and reasonable? (§213.3(d))
8. Are the disclosures accurate and do the disclosures contain the information required by §213.4 (a ) through (t)? (§213.4)
9. Are disclosures given to lessees when they "renegotiate" or "extend" their leases? (§213.5)

1. Review the lease estimates and calculations to ensure that there is not any unreasonable balloon payment expected of the lessee in the following circumstances:
• at early termination,
1. Does the lessor disclose the conditions under which the lease may be terminated early and the amount and method of determining the amount of any early termination charges? (§213. 4(g)(1)
2. Are any early termination charges reasonable? (§213. 4(g)(1), 4(q))
• at end of lease term, for wear and use,
1. If the lessor sets standards for wear and use of the leased vehicle are the amounts or method of determining any charge for excess mileage disclosed? (§213. 4(h)(3))
2. Are standards for wear and use reasonable? (§213. 4(h)(2))
• at end of lease term (for open-end leases), and
1. Does the lessor disclose the limitations on the lessee’s liabilities at the end of the lease term? (§213.4(m)(2))
2. Are the lessee and lessor permitted to make a mutually agreeable final adjustment regarding excess liability? (§213.4(m)(3))
• in delinquency, default or late payment.
1. Does the lessor disclose penalties or other charges for delinquency, default or late payments? (§213. 4(q))
2. Are the penalties or other charges reasonable? (§213. 4(q))

1. Review advertising policies and procedures used by the institution to ensure that there are adequate controls and procedures to effect compliance.
2. Review a sample of the institution’s advertisements.
1. Do the advertisements advertise terms that are usually and customarily available? (§213.7(a))
2. Are the disclosures contained in the advertisements clear and conspicuous? (§213.7(b))
3. Do catalog/multiple page advertisements comply with the page reference requirements? (§213.7(c))
4. When triggering terms are used, do the advertisements contain the additional required information? (§213.7(d))
5. Do merchandise tags which use triggering terms refer to a sign or display that contains the additional required disclosures? (§213.7(e))
6. If television or radio advertisements use triggering terms, if they do not contain the additional terms do not include the additional terms required by §7(d)(2) when triggering terms are used, do they use alternative disclosure methods (direct consumers to a toll free number or written advertisement)? (§213.7(f))

1. Are records and other evidence of compliance retained for a period of no less than two years? (§213.8)