sc 2016 core instructor-notes v-10-5 2016 core instructo… · answers after the segment. trid...

SC Core 20161 Students should have the Student

Handout and the TRID ToolKit.

Opening Exercise

❖ Divide into groups ❖ Identify Advantages, Disadvantages

30 year fixed mortgage 15 year fixed mortgage Adjustable rate mortgage

Student handout: 1

2 Student Handout 1: Opening Exercise Divide into groups of two to four. Get acquainted while identifying advantages and disadvantages of three different types of loans. Allow 5 minutes Do NOT give the answers now. Explain that you will provide in a few minutes.

TRID Pretest

Student handout: 1

3 Student Handout 1: TRID pretest

Allow 3-4 minutes. You will provide answers after the segment.

TRID Learning Objectives

❖Explain value of Your Home Loan Toolkit

❖ Identify six pieces of information that trigger a new loan estimate

❖Describe time frames ❖Distinguish between Loan Estimate

(LE) and Closing Disclosure (CD)

Student handout: 1

4 Student Handout 1: TRID learning objectives READ and move on.

TRID Overview❖Applicable TRID transactions

Replace HUD-1, GFE, T-I-L Lenders are responsible

❖Does NOT apply to the following HELOCS Mortgage secured by moveable dwelling Reverse mortgages Cash transactions Loans for commercial purposes

Student handout: 2

5 Student Handout 2: TRID overview The old forms—HUD-1, GFE, and TIL disclosures—will still be used for most HELOCs and reverse mortgages. Lenders are responsible for timely disclosures. READ and move on.

T R I D TILA RESPA Integrated Disclosure

New Closing Requirements ✴ Lenders Must Use ✴ Agents Should Distribute

to Buyers Early

As the Booklet has been redesigned to help consumers more effectively shop for a mortgage, ALL MARKET PARTICIPANTS are also encouraged to provide the Booklet to consumers at any other time, preferably as early in the home or mortgage shopping process as possible.

Student handout: 2

6 Student Handout 2: Federal Register All MARKET PARTICIPANTS include real estate licensees, especially those who are representing buyers.

What can an agent offer to a buyer, whether a client or customer, in addition to opening the front door? They can provide this booklet, early in the buying process, and can discuss the information in this booklet in an informative and helpful manner.

ToolKit

❖Step-by-step guide Lenders provide No one is reviewing with borrowers Great opportunity for real estate licensees

❖Can be downloaded English, Spanish Print, electronic

Student handout 2

7 Student Handout 2: ToolKit Many lenders are simply emailing the ToolKit and asking consumers to acknowledge receipt. There is no requirement that the lender discuss and/or explain. Licensees can make copies or buy the booklets. Individuals and companies can include their logos, if desired.

Your home loan toolkitA step-by-step guide

ToolKit

8 Students should now CLOSE the student handout and open the ToolKit.

How to Use the ToolkitLocation Symbol Orients you to where you are in the home buying process.

Pencil Tells you it is time to get out your pencil or pen to circle, check, or fill in numbers.

Magnifying Glass Highlights tips to help you research further to find important information.

Speech Bubble Shows you conversation starters for talking to others and gathering more facts.

ToolKit: 1

9 ToolKit 1: How to use the ToolKit Explain that these are instructions to the buyers.

Choose the Best Mortgage for You

❖Define affordable ❖Talk to Others ❖What’s important to you?

Large mortgage More financial flexibility Budget for all monthly housing costs Meeting other financial goals

ToolKit: 3

10 ToolKit 3: Choose the best mortgage for you Licensees can use the Toolkit to help buyers define what “affordable” is for their families. Buyers are encouraged to talk to each other and then fill in the blanks with numbers appropriate for them. Read and go on.

Step 1 - Estimate Monthly Payment

$ Principal & Interest + Mortgage Insurance

+ Property Taxes + Homeowners Insurance + Assn. or Condo Fees

= Monthly Payment

ToolKit: 4

11 ToolKit 4: Estimate monthly payment Agents should be able to explain each of these terms. Don’t assume that the general public knows the difference. * Principal: the money you borrow * Interest: the “rent” you pay for the use of someone’s money

Step 2: Loan to Income Percentage

$ Monthly Mortgage Payment

÷ Monthly Income Before Taxesx 100 = %

From Step #1

Should be 28% or Less

ToolKit: 5

12 ToolKit 5: Loan to income percentage Buyers can fill in the blanks. For the lowest interest rates, the loan to income percentage should be 28% or less.

Step 3: What’s Left?

❖Total Income After Taxes ❖Minus Payments FOR

Home Payment Car Student Loan(s) Credit Cards Other

❖ Income Minus Debt Payments

This must cover all other

bills

ToolKit: 5

13 ToolKit 5: What’s left? Page is self explanatory.

Step 4: Your Choice

❖Are you comfortable with this amount for housing?

❖How Much Is Left For Other Expenses?

ToolKit: 5

14 ToolKit 5: Your choice Buyers should ask themselves, “Can we live on what we have left over after making house payments?”

2. Understand Your Credit

❖Credit Scores Big Effect on Mortgage Rate & Fees Pay Bills on Time ≈ 35% How Much Debt You Have ≈ 30%

❖Get Credit Reports From www.annualcreditreport.com www.myfico.com

ToolKit: 6

15 ToolKit 6: Understand your credit * The ONLY way to improve credit is to pay off debts. * The ONLY website authorized by federal law for FREE credit reports is www.annualcreditreport.com. It is a simple site with simple responses to simple questions. * FICO scores are used by most credit bureaus; they are the foundation on which credit bureaus compute their scores. * It is worthwhile to look at the MYFICO website. By law, MyFICO must offer suggestions on how to improve the credit score, and inquiries here may not lower the score. Anyone who signs up with MYFICO should recognize that they might be signing up for on-going payments, i.e., month-to-month.

Top Factors Affecting Score

ToolKit: 6

16 ToolKit 6: Top factors affecting score The latest version, MYFICO 8, considers payment history, length of credit history, credit mix, amount of debt, and amount of new credit. * Sensitive to high credit card usage * Not so sensitive to isolated late payments * Will lose points with numerous late payments * Ignores small-balance “nuisance” collection accounts in which the original balance was less than $100

Effect of Credit Scores$150,000, 30-Year Fixed Rate Mortgage

$142 per Month More

ToolKit: 6

17 ToolKit 6: Impact of credit scores • The higher the score, the less the

borrower pays in interest • The lower the score, the more the

borrower pays in interest

Credit scores also affect the cost of homeowners insurance.

Tips

❖Don’t buy on credit until after closing

❖Correct errors before applying

ToolKit: 6

18 ToolKit 6: Impact of credit scores 1. Emphasize to buyers that they should

wait until after closing to make any new purchases on credit

2. Emphasize that borrowers should correct errors before applying for a loan.

Your Choice

❖Buy NOW with existing credit score

❖Clean up credit and buy later

ToolKit: 6

19 ToolKit 6: Your choice With this BASIC information, buyers can make a choice:

Buy NOW with existing credit score OR Clean up credit and buy later

Fixed Rate Mortgages

30 Year Fixed Advantages ▪ Lower Payments ▪ Easier to Qualify

Disadvantages ▪ Pay More Interest ▪ Higher Interest Rate

BEST for those expecting to own for a long time and want lower payments

15 Year Fixed

▪ Lower Interest ▪ Pay Off Faster

▪ Harder to Qualify ▪ Higher Payments

BEST for those who can afford higher monthly payments

ToolKit: 7

20 ToolKit 7: Pick the mortgage that works for you Instructors, please note that the lines “fly in” with your clicks. Answers to the Opening EXERCISE. Licensees should be able to define these options to buyers. Remember, licensees can present information; it is up to the consumer to make the decisions.

Adjustable Rate Mortgage❖Advantages

Low Initial Interest Rate Easier to Qualify

❖Disadvantages Interest Rate Will Rise May Not Be Affordable

❖BEST for Short Term Ownership

ToolKit: 7

21 ToolKit 7: Pick the mortgage that works for you Instructors, please note that the lines “fly in” with your clicks. Here are the answers to the Opening EXERCISE. Licensees should be able to define these options to buyers. Lenders might not take the time to educate the buyers. Remember, licensees can present information; it is up to the consumer to make the decisions.

Your Choice

❖ Fixed Rate Mortgage 30 Year 15 Year

❖ Adjustable Rate Mortgage (ARM)

ToolKit: 7

22 ToolKit 7: Your choice Licensees can make the information available to their buyers. Emphasize that it is up to the buyers to make the final choice.

Risky Loan Features

❖Balloon Payment

❖Prepayment Penalty

ToolKit: 7

23 ToolKit 7: Risky loan features Balloon Payment: One LARGE payment after a certain amount of time. Sometimes it is okay, but if money is tight, borrower may not be able to refinance or sell. Prepayment Penalty: Borrower owes money if the borrower wants to pay part or all of the loan early, even when selling the property. Not found in FHA, VA, and many loans sold to Fannie Mae and Freddie Mac.

Down Payment❖20% or More

Best Interest Rates Most Options Don’t Deplete Savings

❖5% to 19% Private Mortgage Insurance (PMI) No PMI (higher interest rate)

ToolKit: 8

24 ToolKit 8: Choose the right down payment Explain to the buyers that they have choices: • At least 20% down usually provides the

most options, but if this much totally drains their savings, perhaps they should think twice

• Low down payments are typically more expensive because they represent more risk.

• Private mortgage insurance (PMI) can add to the monthly payment.

Little or No Down Payment❖ FHA ❖ VA ❖USDA ❖ Some Conventional Loans

ToolKit: 8

25 ToolKit 8: Choose the right down payment Read and more on.

Mortgage Prepayments

❖Advantages Lowers Loan Interest Cost Shortens Payoff Time May Cancel PMI

❖How to Prepay Always Make Regular Payment Add Extra Principal ▪ Any Extra Amount Okay ▪ Per Amortization Schedule is Better

ToolKit: 8

26 ToolKit 8: Advantages of prepayments Remind that borrowers have the option of making prepayments. Read and go on.

Prepay Per Amortization

Schedule

Orig. Pmt #

Orig. Due Date

Pmt Type

Date Paid

Check Amount

Principal Paid

Interest Paid

Interest Saved

Principal Balance

1 Jun-2012 Reg 5/31 $1,265 $777 $488 -- $179,223

2 Jul-2012 Prin 5/31 -- $779 -- $485 $178,444

3 Aug-2012 Prin 5/31 $1,561 $782 -- $483 $177,662

4 Sep-2012 Reg 6/27 $1,265 $784 $481 -- $176,878

5 Oct-2012 Prin 6/27 $1,265 $786 $479 -- $176,092

6 Nov-2012 Prin 6/27 $788 $788 $477 $175,304

Sample Amortization Schedule

Month #1 Regular + 2 Extra

Month #2 Regular Only

Month #3 Regular + 1 Extra

3 Months SoonerNot in ToolKit

❖ Always Make Regular Payment (Pink) ❖ Optionally Make Extra Payment (Blue) ❖ Benefits

Shorten Payoff Time Lower Interest Cost Match Bank Records

$1,445

Interest Saved

27 NOT IN TOOLKIT Escrow Payments – are not shown in this sample to simplify things. Must Always Make Regular PITI Monthly Payment (Pink Rows) Optional – Make additional Principal Payments as your finances permit (Blue Rows) Write two checks, one for regular payment amount and another for the extra principal.

NOT in Presentation

❖This slide contains additional notes for advantages of prepayments.

28 Benefits: • Less Interest paid Each extra Principal

payment eliminates the Interest otherwise due for that payment

• Shorten Payoff: Each extra payment shortens the term by 1 month.

Match Lender schedule: Match ending balances so that you and the bank records agree (if not, there is a problem). It might be off by a penny every so often due to rounding by banks which automatically re-amoritize after every payment is received. Simply adjust the payment amount to match bank records.

Trade-offs Points vs. Interest

❖Pay Points Up Front Lower Interest Rate

❖No Points Current Interest Rate

❖Want Cash for Closing Higher Interest Rate

ToolKit: 9

29 ToolKit 9: Trade-off between points and interest rate One easy way to discuss points: The lender will receive its profit one way or another: • Pay more cash up front: lower interest

for the life of the loan • No cash up front: pay higher interest for

the life of the loan • Need cash for closing: pay even higher

interest rate over the life of the loan

Shop Several Lenders

❖Get LEs from Three Lenders ❖Loan Officer Does Not Work for

the Buyer May not Provide for Best Fit May not Provide Lowest Cost Loan

❖ Illegal for Lender to Pay Loan Officer to Steer into Higher Cost Loan

ToolKit: 10

30 ToolKit 10: Shop several lenders Borrowers are encouraged to visit several lenders to learn about loan costs. If talking to just one lender, the borrowers might consider more than one type of loan. Initially, lenders may charge only a small fee for getting the credit report; some lenders proceed without that fee. • TIP: A loan officer is not necessarily shopping

on borrower’s behalf or providing the borrower with the best fit or the lowest cost loan.

• TIP: It is illegal for a lender to pay a loan officer more to steer the borrower into a higher cost loan.

More Research

❖ Talk to real estate professionals Learn more about loan costs and about comparing options at:

www.consumerfinance.gov/owning-a-home

❖ Talk to several lenders about options

ToolKit: 10

31 ToolKit 10: More research Again, ToolKit suggests that consumers talk to real estate professionals…

Compare Loan Offers

Loan 1 Loan 2 Loan 3

Lender Name

Loan Amount $ $ $

Interest Rate % % %

Interest Type Fixed

Adjustable

Fixed

Adjustable

Fixed

Adjustable

Monthly P&I $ $ $

Mortgage Ins. $ $ $

Total Loan Costs $ $ $

ToolKit: 11

32 ToolKit 11: Compare loan offers Borrowers are encouraged to compare loan offers. ToolKit shows them what to compare.

Choose Your Mortgage

Confirm Your Decision Can Afford The Loan Comfortable with Monthly Payment Have Shopped Around No Risky Features Know if P&I Payment Will Increase in the Future

ToolKit: 12

33 ToolKit 12: Choose your mortgage Read and move on.

Intent to Proceed

❖ Loan Estimate Received Not Yet Approved or Denied Initial Estimate - Not Final Not Committed to Lender Yet No Fees Due Yet

❖Notify Loan Officer to Proceed

ToolKit: 12

34 ToolKit 12: Intent to proceed Until the borrower tells the lender to proceed, the lender may require only a nominal fee to check a credit report. Lender may NOT ask for more money until the borrower notifies the loan officer to PROCEED.

❖ Lender must receive Documents ❖ALIENS

Address of the Property Loan Amount Requested Income Estimated Property Value Name Social Security Number

ToolKit: 12

Before Charging Fees35 This slide is NOT in TOOLKIT

ALL six of these pieces of information must be in place BEFORE the lender can process the loan application and charge additional fees. IF students are taking notes in their ToolKits, they may want to add this information.

Rate Lock

❖Mortgage Interest Rates Change Daily Hourly

❖Rate Lock Sets Interest Rate for Set Period of Time 30, 45, 60 Days

ToolKit: 12

36 ToolKit 12: Rate lock Interest rate on Loan Estimate is not a guarantee. If the rate is “floating,” it may change at a later time. Also, these changes in the application can change the interest rate: • Loan amount • Credit score • Verified income

Rate Locks

❖Advantage Rate Won’t Change

❖Disadvantages More Expensive to Extend May Prevent Getting a Lower Rate later

ToolKit: 13

37 ToolKit 13: Rate lock Good news: Once “locked,” the interest rate will stay the same until closing or date of expiration. Bad news: It may be hard to extend the “lock,” and/or the borrower may not be able to get a lower rate later.

Emphasize that the licensee provides information, but the borrower must make the final decision.

Avoid Pitfalls❖Don’t Sign Blank Documents ❖Don’t Assume You Are Alone ❖Don’t Take on More Than You

Want or Can Afford ❖Don’t Count on Refinancing ❖Don’t Fudge Numbers ❖Don’t Hide Important

Financial Information

ToolKit: 14

38 ToolKit 14: Avoid pitfalls Further instructions to borrowers. The students can skim the information as you read the topics and MOVE ON.

Handle Problems

❖Have Experienced a Problem with Loan Application

❖Possible Discrimination ❖Have a Complaint ❖Might Be Victim of a

Predatory Lender or Loan Fraud

ToolKit: 15

39 ToolKit 15: Handle problems Licensees, who are looking for clients for life, can review possible problems that might develop in the future. ENCOURAGE buyer/borrowers to deal with issues ahead of time, not later.

READ and move on.

Your Closing

❖Shop for Mortgage Closing Services

Closing Agent Title Insurance Home Inspector

ToolKit: 16-17

40 ToolKit 16-17: Your closing The booklet again suggests that buyers should talk to their real estate professional as well as their friends, for suggestions of whom to use. • Always emphasize that licensees can and

should provide information, but not make decisions.

• Only the parties who are affected by the decision should make the decision.

Review Revised LE

❖Why LE May Change Facts on Application Wrong or Changed Applicant Asked for Change Applicant Did Not Qualify for Original Loan Offer Loan Estimate Expired

ToolKit: 18

41 ToolKit 18: Review your revised Loan Estimate (LE) Instructors: Do not spend time on the Loan Estimate at this time. You will review it later.

It’s important to recognize WHY the numbers on a Loan Estimate can change. Changes made to the LE may trigger another 3 days to receive the LE and trigger a closing no less than 7 days later.

Changes to LE that Cause Delay❖Borrower Makes Changes

Different Loan Program Different Down Payment Appraisal Higher or Lower Took Out New Loan Missed a Payment

❖Lender Unable to Document

Overtime, Bonus All Sources of Income

ToolKit: 18

42 ToolKit 18: Changes to LE that cause delay Remind licensees to remind their buyers: • DO NOT take out a new loan and • DO NOT change employment, until after

closing

Emphasize that IF the borrower makes changes OR the lender is unable to document all sources of income, EXPECT delays.

Understand Closing Disclosure (CD)

❖ Expect Official CD 3 Days Before Closing ❖ Five Page Document

Loan Details Key Terms Fee Payments

❖ Services you can“Shop For”

May Increase 10% or less

ToolKit: 19

43 ToolKit 19: Understand the Closing Disclosure (CD) Instructors: Do not spend time on the Closing Disclosure at this time. You will review it later. Licensee should contact their buyers three days before scheduled closing. Ask: Did you receive your Closing Disclosure? Buyers/licensees should compare the first two pages of the CD to the Loan Disclosure. There should minimal differences.

Closing Document (CD)

❖Other Costs Property Taxes Homeowner’s Insurance Premiums Any Portion of Mortgage Payment Required Flood Insurance, , if Required

ToolKit: 19

44 ToolKit 19: Understand the Closing Disclosure (CD) Instructors: Do not spend time on the Closing Disclosure (CD) at this time. You will review it later. Read and move on.

Review Closing Disclosure

❖Page 1 (same as LE-1) Review Monthly Payment Costs at Closing Cash to Close (Certified Check)

❖Page 2 (same as LE-2) Total Loan Costs Prepaids Escrows

ToolKit: 20-21

45 ToolKit 20-21: What is your Closing Disclosure (CD)? Total Loan Costs • Origination charges: fees charged by the

lender to make your loan. • Prepaids: Homeowner’s insurance is usually

paid in advance as well as some taxes. • Escrow or Impound Account: A special

account where monthly insurance and tax payments are held until they are paid each year.

Borrower will be told how much is required. Lender must follow federal rules to ensure that they do not end up with a surplus or shortage.

Closing Disclosure (CD)

❖Your Loan Costs (from LE, page 1) Lender’s Origination Costs Discount Points Services You Shopped For Services Required by Lender ▪ Appraisals ▪ Credit Reports

Bring Full Amount to Closing

ToolKit: 20

46 ToolKit 20: What is your Closing Disclosure (CD)? Instructors: Do not spend time on the Closing Disclosure at this time. You will review the CD later.

The first two pages of the Closing Disclosure (CD) are the pages from the Loan Estimate (LE).

No Surprises!1. Is the interest rate what I thought

it would be? 2. Do I have a prepayment or

balloon payment? 3. Does my payment change? 4. Am I paying or receiving

POINTS? 5. I know if I have an escrow

account

ToolKit: 21

47 ToolKit 21: Use CD to confirm loan details Review the bottom of page 21.

Now is the time for the borrower to determine that the lender is NOT slipping in something at the last minute.

Closing Disclosure

❖Page 3 of 5 Table to verify any changes Summaries of Transactions Calculate Cash to Close Similar to HUD-1

ToolKit: 22

48 ToolKit 22: CD 3-5 are in addition to the LE Instructors: Do not spend time on the Closing Disclosure at this time. You will review the CD later.

Closing costs are only a part of the total cash that borrowers will need to bring to closing. Ensure that buyers are aware of WHY the changes. Page 3 is very similar to HUD-1 Summaries: The section at the bottom of the page sums up how the money flows among you, the lender, and the seller.

Closing Disclosure

❖Page 4 of 5 - More disclosures Assumption Demand Feature Late Payments Partial Payments Escrow Account

ToolKit: 22

49 ToolKit 22: CD 3-5 add to the LE Instructors: Do not spend time on the Closing Disclosure at this time. You will review the CD later. Page 4 of the CD discusses what is and what is not included in the escrow or impound account.

Buyer/Borrowers are encouraged to understand what is being paid from the account and what they must pay for themselves.

Additional Information about Loan

Loan Calculations Other Disclosures Contact Information Confirm Receipt

Finance Charge: $118,830.27

No Surprises

ToolKit: 23

50 ToolKit 23: Additional information about loan Instructors: Do not spend time on the Closing Disclosure at this time. You will review the CD later. Read and move on.

Summary from LE to CD

❖Page 5 of 5 Finance Charge Annual Percentage Rate (APR)

❖Confirm Receipt

ToolKit: 23 upper left

51 ToolKit 23: Additional information about loan Instructors: Do not spend time on the Closing Disclosure at this time. You will review the CD later.

* Discusses the amount borrowed, the interest that will be paid, and the total amount of money that will need to be repaid over the course of the loan.

* Discussion of the Annual Percentage Rate (APR): the total cost of credit stated as a rate. The APR is generally higher than the interest rate because the APR takes into consideration ALL of the costs of the loan over the full term of the loan.

Owning Your Home

❖Act Fast If Behind on Payments

❖Keep Up with Ongoing Costs ❖Determine Need for Flood

Insurance ❖Understand HELOCs

and Refinancing

ToolKit: 24-25

52 ToolKit 24-25: Owning your home Buyer/Borrowers are provided information about what to do if they get behind on their payments. Self explanatory, move through quickly. NOTE: we have a discussion about flood insurance later in this course. Ask students to close the ToolKit and go to the Appendix of the Student Handout.

Loan Estimate (LE)

Loan Terms

Projected Payments

Estimated Total Monthly Payment

Estimated Taxes, Insurance, Assessments

Costs at Closing

Estimated Cash to Close

Student handout: Appendix 1

Save to compare before closing

53 Return to the student handout for the remainder of the course. Student handout: Appendix 1 Instructors: No one expects you to “teach” the LE or the CD. Simply review each section.

Notice that the screen will change as you click each time. Click, read, and move on.

Loan Estimate (LE)

Loan Costs

• Origination charges

• Services you cannot shop for

• Services that you can shop for

• Total loan costs (A+B+C)


Closing Cost Details (left column)

54 Student handout: Appendix 2 Instructors: No one expects you to “teach” the LE or the CD. Simply review each section.

Notice that the screen will change as you click each time. Click, read, and move on.

Loan Estimate (LE)

Other Costs • Taxes and Other

Government Fees

• Prepaids

• Initial Escrow Payment at Closing

• Other • Total Other Costs • Total Closing Costs

Calculating Cash to Close • Estimated Cash to Close


Closing Cost Details (right column)

55 Student handout: Appendix 2 Instructors: No one expects you to “teach” the LE or the CD. Simply review each section. Notice that the screen will change as you click forward. Read and move on.

Loan Estimate (LE)


❖ Additional info about this loan Lender information Comparisons Other considerations Confirm receipt


Closing Disclosure (CD)


Statement of final loan terms and closing costs

❖ Loan terms ❖ Projected payments ❖ Costs at closing

57 Student handout: Appendix 4 Instructors: No one expects you to “teach” the LE or the CD. Simply review each section. Notice that the screen will change as you click forward. This slide ENDS with Closing Costs and then Cash to Close. Read and move on.

Closing Disclosure (CD)❖Closing costs details

Loan costs

A. Origination fees

B. Services borrower did not shop for

C. Services borrower did shop for

D. Total loan costs


58 Student handout: Appendix 5 Instructors: No one expects you to “teach” the LE or the CD. Simply review each section. Notice that the screen will change as you click forward. This should be familiar as the HUD-1. Read and move on.

Closing Disclosure (CD)❖ Other Costs

E. Taxes and Other Government Fees

F. Prepaids G. Initial Escrow Payment

at Closing H. Other I. Total Other Costs

(Borrower Paid) J. Total Closing Costs

(Borrower Paid)



Closing Disclosure (CD)❖ Calculating Cash to Close ❖ Summaries of Transactions

Borrower’s Transaction (Left Column) Cash to/from Borrower Seller’s Transaction (Right Column)

Cash to/from Seller



Additional Info about Loan❖ Loan disclosures

Assumption Demand feature Late payment Negative amortization Partial payments Security interest Escrow account In the future…


61 Student handout: Appendix 7 Instructors: No one expects you to “teach” the LE or the CD. Simply review each section. Notice that the screen will change as you click forward.

Read and move on..

CD Last Page❖ Loan Calculations ❖ Other Disclosures ❖ Contact Information

Lender Real Estate Brokers Settlement Agent

❖ Confirm Receipt



Summary of ToolKit❖Loan Estimate (LE)

May only charge fees After borrower indicates intent to proceed Remember ALIENS Closing seven days after delivery of LE

Student handout: 3

63 Student handout 3: Summary of ToolKit Instruct students to turn to page 3 in the student handout.

Read and move on.

ALIENS❖Required for Intent to Proceed

Address of property Loan amount requested Income Estimated property value Name Social Security number

Student handout: 3

64 Student handout 3: ALIENS Read and move on.

Revisions Trigger Delays❖ Applicants made changes

Different loan program Amount of down payment

❖ Appraisal came in higher/lower ❖ Basic Loan Product Changed ❖ Lender could not document ❖ Costs changed for

services that borrower cannot shop for

Student handout: 3

65 Student handout 3: Revisions that trigger delays Most of these changes are under the control of the borrower and there should not be any surprises. However, once these changes are made, they may trigger the need for a new LE and a new 3-day waiting period. See next slide.

Changes That Trigger Delays

❖Prepayment Penalty Added ❖Basic Loan Product Changes ❖APR Increases*

More Than 1/8 % for Fixed-Rate More Than 1/4 % for Adjustable Loans

*Since 2009, lenders have been required to provide 3-day review for these changes in APR.

Student handout: 3

66 Student handout 3: Changes that trigger delays These changes from the lender will trigger a delay.

Changes That Do NOT Delay Closing

❖ Unexpected Discoveries on a Walk-Through

❖ Most Changes to Payments Made at Closing

Amount of Real Estate Commission Taxes, Utilities Proration Amount Paid into Escrow

❖ Typos Found at Closing Table

Student handout: 3

67 Student handout 3: Changes that do NOT delay closing Read and move on.

In Closing

❖ New Forms Replace HUD-1 statements

❖ Agents Should Use the Toolkit Early On

Pre-qualification Discussion is a Good Time Gives Buyer Chance for “Sticker Shock” to Sink In No Surprises

Summary

68 NOT in Student Handout: Review. Read and move on.

Small Group Discussion

❖Discuss when and how to best discuss the Toolkit with prospective buyers

69Student handout: 4

69 Small group discussion: How do students plan to use the Toolkit, or explain why they won’t. Allow 5 minutes for discussion; review in 3-4 minutes.

The best time to discuss the Toolkit is before buyers have approached lenders, even a year in advance. Even though lenders are required to provide the Toolkit, they are not required to discuss the information provided to their prospective borrowers.

Answers to Pretest on page 1

1. TRUE

2. FALSE

3. FALSE

4. FALSE

5. FALSE

6. FALSE

7. TRUEPretest 1

70 Student handout 1: Answers to Pretest on page 1 Only respond to queries. 1. TRUE The six triggers are the address of the property, loan amount required, income, estimated property value, name, and social security number (ALIENS) 2. FALSE The TILA-RESPA rules do not apply to HELOCs or reverse mortgages. 3. FALSE Consummation must take place no less than seven business days after the Loan Estimate disclosures are provided to the consumer.

Slide is not in presentation

❖The notes are the rest of the answer key to the first Pretest.

71

71 4. FALSE Creditors originating Home Equity Lines of Credit (HELOCs), reverse mortgages or mortgages secured by a mobile home or by a dwelling that is not attached to real property must continue to use the GRE and the HUD-1. 5. FALSE The creditor must deliver the Loan Estimate or place it in the mail no later than the third business day after receiving the application. 6. FALSE The creditor is not limited in the amount that may be charged for the service of those not on the creditor’s list. 7. TRUE Business days do NOT include Sundays and legal public holidays. END of the second hour.

SC Residential Property Condition Disclosure Statement

❖Pretest

Student handout: 4

72 Student handout: 4 Beginning of third hour Allow 3-4 minutes for the pretest. Avoid giving the answers at this time. You will provide the answers at the end of this segment.

Property Condition Learning Objectives

❖ Disclosure is liability defense shield for licensee and brokerage

❖ Provide examples of disclosure exemptions ❖ Explain difference between no-

representation and failing to answer yes ❖ Importance of owner’s duty to disclose

latent defects ❖ Important for licensee to disclose

Student handout: 4

73 Student handout: 4 READ and move on.


❖Overview Caveat emptor Latent defects Courts emphasize • Seller disclose • Buyer discover

Student handout: 5

74 Student handout: 5 Traditionally, buyers were on their own, caveat emptor, let the buyer beware of conditions. Although property owners have generally been obligated to disclose latent defects, i.e., those unseen problems of which the owner was aware, not every owner did so. Sometimes, the real estate licensee was accused of hiding the facts. Example: tree roots penetrated sewer pipe; owner knew, but did not disclose. The SCRPCDS now places full responsibility on owners to make disclosures about problems that will need to be fixed/repaired.


❖ Liability Defense Shield Owner is responsible for disclosures Licensee should encourage full disclosure Protects licensee

Student handout: 5

75 Student handout: 5 Instructor: The SC Residential Property Condition Disclosure Statement is placed in the appendix, pages 9-13.

Licensees should embrace the Disclosure Statement and recognize that it protects the licensee…and places the burden for disclosure squarely on the owner!


❖Discovery versus Disclosure Owner can only disclose what is known Buyers are obligated to discover

❖Example

Student handout: 5

76 Student handout: 5 The SC Residential Property Condition Disclosure Statement is placed in the appendix, pages 9-13. Licensees should encourage buyers to review a blank statement before they look at properties. Then, buyers can decide in advance if there are issues about which they are concerned and which may not be in the Disclosure Statement. Buyers should be encouraged to expect to hire experts to discover any problems.

SC Residential Property Condition Disclosure Statement❖As-is Condition

Owner does not want to make repairs Owner: Must Disclose Known Problems South Carolina Requirements • Owner must disclose • Conditions that require

repairs by buyers

Student handout: 5

77 Student handout: 5 Sellers can only disclose that of which they have knowledge. Important that buyers determine what is most important to them; not all of their concerns may be addressed in the disclosure.


❖Construct appropriate responses to comments that occur during a listing appointment

78Student handout: 6

78 Using the material found on pages 7-8, ask students to construct responses to questions that owners might ask during a listing appointment. Allow 5 minutes for discussion; you will provide the answers in subsequent slides. Have students “call out” the item number when you review the slides.

1. The South Carolina Residential Property Condition Disclosure Statement found in the South Carolina Code of Laws Title 27, Chapter 50, Article 1 requires that owners of one-to-four family dwellings provide certain statements about the condition of the property before the two parties sign a purchase agreement. (Slide 81) • Applies to these owners: single family home, duplex,

triplex, four-plex (quadraplex) • Does NOT apply to these owners: commercial,

industrial, or dwellings that consist of five or more units. • There are no exemptions for landlords.

This slide is not in presentation

❖More answers to the small group discussion.

79

79 2. In the transfer of a decedent's estate, guardianship, conservatorship, or trust: The party who administers the transfers (personal representative) is NOT required to make the Property Condition Disclosure. The parties who receive the property will be required to make disclosures when they transfer ownership to another. (Slide 85) 3. Some owners mistakenly try to avoid disclosure by indicating that they are selling the property in "as-is" condition. Courts in many states have interpreted this to mean that the owner does not intend to make any additional repairs to the property. The same courts generally do not allow the seller to hide behind "as-is" as a method to avoid making the required disclosures. South Carolina requires that owners must disclose conditions of which they are aware that will require repairs by the buyers. Slide 83

This slide is not in Presentation

❖The answers to the small group discussion.

80

80 4. If the owners know about a problem, the sellers should check "yes." If they don’t know, they should check “no.” When the owners know about a problem and check "no representation," the owners are liable for non-disclosure. Slide 83 5. Checking "No Representation" provides no relief of liability to sellers. Either the owner knows or the owner does not know. If the owner uses “no representation,” buyers are likely to consider that the owner is hiding something. The owner essentially is saying, "I am not saying yes, I know that there is a problem, and I am not saying no, there is no problem; I am just not saying."Slide 83

SC Residential Property Condition Disclosure Statement❖Applies to these owners:

Single family home Duplex (2 units), Triplex (3 units) Four-plex/Quadraplex (4 units)

❖Does NOT apply to these owners: Commercial property Industrial property Dwellings consisting of five or more units

81

Student handout: 7

81 Student handout: 7 Instructors: click slowly for animation.


❖ Responsibility of real estate agent Must disclose any problem of which they are aware Encourage owners to make complete and honest disclosures

❖ Update the form During the transaction If problems arise

Student handout: 7

82 Student handout: 7 A picture of a hidden defect, that the seller had covered over, later discovered by a very unhappy buyer after closing.

On Feb 6, 2016, at 12:07 PM, <[email protected]> wrote: Hi Bill, Yes, Feel free to use the picture for your purposes on the PPT. It would be nice of you to attribute the picture to PissedConsumer on PPT…Thank you - Mike


❖Types of owner responses Yes… I know of a problem No… I am unaware of a problem No representation…I’m not saying yes, there is a problem, I am not saying no, there is not a problem, I am just not saying.

Student handout: 7

83 Student handout: 7 Emphasize that NO REPRESENTATION is no defense for knowledge. If the owner knows, the owner must disclose. Buyers may interpret “no representation” as indicating an issue with the property. The owner will be liable if there is a condition which should have been disclosed. Highlight Appendix 9: fourth paragraph: “If a question is answered “no representation” for any question, owner is stating that the owner is making no representation regarding the conditions or characteristics of the property, but owner still may have a duty to disclose information that is known or should have been known.”


❖ Responsibility of the purchasers Be aware that some problems are not easily observable Identify any issue that is of concern

❖ Hire an inspector Not all problems are known Not all buyer concerns are addressed on the Disclosure form

Faulty wiring inside wall

Student handout: 7

84 Student handout: 7 Emphasize that buyers also have responsibilities. Example: Old plumbing may have problems that will surface with more use. Buyers may have other issues that are not addressed on the form.


❖Transfers for which disclosures are not required

Ordered by the court ▪ Person who receives will have

to disclose to transfer Transferred during a bankruptcy ▪ Person who receives will have

to disclose to transfer

Student handout: 8

85 Student handout: 8 Instructors: please note that these have been edited, combined, and paraphrased for clarity. The list does NOT add up to the 15 disclosures in the law.

Certain owners are not required to sign the disclosure statement. However, any party who RECEIVES the property from the exempt owners will have to sign the disclosure in order to transfer the property.

Read and move on.


❖ When owner disclosures are not required Transfer during a foreclosure (Lender NOT required to sign) ▪ Party that receives (owner occupant, speculator,

flipper) will have to disclose to transfer Transfer of a decedent’s estate ▪ Persons receiving the estate will

have to sign to transfer Transfer between co-owners ▪ Recipients will have to sign

to transfer

86

Student handout: 8



Read and move on.


❖ When owner disclosures are not required Transfers to and from the federal government, state and its agencies ▪ Recipients of the property will have to sign when

they transfer

Because of non payment of taxes ▪ Party who receives

the property will have to disclose to transfer

Student handout: 8



Read and move on.


❖ When owner disclosures are not required Newly constructed property, never inhabited ▪ First owner after builder will have to sign statement to

transfer to second owner Sold at public auction ▪ Party who receives will have to disclose to transfer

Parties may agree to NOT disclose ▪ Party who receives the

property will have to disclose in next transfer

Timeshare transferees are exempt

Student handout: 8



Read and move on.

Further Clarifications❖One, two, three, four family rental

Owner must sign the Disclosure Tenants / Renters may NOT sign

❖ Property received from lender Flipper must sign to transfer

❖ Property received through tax sale Owner must sign to transfer

Student handout: 9

89 Student handout: 9 Hopefully, this isn’t news to any instructor.

Read and move on.

Special Mention❖ Real estate contract controls property

transfer ❖ Owner must disclose ACTUAL knowledge

Present defects and malfunctions ❖ SCRPDS

Zoning laws, CC&Rs, encroachments

❖ Disclose current status of property

Bankruptcies Government actions

Student handout: 9

90 Student handout: 9 Appendix 9: 6th paragraph: “…owner remains solely responsible for completing this disclosure statement to the purchaser.” 8th paragraph: “A real estate contract, not this disclosure, controls what property transfers from owner to purchaser.” Appendix 14: SCRPDS Addendum is required when the property is subject to CC&Rs, bylaws, rules, or is a condominium. Read and move on.

Summary❖ Disclosure protects licensees ❖ Disclosure is NOT a warranty by real

estate licensees ❖ Disclosure is NOT a substitute for

obtaining inspections ❖ Purchasers are responsible

For inspections from licensed inspectors From other qualified professionals

Student handout: 9

91 Student handout: 9 Highlight Appendix 13: Purchaser acknowledges prior to signing this disclosure: This disclosure is not a warranty by the real estate licensees; …not a warranty by the owner; representations are made by the owner; purchasers have sole responsibility for obtaining inspection reports from licensed home inspectors, surveyors, engineers, or other qualified professionals.

Answers to Pretest on page 4

1. FALSE

2. FALSE

3. TRUE

4. TRUE

5. TRUE

Pretest page 4

92 Student handout 4: Pretest Answers to the Pretest on page 4. Only discuss the item IF a student raises a question.

1. FALSE The initial transfer of a dwelling never before inhabited is one of the fifteen exemptions to the SCRPCD Law. 2. FALSE Only unrepaired damage caused by termites, insects, wood destroying organisms, dry rot or fungus must be disclosed (Section IV).

This is NOT a slide❖These are the rest of the answers to

Pretest 2.

93 3. TRUE The name and contact information of the property management company must be disclosed (Section VII). 4. TRUE Factors such as foreclosure and bankruptcy which may affect the closing of a property must be disclosed. 5. TRUE The SCRPCD Addendum requires that an owner who has knowledge of such, disclose the existence and amount of homeowner association fees and resale, rental, guest, or animal restriction if applicable. End of third hour.

National Flood Insurance Program

❖ Pretest

Student handout: 10

94 Student handout: 10

Allow 3-4 minutes for the pretest. Avoid discussing or giving the answers at this time. You will review the answers at the end of this segment.

Flood Insurance Learning Objectives

❖ Recognize that flooding can occur anywhere ❖ Differentiate among special flood hazard

areas (SFHAs) ❖ Explain difference between pre-FIRM and

post-FIRM structures ❖ Recognize importance of referring questions

to property insurance agents

Student handout: 10

95 Student handout: 10 READ and move on.

National Flood Insurance Program

❖ Overview Flooding most common cause of property damage Flood insurance ALWAYS a separate policy Few property owners have flood insurance South Carolina has floods

Student handout: 10

96 Student handout: 10 Flooding can occur anywhere in the United States, not just in coastal areas because of hurricanes and severe tropical storms. Flood insurance must ALWAYS be purchased as a separate policy. Fewer than one in five property owners buy flood insurance. It MUST be purchased if the mortgage money is federally related. Notable SC flooding: Hurricane Hugo (1989) is rarely mentioned. Some of the October 2015 floods occurred where flooding was not expected. The 24 inches of rain contributed to 19 deaths, 27 dams that burst, and affected 160,000 homes. Many owners did not carry flood insurance.

National Flood Insurance Program❖Federally backed flood insurance

❖Community Rating System (CRS)

If community participates

Premium reductions to homeowners

Student handout: 11

97 Student handout: 11 Flood insurance premiums have NEVER NEVER EVER covered losses, which is why the private sector does not write flood insurance policies.

Rates may be reduced in communities that take steps to manage floodplains so that losses are not so severe.

Flooding Definitions

❖A flood is an excess of water (or mud) on land that is normally dry.

Two plus acres

Two or more properties

Student handout: 11

98 Student handout: 11 Flooding is caused by RISING water, general and temporary, in areas that are ordinarily dry. Point out the difference of insurance coverage after the Loma Prieta earthquake in 1989, just after Hugo. Although basements were “flooded,” the flooding occurred because of water line breaks. Homeowner’s insurance and earthquake insurance did NOT cover RISING water…and most California property owners did not have flood insurance.

The graphic is a Shark Tank in Kuwait Shopping Mall.

To Claim Flood Insurance

❖Unusual accumulation of runoff

❖Condition must be general

❖Condition must be temporary

❖Must be inundation of normally dry land

Student handout: 11

99 Student handout: 11 Flood insurance covers rising water. If the excess water comes down (rain), then flood insurance does not cover. Read and go on.

One Percent Annual Chance❖ 100-year flood was misleading

❖New Terms Base Flood

One-percent annual chance flood

❖Statistically in 30-year mortgage Flood will likely happen 26%

Only 1-2% chance of fire

Student handout: 11

100 Student handout: 11 If the property is located in a one-percent chance flood area, during the life of a 30 year mortgage, there is a 26 % chance of flooding during the 30 years. Only 1-2% chance of fire in the same 30 year time frame. https://www.fema.gov/pdf/floodplain/nfip_sg_unit_3.pdf

Special Flood Hazard Areas

❖Flood Prone Areas (SFHAs)

❖Flood Certification Document

Required by every federally related transaction

❖ Identified by FEMA

A (Inland)

V (Coastal Areas)Student handout: 12

101 Student handout: 12 In NFIP maps, flood prone areas are identified as special flood hazard areas (SFHAs) which are then used to determine the cost of insurance. • Flood certification: a document that identifies

whether a property is situated in a special flood hazard area (SFHA) or a nonspecial flood hazard area; is required with every federally related transaction.

• BEST source for flood insurance information: FloodSmart.gov (https://www.floodsmart.gov/floodsmart/)

FIRM (Flood Insurance Rate Map)

❖ Official Map, Very Detailed ❖ Base Flood Elevations (BFE)

❖ Anticipated flood levels ❖ Used to determine flood insurance

premium ❖ Inexpensive to Get

https://msc.fema.gov/portal/ Free, but not easy to find the map you need, does not include terrain overlay map http://www.secondlookflood.com/flood-zone-report/ Basic Map costs $9, easy to use and find map you need

Student handout: 12

102 Student handout: 12 Flood Insurance Rate Maps (FIRMS) which are the official maps of the community for which FEMA has designated special hazard flood areas (SFLHAs) and the flood insurance premium zones. A lot of information on each map, but very technical. Instructors: “Let’s look at a practical example” (click to next slide)

FIRM (Columbia, SC Example)

Student handout: 11

Zone AE (High Risk)

Terrain Overlay Map

Flood Plain

Floodway

103 Instructors: This is an overview of Columbia. (Click very slowly as follows) CLICK … This is the area we will focus on. CLICK – This is where LLR is Located ... Note the Stoop Creek CLICK - This is the FEMA FIRM (Flood Insurance Rate Map) Zone X ... Moderate Flood Zone CLICK – Zone AE ... High Risk area (Flood Insurance Mandatory) Shows Base Flood Elevations (BFE). CLICK - This is a Terrain Overlay map CLICK – Floodway ... Main flood channel, nothing can be built that will change flood elevations CLICK - Flood Plain (the green areas) also called 100-year flood plain Purple areas zone X adjacent to flood plain ... Lenders may require flood insurance in these areas

BFE

National Flood Insurance Program (NFIP)

❖ Rates affected by Zone & Base Flood Elevation (BFE)

3’ Above BFE $427 / year At BFE

$1,410 / year 4’ Below BFE $9,500 / year

www.columbiasc.netStudent handout: 12

104 Student handout: 12 Base flood elevation is the level to which water is expected to rise. Insurance rates vary according to how high the water will rise and reflect the expected amount of damage.

Graphic from Columbia SC website: http://www.columbiasc.net/floodplain/facts#BFE

When Flood Insurance Is Required❖Federally related loans ❖Property located in SFHA zones

A or V, or AV ▪ A = High Risk Areas ▪ V = High Risk Coastal Areas ▪ Flood Chance 1% or More per Year

(26% over Life of 30 Year Mortgage) FDIC insurance may be pulled

❖Many lenders now require as a condition of the loan

Student handout: 12

105 Student handout: 12 Note that many lenders are now requiring flood insurance, even if not in a SFHA zone…if not located in a SFHA zone, then the cost is less.

Review and move on.

Elevation Certificate❖ Provided by licensed surveyor or engineer

($400 to $600) ❖ Required Information for quote

Community number Flood zone Base Flood Elevation (BFE) Lowest floor elevation Year dwelling built Qualified openings below lowest floor?

Student handout: 13

106 Student handout: 13 The insurance agent must have a copy of the elevation certificate before making a quote.

Licensees should refer specific questions to insurance agents and should definitely AVOID making any claims for or against flood insurance.

Licensees should present information and allow the buyers to make their own decisions.

NFIP Grandfather Rules❖ FEMA regularly updates

flood maps ❖ Rates often change

(increase) ❖ Flood insurance can be

“assigned” to new buyers ❖ Only one time to lock in

old rates BEFORE new maps become effective

Student handout: 13

107 Student handout: 13 Structures built after the community's first flood map was issued (post-FIRM) have two opportunities to lock in the flood zone or Base Flood Elevation for insurance rating purposes:

Buyers can purchase a policy before the new maps take effect, or Buyers can use the Grandfather Rule if they have proof that their home was built in compliance with the flood map that was in effect at the time of construction.

This is NOT a slide

❖This is a true story about the cost of telling buyers that they couldn’t or shouldn’t buy flood insurance.

❖Very useful to read to students

108 Before Hurricane Floyd, several North Carolina real estate licensees failed to properly discuss the meaning of the flood certificate to their clients. Apparently, at closings, the real estate agents had said something to the effect of “You paid for a flood certification, and the flood certification says that you aren’t in a flood zone, so you cannot get flood insurance.” Another commented, “You don’t need flood insurance because you are not in zone A, V, or AV.” Both statements are incorrect, and neither statement should be made by a real estate licensee. Moreover, apparently, the insurance agents had not offered flood insurance to these consumers. The real estate agents and the insurance agents were held accountable when flooding destroyed the homes, and they had to pay for new houses for the property owners. *Insurance for Consumer Protection: What Every Agent Should Know” by Marie Spodek and Payton Warren. Page 51

How to Reduce Flood Insurance Rates

❖What property owners can do Mitigate Encourage community action Apply for a Letter of Map Change (LOMC) Consider a higher deductible

❖Licensees should be cautious about offering advice/suggestions

Student handout: 14

109 Student handout: 14 Read and move on.

Licensees should AVOID any comment that can sound like advice.

Impact on Real Estate Transactions

❖ If property located in SFHA, flood insurance will be required

In federally related loans Cost will affect buyers PITI ratio

❖ Effective date 30 days after purchase Immediately if required by lender as condition of the loan

Student handout: 14

110 Student handout: 14 Flood insurance can impact PITI ratio, limiting the amount that the buyers can borrow, thus affecting the sale price of the home. • IF required by the lender, there is NO OUT.

Buyers have to pay for the insurance BUT it is immediately effective….

• IF buyers were planning to pay cash, might be better to take ANY MORTGAGE for immediate effect and pay off the mortgage after closing.


❖Construct appropriate responses to questions that might be raised by owners and buyers

111

Student handout: 14

111 Ask students in small groups to construct responses to questions that owners might ask during a listing appointment. Allow 5 minutes for discussion; review in 5 minutes.

1. Owners can lower flood insurance premiums: raise the lowest level of the building; apply for a Letter of Map Change; consider a higher deductible; encourage community action

2. All flood policies have a 30-day waiting period before the policy is effective; thus, any flood damage within the first 30 days is not covered. The policy is effective immediately only IF the property is located in a Special Flood Hazard Area (SFHA), and the lender requires flood insurance.

This is not a slide

❖More answers for small group discussion.

112

Student handout: 14

112 3. Statistically, there is a 26 percent chance that such a flood will occur once during the life of a 30-year mortgage; but only a 1-2 percent chance that the house will catch fire during the same 30-year mortgage. Unfortunately, fewer than 20 percent of SC property owners actually have invested in flood insurance. 4. After the Loma Prieta earthquake in 1989, homeowners learned the difference between flooding and the insurance industry term flooding. The earthquake broke water lines, and water poured into homes. Homeowners’ insurance did not cover the damage, because it was considered “rising water” (i.e., flooding). Only a flood insurance policy covers the damage caused by the “rising water,” even though the cause of the ruptured lines was actually the earthquake. Most did not have flood insurance. After Hurricane Hugo, adjusters looked carefully to determine if the water damage was because the wind blew off the roof, in which case, the damage would be covered by homeowners insurance. If the water rose up through the floor, then flood insurance covered the damage.

Answers to Pretest

1. TRUE

2. FALSE

3. FALSE

4. TRUE

5. FALSE

Pretest page 9

113 Student handout 10: Pretest Answers (Discuss only if student has a comment/question.) 1. TRUE Generally, Pre-Firm buildings were constructed or substantially improved before 12/31/1974 or before the effective date of an initial Flood Insurance Rate Map (FIRM). With the changes to the Program in 2012 and again in 2014, there have been many different changes to rates. Encourage licensees to direct all questions to insurance agents. 2. FALSE Congress is responsible for the financial stability of NFIP. In 2012 and again in 2014, Homeowners Flood Insurance Affordability Act of 2014 (HFIAA 2014) and the Biggert-Waters Flood Insurance Reform Act (BW-12) was enacted and reformed by Congress.

This is NOT a slide

❖Here are the rest of the answers to the Pretest.

114 3. FALSE Many areas of the continental USA are affected by flooding and are covered by the “Flood Insurance Rate Maps” distributed and available from FEMA. 4. TRUE In some cases, a subsidized insurance rate” may still be in effect for owner occupied buildings. Purchasers and listing agents should consult with an insurance agent if they have questions about the NFIP rate that might be charged for the property being listed or considered for purchase. With changes made in 2014 (HFIAA 2014), there are still some exemptions and special considerations for continued “grandfathering or subsidized” rates. 5. FALSE With the changes made in 2014 (HFIAA 2014), it was mandated that FEMA was to develop an installment plan for non-escrowed payments. This should bring you to the end of the course.