Why Haven’t Loan Officers Been Told These Facts? Making An Effective Loan Presentation
Mortgage Loan Originators (MLOs) should consider reciting the preamble to the Truth in Lending Act to prospects and customers at the beginning of every Loan Estimate presentation.
U.S.C. Title 15, Chapter 41, Subchapter 1, better known by its short title, the “Truth in Lending Act,” is the hinge on which effective mortgage disclosure turns. The preamble explains the bill’s legislative intent and was well framed by the TILA drafters: “An Act to safeguard the consumer in connection with the utilization of credit by requiring full disclosure of the terms and conditions of finance charges in credit transactions or in offers to extend credit. . .”
§1601. Congressional findings and declaration of purpose
(a)The Informed Use of Credit
The Congress finds that economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit. The informed use of credit results from an awareness of the cost thereof by consumers. It is the purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.
MACROECONOMIC EFFECT: ECONOMIC STABILIZATION
Congress demonstrated notable foresight by identifying the TILA’s economic stabilization as a key benefit. The main objective of TILA’s “economic stabilization” was to improve supply and demand in consumer credit use. When credit costs are transparent, supply-and-demand principles help mitigate inflation and prevent severe recessions. In simpler terms, when the price of credit increases in response to inflation, people tend to purchase fewer items that require financing, such as houses and cars. Conversely, when the price of credit decreases—often because of federal monetary policy—people are more inclined to buy things on credit, which in turn propels the economy.
If lenders and sellers can obscure the cost of credit, as with automobile loan ads and other deceptive financing, the federal government would have a harder time reigning in spending.
Economic stabilization is outside the wheelhouse of MLOs and consumers; enough said on that TILA focus. How does TILA impact consumers at the loan level and at the microeconomic level?
MICROECONOMIC EFFECT: INDUSTRY COMPETITION
In theory and largely in practice, free markets or those driven by competition result in greater value to consumers, including lower prices. Proper disclosure helps ensure competition. One can imagine, apart from the competition-enhancing objectives of the TILA and RESPA, there is little doubt third-party origination would be over and dead within less than 12 months. Imagine if the big banks could buy referrals and freely obscure mortgage finance charges.
Congress intended the TILA and RESPA disclosures to play a major role in competition at both the microeconomic and loan levels.
LOAN LEVEL AFFECT: THE INFORMED USE OF CREDIT
When thinking about what informed use of credit is or is not, you can consider disclosure as an educational element. Disclosure in itself does not guarantee the wise use of credit. A person can have information but still act unwisely. However, a person cannot act wisely without the right information to do so. In education, a “learning objective” refers to the subject matter or information a student may obtain in a course of study.
In the case of the Loan Estimate, learning objectives include the cash to close, projected monthly payments, and APR. However, as the saying goes, we “don’t sell the steak; we sell the sizzle.” Too many Loan Estimate presentations never move past the learning objectives. That’s the steak. “Learning outcomes” are the sizzle. “Learning outcomes” refer to the beneficial behaviors that the learning objectives enable in the applicant. In simpler terms, what can the Loan Estimate allow the prospect to do that they cannot without it?
Three Learning Outcomes Derived From the Effective Loan Estimate Presentation
– A way to understand the total cost of the credit offer.
Mortgages include many costs beyond simple interest. Ancillary financing charges are not intuitive to consumers. Those new to mortgage financing have no parallel experience with consumer credit. Student loans, auto financing, and credit cards typically carry little or no finance charges beyond simple interest.
– A way to understand the appropriateness of the credit offer.
Mortgages can include a variety of features that, when customized to meet a consumer’s needs, can significantly reduce financing costs. However, misunderstandings regarding these features or their suitability can lead to serious issues. For instance, a temporary buydown or a hybrid adjustable-rate mortgage can create uncertainties and impacts that may not suit some borrowers.
Balloon payments can make non-qualified mortgage (non-QM) financing more affordable for many consumers, but failing to manage the balloon payment can have disastrous consequences. Balloon payments can be due at inopportune times. Lenders must clearly communicate the risks associated with these features without minimizing their impact.
Understanding potential payment changes highlighted in the projected payments table and corresponding AP or AIR tables is crucial for consumers evaluating mortgage affordability.
– A way to understand the competitiveness of the credit offer.
The Loan Estimate helps consumers compare credit offers. This disclosure helps individuals identify the credit offer that best suits their needs. However, MLOs often hesitate to highlight this important aspect, which is a mistake. An MLO should strive to be both the first and last professional that a prospect considers. When the MLO presents the credit offer with confidence and transparency, clearly acting in the prospect’s best interest, the prospect’s inclination to shop around diminishes. Generally, consumers feel the need to shop because they lack rapport with the MLO.
The Effective Loan Estimate Presentation
In mortgage transactions, more than in any other type of transaction, the MLO plays a crucial role because of the high stakes and complexity involved. The MLO can either promote or impede informed credit use. When individuals use credit without sufficient knowledge or understanding, it can lead to significant negative consequences for all concerned: the borrower, the MLO, the mortgage industry, and the broader economy.
Without question, how the Loan Estimate is prepared and presented affects consumer access to informed credit use. The Act’s benefit objectives delineated in 1601(a) expressly or by implication make plain the requirements for effective disclosure. To ensure that the door to an informed credit decision is wide open, the Loan Estimate requires four overarching elements:
- Timeliness
- Good faith
- Due diligence
- The best information reasonably available
Strip away one or more of the four elements, and the informed consumer credit decision may go out the window. Good faith and due diligence go hand in glove. Regulation Z requires due diligence to obtain the best information reasonably available. Always in good faith. Black’s Law Dictionary describes good faith as “honesty of intention.” An honest intention to abstain from taking any unconscientious (wrongful) advantage of another.
Lenders should ensure MLOs receive adequate training, supervision, and support before they prepare or present the Loan Estimate (LE). When preparing the LE, “good faith” means not only the absence of bad faith; it also encompasses the qualifications and competencies lenders need to fulfill their duty to consumers effectively while complying with the law.
The “General Good Faith Determination Rule” is one rule most originators are somewhat familiar with. However, the “General Good Faith Determination Rule” is a bit of a misnomer. The rule attests to its “general” nature, which, under further apprehension of the regulation, implies a dynamic malleability. Meaning that the General Good Faith Determination Rule may be expanded to apply to other estimated costs. In general, the rule corresponds to the required accuracy or required overstatement of a specific set of costs in connection with the mortgage. What is known generically as “zero tolerance” items, or more accurately, zero tolerance for disclosure understatements.
12 CFR § 1026.19(e)(3)(i) General Good Faith Determination Rule. An estimated closing cost is in good faith if the charge paid by or imposed on the consumer does not exceed the amount originally disclosed, except as otherwise provided:
- (e)(3)(ii) Limited increases permitted for certain charges (a.k.a 10% aggregate charges)
- (e)(3)(iii) Variations permitted for certain charges (e.g., prepaids and escrows)
- (e)(3)(iv) Revised estimates (a.k.a. revised estimate due to change circumstance)
Accuracy Requirements For Prepaids and Escrows
Does the provision (e)(3)(iii) regarding variations for certain charges, such as prepaids and escrows, imply that there are no specific accuracy requirements—either quantified or qualified—for these items? Heck no. To focus our discussion, the LOSJ has specifically narrowed the scope of the disclosure requirements to prepaids and escrows.
Essentially, the Regulation requires good faith and due diligence in obtaining the best information reasonably available. If the estimated cost is missing or unreasonably low in an examiner’s estimation, you have a TILA violation. This would include, among other estimates, monthly PMI estimates, property taxes, and homeowners insurance.
Comment 19(e)(1)(i)-1 These disclosures [the Loan Estimate] must be provided in good faith. Except as otherwise provided in § 1026.19(e), a disclosure is in good faith if it is consistent with § 1026.17(c)(2)(i). Section 1026.17(c)(2)(i) provides that if any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure based on the best information reasonably available to the creditor at the time the disclosure is provided to the consumer. The “reasonably available” standard requires that the creditor, acting in good faith, exercise due diligence in obtaining information.
Comment 19(e)(3)(iii)-1. Good faith requirement for prepaid interest, property insurance premiums, and escrowed amounts. Estimates of prepaid interest, property insurance premiums, and amounts placed into an escrow, impound, reserve or similar account must be consistent with the best information reasonably available to the creditor at the time the disclosures are provided. Differences between the amounts of such charges disclosed in the Loan Estimate and the amounts of such charges paid by or imposed on the consumer do not constitute a lack of good faith, so long as the original estimated charge, or lack of an estimated charge for a particular service, was based on the best information reasonably available to the creditor at the time the disclosure was provided. This means that the estimate disclosed in the Loan Estimate was obtained by the creditor through due diligence, acting in good faith.
Comment 19(e)(3)(iii)-3 Similarly, the amount disclosed for property taxes must be based on the best information reasonably available to the creditor at the time the disclosure was provided. For example, if the creditor fails to include a charge for property taxes, or includes an unreasonably low estimate for that charge, on the original Loan Estimate, then the creditor’s failure to disclose, or unreasonably low estimation, does not comply with § 1026.19(e)(3)(iii) and the charge for property tax would be subject to the good faith determination under § 1026.19(e)(3)(i)[General Good Faith Determination Rule].
HONEST MISTAKES AND THE TILA
Honest mistakes are not exceptions to the rule. Keep in mind that any change in circumstance under Regulation Z implies that the affected estimates were originally based on the best information reasonably available. The following are examples of common TILA disclosure violations:
- Unreasonably low mortgage insurance estimates
- Unreasonably low appraisal estimates
- Unreasonably inaccurate prepaid interest estimates
- Unreasonably low property tax estimate
- Unreasonably low homeowners insurance estimates
What is an unreasonably low estimate? That’s the kicker: it can be highly subjective, and that’s all the more reason to properly overstate the estimated costs.
BEHIND THE SCENES: MORTGAGE FRAUD ALLEGATIONS
An indictment is merely an allegation of criminal conduct, and defendants are presumed innocent until proven guilty in a court of law.
September 21, 2026 DALLAS — United States Attorney for the Northern District of Texas Ryan Raybould announced charges against four defendants for allegedly orchestrating a multi‑year mortgage fraud scheme that resulted in the funding of more than 20 fraudulent home loans totaling approximately $7,339,699.
On Sept. 16, a federal grand jury indicted Shawna Randall (aka Shawna Porter), Cleophus Turner, Julie Shoumbert and Maurice Gardner. All four are charged with conspiracy to provide false statements to a mortgage lending business, while Randall and Turner are additionally charged with three counts of fraud and false statements.
“These defendants allegedly conspired to corrupt the mortgage process by flooding lenders with fabricated finance and employment information to push through unqualified borrowers,” said U.S. Attorney Ryan Raybould. “We will pursue anyone who deceives federal loan programs, threatens the integrity of our housing system and harms American taxpayers who ultimately bear the cost of fraudulent schemes such as this.”
“The defendants allegedly engaged in a sophisticated loan origination scheme, using their knowledge and experience in banking and real estate to circumvent federal lending requirements,” said Special Agent in Charge Grant Permenter, U.S. Department of Housing and Urban Development Office of Inspector General. “At every stage, any one of them could have stopped these fraudulent transactions, but instead, they allegedly chose to participate. Their actions undermined the integrity of the FHA program and resulted in more than $7.3 million in fraudulently obtained loans. HUD OIG will continue working with the U.S. Attorney’s Office and our law enforcement and oversight partners to hold accountable those who seek to profit by abusing HUD funded programs.”
“Stopping fraud in the VA Home Loan Program is not just about protecting resources—it’s about safeguarding the benefits that our veterans have earned,” said Inspector General Cheryl L. Mason, Department of Veterans Affairs. “Through our strong law enforcement partnerships and vigilant oversight, we will continue to halt these schemes and hold fraudsters accountable.”
FHFA-OIG is committed to working with the Department of Justice and our law enforcement partners to hold accountable those who engage in mortgage-related fraud, particularly when officers of financial institutions and lenders, who have a duty to conduct honest business, participate in that fraud” said Christopher Lane, Special Agent in Charge of FHFA-OIG’s Central Region. “We are grateful to HUD-OIG and VA-OIG for their partnership in the investigation of this case.
According to the indictment, from June 2020 through November 2022, Randall, Turner, Shoumbert and Gardner conspired to falsify income, employment, bank records and other financial documents in order to qualify unqualified borrowers for Federal Housing Administration, Veteran’s Affairs and conventional mortgage loans originated through Eustis Mortgage Corporation d/b/a Verity Mortgage.
Randall, who worked for a real estate broker, allegedly recruited unqualified borrowers and prepared or directed the preparation of fraudulent W‑2s, pay stubs, employment verifications and falsified bank statements. Her real‑estate license was inactive during the conspiracy.
Turner, a mortgage loan officer at Verity Mortgage, allegedly submitted the falsified documents as part of official loan applications, despite knowing the information was fabricated or altered.
Shoumbert and Gardner allegedly produced falsified bank statements for borrowers at Randall’s request, which were then submitted to Eustis/Verity Mortgage as part of loan qualification files.
The indictment outlines numerous overt acts showing the defendants created and transmitted fake employment documents and bank statements to support loan applications in Texas and Oklahoma.
As a result of the alleged fraud, U.S. Department of Housing and Urban Development has already paid partial FHA‑insurance claims exceeding $493,499.
If convicted, Randall and Turner each face up to five years in federal prison for conspiracy and up to thirty years on each of the three false‑statement counts, fines and mandatory forfeiture. Shoumbert and Gardner, who are each charged with conspiracy, face up to five years in prison, fines, and forfeiture.
HUD, VA and Federal Housing Finance Agency Offices of the Inspectors General conducted the investigation. Assistant U.S. Attorney Chad Meacham from the Fraud Section is prosecuting the case.
An indictment is merely an allegation of criminal conduct and defendants are presumed innocent until proven guilty in a court of law.
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