Answers to Question from 09.05-06.13 CMG Meetings

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    From Thursday (Review recording to see who sent):
    If we obtained background check and credit report when hiring a Loan Officer, would that be sufficient under new Reg Z? Or would we be required to obtain new background check and credit report?
    Answer: You are required to obtain the information for each loan originator that is not licensed under state law (non-bank loan originator). You must obtain the information for new hires after January 10, 2014, existing loan originators that you did not screen when hired or for any loan originator that you believe have felony convictions and other issues prohibited by the statute. If information was obtained at the time the employee was originally hired it need not be obtained again at the time the employee becomes a loan originator.

    from ?? (privately): 9:30 Friday
    If our Safe Act Officer is our loan clerk and she orders appraisals and sometimes takes documents from customers to complete the loan file is this going to present a problem since under Safe Act if you’re an MLO you can’t be the Safe Act Officer. Seems like under Reg. Z she will have to register.
    Answer: There is no registration under Regulation Z; anyone meeting the definition of a mortgage loan originator must register under the SAFE Act. While the clerk may be a loan originator for purposes of Regulation Z that does not necessarily mean she is a mortgage loan originator under the SAFE Act.

    from Cheryl Nakashige to Everyone:
    Does a non-standard mortgage not include a balloon loan?
    Answer: No. The term non-standard mortgage means a covered transaction that is:
    (A) An adjustable-rate mortgage, as defined in § 1026.18(s)(7)(i), with an introductory fixed interest rate for a period of one year or longer;
    (B) An interest-only loan, as defined in § 1026.18(s)(7)(iv); or
    (C) A negative amortization loan, as defined in § 1026.18(s)(7)(v).

    from Whitney to Everyone:
    For the 8 factors, do we have to prove everything from third parties like with a QM? Such as tax returns that aren’t from the borrower?
    Answer: You must verify debt and income using third-party information. Examples of other records the creditor may use to verify the consumer’s income or assets include copies of tax returns the consumer filed with the IRS or a State taxing authority.

    from Cheryl Nakashige to Everyone:
    Do you see an issue with banks who have balloon loans that come up for renewal and the borrower can’t meet the QM or ability to repay standards?
    Answer: If an existing extension of credit is refinanced it is considered to be a new transaction subject to the ability-to-repay rules. If the extension of credit is extended or modified it is not a new transaction. If the borrow does not have the ability to repay the indebtedness on a refinance then the loan cannot be made.

    from Rusty to Everyone:
    So, we just use the fully indexed rate, not the highest possible rate? We don’t max the index?
    ANSWER: When verifying the ability to repay the method used to calculate the rate on the covered transaction varies from one repayment option to another. For purposes of:
    • The general ability-to-repay rules under Section 1026.43)(c) use the fully indexed rate or the introductory rate, whichever is greater.
    • The qualified Mortgage rules under Section 1026.43(e)(2) or Section 1026.43(e)(5) use the maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due.

    from Compliance Resource Host (privately):
    from ?? (privately): If you have an ARM loan, how do you figure the rate for the payment calculation (i.e. 3/3 ARM)
    ANSWER: See the answer to the previous question.

    from Vicki to Everyone:
    If someone has the ATR based on standard W2 income, do we need to consider any other sources of income?
    ANSWER: No.

    from Compliance Resource Host (privately):
    from ?? (privately): I believe we will meet the requirements for the small creditor portfolio exemption and therefore not have to comply with appendix Q. However, we do sell some of our loans on the secondary market. Does that mean we will not meet the small creditor portfolio loans exemption?
    ANSWER: To qualify for the small creditor portfolio option the loans must be retained in the portfolio for three years or if sold before the end of the three year period must be sold to another financial institution that meets the requirements for a small creditor portfolio loan. So selling such loans would invalidate the determination of the ability to repay.

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