[Angie Cowell]

In light of the Coronavirus pandemic, we are preparing in case customers contact us to skip a payment. This is currently not something that we offer and we want to make sure we do not overlook or fail to give any necessary disclosure. Can you assist in providing guidance? I reviewed the material from the recent webinar and did not see anything related to this. We appreciate your guidance.

[Chris]

I am also interested in this topic. It has been a long time since we’ve offered a skip-a-payment program (before my time here), and I’ve been asked to research. Loans being considered for such a program include consumer loans (real estate and non – TRID & HELOC’s), and commercial loans.

I’m aware of the Flood requirements being triggered in the event the maturity date is extended. But are there other considerations that I need to be thinking of, especially in regards to HELOC’s / TRID loans subject to Reg’s Z & X?

Thanks for your help!

Chris

[jholzknecht]

Angie and Chris,

None of the lending compliance regulations have a section dealing with skip a payment (SAP). In each regulation you have to “read between the lines” to pull out information that would impact a SAP. There is a surprising number of issues to consider. Actually you could write a book about this topic, which is what we are in the process of doing right now. We will answer this question with a series of posts. We encourage everyone reading this series of posts to chime with your thoughts and questions.

Here are a few questions to start the discussion:
1. Do you accomplish the SAP? Do you use a new note (a refinancing) or a modification agreement?
2. Who is eligible for your SAP program?
3. How do you handle the SAP for accounting purposes?

[jholzknecht]

As Chris noted, all of the requirements of the flood insurance regulations kick in whenever you make, increase, renew or extend (MIRE) a loan. Here are a few thoughts for your consideration:
• You cannot MIRE a loan unless adequate flood insurance is in place.
• If you MIRE a loan a new flood determination is needed, unless the existing determination was initially recorded on the Standard Flood Hazard Determination Form (SFHDF), the prior determination is not more than 7 years old, and no new or revised FIRM or FHBM has been issued for the area in which the property is located since the last determination was obtained
• If you obtain a new determination can a determination fee be imposed? If you are making, increasing, renewing or extending a loan you may impose a new determination fee.
• Does SAP impact the life of loan protection from your determination company. Your contract with the determination company will spell out any situation which voids or impacts the life of loan provision in the contract.
• If you MIRE a loan you must provide a Special Flood Hazard Notice.
• If you Mire a loan you must establish an escrow for flood insurance premiums unless a loan level exception applies or your bank is covered by the small creditor exception.
• When you MIRE, sell or transfer a loan you must notify FEMA, or FEMA’s designee, of the identity of the servicer.

[rcooper]

Chris mentioned HELOC’s. 1026.40(f)(3) says a change in terms is not permitted on a HELOC unless it meets one of 6 criteria; number 4 on that list is that it will “unequivocally benefit the consumer throughout the remainder of the plan.” And when looking to the subsequent disclosure rules say, the change in terms section states:

1026.9(c)
Change in terms. (1) Rules affecting home-equity plans. (i) Written notice required. For home-equity plans subject to the requirements of §1026.40, whenever any term required to be disclosed under §1026.6(a) is changed or the required minimum periodic payment is increased, the creditor shall mail or deliver written notice of the change to each consumer who may be affected. The notice shall be mailed or delivered at least 15 days prior to the effective date of the change. The 15-day timing requirement does not apply if the change has been agreed to by the consumer; the notice shall be given, however, before the effective date of the change.

(ii) Notice not required. For home-equity plans subject to the requirements of §1026.40, a creditor is not required to provide notice under this section when the change involves a reduction of any component of a finance or other charge or when the change results from an agreement involving a court proceeding.

1026.9(c)(1)(ii)-2
2. Skip features. If a credit program allows consumers to skip or reduce one or more payments during the year, or involves temporary reductions in finance charges, no notice of the change in terms is required either prior to the reduction or upon resumption of the higher rates or payments if these features are explained on the initial disclosure statement (including an explanation of the terms upon resumption). For example, a merchant may allow consumers to skip the December payment to encourage holiday shopping, or a teachers’ credit union may not require payments during summer vacation. Otherwise, the creditor must give notice prior to resuming the original schedule or rate, even though no notice is required prior to the reduction. The change-in-terms notice may be combined with the notice offering the reduction. For example, the periodic statement reflecting the reduction or skip feature may also be used to notify the consumer of the resumption of the original schedule or rate, either by stating explicitly when the higher payment or charges resume, or by indicating the duration of the skip option. Language such as “You may skip your October payment,” or “We will waive your finance charges for January,” may serve as the change-in-terms notice.

In this situation I don’t anticipate excessive fees or usury laws being an issue, but that might be something to consider under state law. Here’s a link that summarizes Ky’s usury law (https://statelaws.findlaw.com/kentucky-law/kentucky-interest-rates-laws.html). I have not verified it is accurate, but it might get you started. You’d want to look to the state law cited in your contract.

[Mary Frances]

We are interested in this topic as well. We have already had some commercial loans that we have agreed to change the payment to interest only (and escrow if applicable) for a period of time. Our attorney has a modification that explains the modification is due to COVID-19 and we will have him prepare the modification for us. Today we had our first call asking about skipping/modifying the payment on a 1st mortgage primary residence. I have researched looking for any regulation that talks about additional disclosures for a modification and have only been able to find information in 1026.20(a) for refinancings. Reading this I don’t think we would need additional disclosures if all we are doing is temporarily modifying the payment. 1026.20(a)Changes in the terms of an existing obligation, such as the deferral of individual installments, will not constitute a refinancing unless accomplished by the cancellation of that obligation and the substitution of a new obligation.
Interested to hear other thoughts as well.

[kmeade]

Has there been any updated guidance on pandemic-skip a payments, especially related to loans in a flood zone?

[jholzknecht]

kmeade – There is a good list in the March 18th post? What more are you seeking?

We are conducting a 90-minute webinar entitled Pandemic Relief Managing the Compliance Issues on March 26. It is a 60-page manual. It includes information on skip-a-pay and other Pandemic relief topics. CMG members can attend for free.

[jholzknecht]

Mary Francis. Good points. Your observation that a refi doesn’t trigger new disclosures is accurate for Truth in Lending, but other requirements such as flood may apply.

We are conducting a 90-minute webinar entitled Pandemic Relief Managing the Compliance Issues on March 26. It is a 60-page manual. It includes information on skip-a-pay and other Pandemic relief topics. CMG members can attend for free. If you are unable to attend live, you will receive the recording.

Thanks for your comments. We intend to keep building on this resource.

[kmeade]

One item I hear other banks are doing is allowing customers to skip the payment entirely (it is added on at the end), including interest and escrows payments (if applicable). Is skipping the entire payment allowed? Can you skip payments (I have heard some are allowing customers to skip 2-3 months) without collecting any interest and escrow payments? If yes, does it make a difference on the loan type, i.e., commercial, consumer installment, consumer real estate?

[TheBank]

We plan to offer 90 day payment deferrals or up to 180 days interest only, but do not plan to extend out the maturity date. Would this be a MIRE event?

[jholzknecht]

Kathy,

I know you participated in 3/26 webinar Pandemic Relief – Managing Compliance Issues. Yes you can offer slip-a pay, you can skip several pays, there are many ways of handling skip a pay, and there is a long, long list of compliance issue that vary depending on your system and the decisions you make on how to implement the skip-a-pay program. Please work through the extensive manual that you received. If you have specific issues get back to us.

[jholzknecht]

The Bank – If you offer 90 day payment deferrals or up to 180 days interest only, but do not extend the maturity date you may be safe.

MIRE is an acronym for make, increase, renew or extend. If you accomplish the accommodation using a new note, you are MAKING a new loan. If you extend the maturity date you are EXTENDING the loan. If you increase the loan balance you are INCREASING the loan. When you defer the payment does your system calculate interest during the deferral period? Is that interest added to the outstanding balance. When you collect interest only for 180 days, what is going on with the escrow payments? The unpaid escrow payments are creating a shortage or a deficiency in the account. If the borrower asks for a payoff balance, your would quote the principal, interest, and the amount of any deficiency as part of the balance. Is that an INCREASE in the loan amount?

[Author]

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