[kdarnell]

Is there anything in REG Z that prevents a customer who is purchasing their primary residence from making three payments a year versus monthly payments? Would they need to make interest payments every month still?

[rcooper]

Is this a loan that is set up for monthly payments but the customer wants to make three instead or is the loan being set up for 3 annual payments? If it is the former, you may need to do a modification. You will need to visit your loan policy to ensure you aren’t in violation of that policy.

Some things to consider under Reg Z are the periodic statement requirements in 1026.41 that requires you to send statements in accordance with the payment due dates set up on the loan. Also, if there is an escrow account (could have both RESPA and HPML implications) you’d need to consider how you’re going to collect those monthly payments.

Under the ATR rules it looks at the consumers ability to make the monthly payment and comment 43(c)(2)(i)-4 states:
4. Seasonal or irregular income. A creditor reasonably may determine that a consumer can make periodic loan payments even if the consumer’s income, such as self-employment income, is seasonal or irregular. For example, assume a consumer receives seasonal income from the sale of crops or from agricultural employment. Each year, the consumer’s income arrives during only a few months. If the creditor determines that the consumer’s annual income divided equally across 12 months is sufficient for the consumer to make monthly loan payments, the creditor reasonably may determine that the consumer can repay the loan, even though the consumer may not receive income during certain months.

And
43(c)(5)(i)-3 states:
Monthly, fully amortizing payments. Section 1026.43(c)(5)(i) does not prescribe the terms or loan features that a creditor may choose to offer or extend to a consumer, but establishes the calculation method a creditor must use to determine the consumer’s repayment ability for a covered transaction. For example, the terms of the loan agreement may require that the consumer repay the loan in quarterly or bi-weekly scheduled payments, but for purposes of the repayment ability determination, the creditor must convert these scheduled payments to monthly payments in accordance with § 1026.43(c)(5)(i)(B). Similarly, the loan agreement may not require the consumer to make fully amortizing payments, but for purposes of the repayment ability determination under § 1026.43(c)(5)(i), the creditor must convert any non-amortizing payments to fully amortizing payments.

If you have a question about a specific Reg Z requirement or if I’ve misunderstood the situtation please reply letting me know.

[jholzknecht]

A small elaboration on the periodic statement issue raised by Robin. Regulation Z requires a statement for each billing cycle. The term “billing cycle” is defined by the regulation as, “(4) Billing cycle or cycle means the interval between the days or dates of regular periodic statements. These intervals shall be equal and no longer than a quarter of a year.”

You may also want to check with your core processing system to determine if the system can handle a schedule of three payments per year.

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