[rcooper]

Question 1: 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.

Question 2: 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?

Topic

[rcooper]

Answer from Jholzknecht:
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]

Regarding 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.

[rcooper]

Question from our recent webinar, Pandemic Relief – Manging Compliance Issues:
If we do a skip a payment on an amortized mortgage the interest still accrues and will just sit there until the end of the loan. What we do for the principal is during the first recast the core will reamortize based on the current balance but how can we recoup the interest before the end of the loan?

[rcooper]

There are many different ways to structure a skip-a-pay transaction. Not all systems hold the interest until the end of the loan. Generally, you can only offer options that are available through your core accounting system. The core system provides options you select during the setup of the system. Check with your system provider to determine if other options are available for handling interest on deferred payments.

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