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The rules reference you back to 1026.32(b)(5) which states:
Affiliate means any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.).
The Bank Holding Company Act sets the threshold at 25%. (usually – see definition below)
Definition of Affiliate under BHC Act:
k) Affiliate.—
For purposes of this chapter, the term “affiliate” means any company that controls, is controlled by, or is under common control with another company.(2) Any company has control over a bank or over any company if—
(A) the company directly or indirectly or acting through one or more other persons owns, controls, or has power to vote 25 per centum or more of any class of voting securities of the bank or company;(B) the company controls in any manner the election of a majority of the directors or trustees of the bank or company; or
(C) the Board determines, after notice and opportunity for hearing, that the company directly or indirectly exercises a controlling influence over the management or policies of the bank or company.
I think the method you described is going to be difficult to apply consistently. It is sometimes difficult to isolate how many “variables” keep a borrower from being approved on the secondary market. Maybe if you only deal with one investor it might be easier, but we have several investors. Additionally, program guidelines change from time to time, so what is OK today, may not fit the secondary box 6 months from now. You’d need to document those types of program changes to prove that you’re being consistent in how you apply your pricing variables.
We utilize a rate grid for portfolio mortgage loans that factors in LTV and credit score to the rate. I’m not sure if this is what you’re looking for, but if you’d like to see it, I’d be happy to share (as long as you’re not a competitor in my market – ha!)
If interested, email me at: ccantrell@bankoftennessee.com
As far as pricing exceptions, we decided the only times we would be willing to lower the rate from our grid would be for customers with extensive relationships and when we were up against pricing from a competitor. We have written procedures for the conditions and how much of a discount we’ll provide for a relationship and we’ve written procedures for matching a competitors rate. We make no pricing accommodations outside of those two circumstances.
The examiners (FDIC) were complimentary of our pricing procedures when they were here in 2013.
I’ll tell you what an FDIC examiner told me at their recent FDIC Outreach meeting in a session on third party risk.
He said that if our name and logo is used on the card, then we have risk under the third party risk rules. He indicated we needed to obtain copies of marketing materials, periodic statements, all disclosures, etc. and review them for compliance. He strongly suggested that someone at the bank obtain one of their credit cards so that we can monitor communications sent to customers on an ongoing basis. He did not go so far as to say we had penalty liability under the regs you mentioned.
Hope this helps.
This was an area for discussion at our FDIC compliance exam last year. We were grossing up all non-taxable income at 25%, but we did not have a list of the types of income that we would gross up. We changed procedures to include a specific list.
We gross up for any loan made to a consumer. Last year, the examiners did not have an issue with a flat rate for all borrowers. We are a small creditor as well. Even though we are not required to follow Appendix Q, it is going to be interesting to see whether examiners change their expectations and ask that we use the actual tax rate of the borrower.
Thanks, Jack & Robin. I got Jack’s response about “dancing” close to the edge. We bankers tend not to be known for our dancing skills — at least for me! We are changing our plan to a flat % regardless of monthly volume.
I appreciate you keeping me from getting voted off Dancing with the Bankers!
Thanks, Robin. One other issue has arisen along with the proxy question. The tiers for the percentage of commission varies per the monthly volume of the LO. For example, if an LO closes a total of $500,000 in a month, they will recieve 1.20% of $500,000. If they fall in the lower tier, of less than $500,000, say $300,000, they will receive 1.00% of $300,00. We are being questioned because of this portion of the commentary. I believe it does not apply because the compensation is based on total volume of all loans closed during the month, not the amount of an individual loan. Do you agree? (see below)
From the Commentary: 9. Amount of credit extended. A loan originator’s compensation may be based on the amount of credit extended, subject to certain conditions. Section 1026.36(d)(1) does not prohibit an arrangement under which a loan originator is paid compensation based on a percentage of the amount of credit extended, provided the percentage is fixed and does not vary with the amount of credit extended. However, compensation that is based on a fixed percentage of the amount of credit extended may be subject to a minimum and/or maximum dollar amount, as long as the minimum and maximum dollar amounts do not vary with each credit transaction. For example: i. A creditor may offer a loan originator 1 percent of the amount of credit extended for all loans the originator arranges for the creditor, but not less than $1,000 or greater than $5,000 for each loan. ii. A creditor may not offer a loan originator 1 percent of the amount of credit extended for loans of $300,000 or more, 2 percent of the amount of credit extended for loans between $200,000 and $300,000, and 3 percent of the amount of credit extended for loans of $200,000 or less.
We got an opinion from an attorney on whether we have to include title insurance since they are an affiliate of the bank. He said that as long as our ownership interest is less than 25%, the title insurance company is not an affiliate under the rules and the charges would not be included in the Section 32 Points & Fees test.
Note to the editors note above in the 4th bullet: The CFPB released an interpretive rule on 11/8/13 that allows for a temporary method of compliance with providing the Homeownership Counseling Rules. For a “temporary” fix (specific expiration was not given in the rule) we can comply by providing a specifically worded disclosure that directs the consumer to the appropriate website. The intent of the interpretive rule appears to be to allow loan origination software companies to get their programming complete, so I would not use this alternative method of disclosure if my LOS is capable of generating the list. Here is the link to the interpretive rule:
