[JGo9]

Sarah,

One quick correction, the notice on the Adverse Action Notice is not the Credit Score Disclosure, but instead it is the Risk Based Pricing Notice. I’m going to assume that as a bank you’ve decided to go with the Exception Notice (Credit Score Disclosure), as most banks have chosen to go with.

With that assumption, you would need to give the applicant the Credit Score Disclosure for no credit score, just as you normally would do. That would be Model form H5. As far as your Adverse Action Notice, you would leave the Risk Based Pricing Notice section off.

If hope this helps.

[JGo9]

jennielittle,

Let me start off by saying that i’m not familiar with any kind of TX law.

You can indeed do a 5 yr balloon (closed-end) Home Equity loan. Where your Attorney is coming from is that for the Presumption of Compliance you must us the largest payment of principal and interest scheduled in the first seven years in determining the consumer’s repayment ability. (see page 242 if you have the 2011 Real Estate Lending Compliance Seminar manual from Jack)

This was an item of large concern and debate in the industry when it first came out. The Fed later came out and tried to clarify the issue in saying that their intent was not to do away with balloon loans that with terms shorter than 7 years. The Fed issued a statement back in 11-2009 that addressed this issue. Here are the main points from that statement that apply to your question:

3. Question: What must the creditor do, then, to verify the borrower’s ability to repay a short-term balloon loan?
Answer: In addition to verifying the consumer’s ability to make regular monthly payments, a creditor should verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral.
4. Question: How does the creditor verify, when it originates a short-term balloon loan, whether the consumer could qualify for a refinancing before the balloon payment is due?
Answer: The creditor has an affirmative duty to engage in prudent underwriting. 5 Thus, the creditor should consider factors such as the loan-to-value ratio and the borrower’s debt-to-income ratio or residual income—all as of the time of consummation. A borrower with a high debt-to-income ratio, and/or with little or no equity in the property, will be less likely to be able to refinance the loan before the balloon payment comes due than a borrower with lower debt-to-income and loan-to-value ratios. The creditor is not required to predict the consumer’s future financial circumstances, interest rate environment, and home value.

Here is a link to the Federal Reserve Board’s Consumer Affairs Letter: https://www.federalreserve.gov/boarddocs/caletters/2009/0912/caltr0912.htm

Granted it would be best to have the presumption of compliance as stated in the regulation, but it doesn’t mean that you can’t do the 5yr Home Equity loan.

I hope this helps!

[JGo9]

Kowsley,

I think I follow you and I think you are right in thinking that it does mean “must”.

You might want to look at having a separate application for employees to use.

[JGo9]

If the executor is on the loan then I might say yes, but it doesn’t sound like that is the case for you. If they are not personally on the loan then I don’t think you could report that on them.

[JGo9]

Here is what I’ve found Reg Z 226.5(b)(2)(ii) to read starting 10-1-2011.

Effective 10/1/2011, with compliance optional prior to that date, paragraph 226.5(b)(2)(ii) above is revised to read as follows:

(ii) Timing requirements.

(A) Credit card accounts under an open-end (not home-secured) consumer credit plan. For credit card accounts under an open-end (not home- secured) consumer credit plan, a card issuer must adopt reasonable procedures designed to ensure that:

(1) Periodic statements are mailed or delivered at least 21 days prior to the payment due date disclosed on the statement pursuant to § 226.7(b)(11)(i)(A); and

(2) The card issuer does not treat as late for any purpose a required minimum periodic payment received by the card issuer within 21 days after mailing or delivery of the periodic statement disclosing the due date for that payment.

(B) Open-end consumer credit plans. For accounts under an open-end consumer credit plan, a creditor must adopt reasonable procedures designed to ensure that:

(1) If a grace period applies to the account:

(i) Periodic statements are mailed or delivered at least 21 days prior to the date on which the grace period expires; and

(ii) The creditor does not impose finance charges as a result of the loss of the grace period if a payment that satisfies the terms of the grace period is received by the creditor within 21 days after mailing or delivery of the periodic statement.

(2) Regardless of whether a grace period applies to the account:

(i) Periodic statements are mailed or delivered at least 14 days prior to the date on which the required minimum periodic payment must be received in order to avoid being treated as late for any purpose; and

(ii) The creditor does not treat as late for any purpose a required minimum periodic payment received by the creditor within 14 days after mailing or delivery of the periodic statement.

(3) For purposes of paragraph (b)(2)(ii)(B) of this section, “grace period” means a period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate.10

The entire purpose of the earlier delivery is due to helping the customer avoid fees. If there are no fees that can be incurred due to the timing of the payment from your customers, then I don’t think the 14 day requirement would apply to you as it was intended. However, the section above does mentioned “Reguardless of whether a grace period applies to the account” and I think this might include you to have to abide by the 14 day requirement.

I don’t think that the spirit of the law would require you to comply with the 14 day requirement, but I can’t find that smoking good that gives you an out of not having to comply.

[JGo9]

Kowsley,

Compliance sometimes ends up being ridiculous.

I would go back to the same appraiser and see if they’ll address the appraisal to you. Most of them will cut your customer a break if the other appraisal was been fairly recent.

[JGo9]

If you would normally report them to a CRA then I do believe that you would need to give them that disclosure.

Remember that you can give that disclosure at closing if you wanted to cover yourself.

[JGo9]

Kowsley,

I think you are on the right track. If you know at the time of application that you are not going to charge a processing fee then I don’t think it should be included in the GFE. I looked through the Reg and some of the Q&A’s and didn’t find anything concrete on this.

You are correct on the disclosing of the waived title work.

The questions probably won’t stop unless the CFPB reworks RESPA. It’s a mess and there are way too may places to go to see if something is mentioned and you just hope HUD didn’t contradict their answers.

[JGo9]

cbg7811,

We do our own thus we don’t have that charge from an attorney.

If you are not disclosing that fee to your customers I would advise against charging it.

You would disclose the fee with the other attorney fees onf the GFE.

[JGo9]

Lexegay,

Reg B 202.9(e) addresses withdrawals of approved applications:

(e) Withdrawal of approved application. When an applicant submits an application and the parties contemplate that the applicant will inquire about its status, if the creditor approves the application and the applicant has not inquired within 30 days after applying, the creditor may treat the application as withdrawn and need not comply with paragraph (a)(1) of this section.

When the application is just a plane withdrawal you should use the Adverse Action Notice. It is a filled out differently than a denial as it will be a notice of withdrawal.

I hope this helps you.

[JGo9]

Here is what I found. 226.2(a)(24) of Reg Z defines a Residential Mortgage Transaction as follows:

(24) Residential mortgage transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer’s principal dwelling to finance the acquisition or initial construction of that dwelling.

226.4(c)(7)(iv) of Reg Z is where you’ll find out about the fee for the Appraisal from a 3rd Party being excluded from the Finance Charge:

(7) Real-estate related fees. The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount:

(i) Fees for title examination, abstract of title, title insurance, property survey, and similar purposes.

(ii) Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents.

(iii) Notary and credit-report fees.

(iv) Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest-infestation or flood-hazard determinations.

(v) Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge.

It looks you are correct about it not being considered a Residential Mortgage Transaction, but from section 226.4 it sounds like the fee would still be excluded from the Finance Charge, as it’s still secured by real property.

Now this is assuming that you have the land as well as collateral.

[JGo9]

cbgrayson,

First off you probably would need to check your terms with your Cash Reserve agreement with the customer and see if this is addressed at all. I don’t think you would have to give a Adverse Action Notice, but you would need to notify your customer that you’ve frozen the line.

I hope this helps,

Jonathan Goforth

[JGo9]

Jenniferlippy,

To my knowledge there aren’t any federal regulations or official guidance issued that deal with this subject. I’ve seen some things on it from a state level so that might be a good place to start looking.

Is there a particular question?

I know you can still rent to them. You do need to contact them and let them know about where to send their payments to (I’m assuming that it will be a different location from where they were previously sending their payments). You probably want to honor whatever contract they have in place. If you plan on evicting them, you probably should give them plenty of notice.

I hope this helps.

[JGo9]

Jo,

Reg B applies to all loans. I’ve looked through the reg and I can’t find anywhere that specifically says that you have to document how the applicant applied for the loan. That being said I did find where it talked about certain things you could do to stay in compliance if the application was taken over the phone.

By denoting how the application was taken this would give your Auditors & Examiners the information they need to decide on what they should be looking for.

I would say they want you to have this for all of your loans. In our loan processing software it is as simple as clicking a box to get this done.

[JGo9]

The easiest way to make sure you are in compliance and that your lending staff doens’t forget to give it; is just to make a practice of always giving the customer a copy othe appraisal any time.

[Author]

Posts