Forum Replies Created
-
Posts
-
My initial thoughts are:
1) There is no application or even an inquiry. Was the decision communicated to the municipality?
2) I am not aware of any requirement to “log” this situation.
3) The public information is not required to be retained, since there is no application. There are no privacy concerns since it is public data.Since the credit is not financing the acquisition of the property securing the loan it is not shown as a “purchase” loan. It should be shown as “construction.” The Sales Price is only shown on a purchase loan. You should disclose the property value.
In my opinion, this loan does not qualify for community development (CD) credit, but pitch it to your examiner any way. Who knows they might grant credit.
The basis for my opinion is that the loan is a HMDA reportable loan, and HMDA loans are not eligible for CD credit. The loan gets credit under the retail lending test.
I am not aware of any delayed implementation date, but then at the same time I am not aware of a mandatory use date. That said, the new form is virtually identical to the old form; it is hard to imagine what would delay the implementation.
The Accord Evidence of Flood Insurance Form used to meet the requirement, but I haven’t seen the form in a while. The required items include:
1. Policy Form/Type (GP, DP, RCBAP*, PRP)
2. Policy Term
3. Policy Number
4. Insured’s Name and Mailing Address
5. Property Location
6. Current Flood Risk Zone
7. Rated Flood Risk Zone (zone used for rating, including when grandfathering or issuing coverage under the PRP Eligibility Extension)
8. Grandfathered: Y/N
9. Mortgagee Name and Address
10. Coverage Limits and Deductibles
11. Annual PremiumThe changes in the premium structure impacts your customers, but does not change much for your bank, at least for now. You must still make sure that properties are covered by an adequate amount of flood insurance.
The prudential regulators are not up to speed on this development. They are in the process of finalizing Frequently Asked Questions that impacted by these changes. They will need to explain how a bank ensures that a flood policy adequately insures against the flood risk. FEMA has already stopped putting the risk rating on the declaration page, so it is no longer possible to compare the risk rating from the bank’s determination to the risk rating on the policy.
When the agencies get caught up, I assume they will let you and I know what we are expected to do.
We are very anxious to conduct training on this topic, but waiting on the prudential regulators to reset the rules.
Interesting question. I appreciate your concerns regarding loan quality.
There are a couple compensation issues you did not address, but appear to be of little concern.
* Section 1026.36(d)(1) of Regulation Z prohibits compensation of a loan originator based on the terms of the transact5ion. Your proposed structure does not appear to breach that requirement.
* Section 1024.14(c) of Regulation X states that no person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service other than for services actually performed. Making a loan is a settlement service. However, in your case, the underwriter appears to be performing services.There are several issues to consider.
For purposes of Truth in Lending such a fee would need to be disclosed. Including the fee in an account agreement/disclosure at consummation would be relatively straight forward. Adding the fee to an existing HELOC is more complicated. Most likely the fee could only be added with the customer’s consent.
State usury laws must also be considered. With the most favored lender status used in Kentucky there is a number of statutes under which a HELOC can be made. I am not aware of any Kentucky statute that describes a fee such as the one you describe. You would likely need a legal opinion to help you work around the usury issue.
There has been no regulatory announcement of a change of this nature. There has to be a risk rating, that is the basis of the premium amount. Is the risk rating stated elsewhere, just not in the “dec” page?
At present you are still required to match the risk rating in your determination to the risk rating on the policy. If the proposed FAQs are finalized as proposed, then this will become less of an issue.
We focus on issues covered in a compliance examinations. This topic is covered in safety and soundness examination. That said, High Volatility Commercial Real Estate (HVCRE) regulations generally apply to loans secured by real property.
If you told the borrower that the odd days interest was due at closing and they did not pay when due, then this language would be helpful. I afraid it is still lacking.
Question: When lines of credit are renewed, we issue an letter informing the borrower of the renewal and we typically use the date of the letter (i.e., origination date) for the action taken date. A new note is “not” executed. Is that correct or should we rely on the date the renewal was approved by the Bank, based on the CRA Reporting Guidance?
Answer: For a line of credit use the date approved. Using the date of the letter may be accepted by some examiners if the date of the letter is within a day or two of the decision date. I have concerns about your practice. The decision to approve could be made on December 30th and the letter is send on January 2nd. That would push the transaction into a new reporting year.The primary disadvantage of your loan not being a QM is that you do not receive the extra level of protection afforded to QMs. If your HPML is a higher priced covered transaction (HPCT) it is not eligible for the safe harbor protection, but it would be eligible for the presumption of compliance protection. Also a QM is exempt from the appraisal requirements that apply to first lien HPMLs.
If the loan does not achieve QM status, then in order to make the loan it must meet the eight factors.
We are not quite clear on your question. You state the examiners want the construction funds in the “payoff” section of the LE and CD. There is a “payoff and payments” section in the optional alternative cash to close section. Please clarify the “payoff” section.
The construction costs are disclosed differently on the LE and the CD, and are disclosed differently in the regular cash to close transaction or in the optional alternative cash to close.
You have not provided the information needed to determine if your bank is in compliance with Regulation O.
Let’s begin with an observation. Your scenario appears to involve a related interest of two of your directors. Your question mentions a loan size of $100,000 and exceptions. That language arises when discussing loans to an executive officer, which does not appear to be the case with your transaction.
Your transaction may be subject to several major rules contained in Regulation O.
* – Transactions with insiders cannot be done on preferential terms. You did not list the terms of the transaction.
* – When loans exceed a certain threshold then subsequent loans must receive prior approval. You did not provide information about the transaction amount or the amount of total debt of the borrower.
* – There is a lending limit for transactions with an insider. You did not provide information about the transaction amount or the amount of total debt of the borrower.With the levels of ownership mentioned in your question this may also be a transaction with an affiliate, which is subject to additional limits and restrictions under Section 23a of the Federal Reserve Act.
