[jholzknecht]

It appears that the second loan is secured by “all Business Assets, FF&E, etc. (generalized blanket language) of the building,” but not by the building itself. In that case flood insurance is not required on the contents. Contents coverage is required when the loan is secured by the building and the contents.

[jholzknecht]

This largely a matter of bank policy. Some lenders will not make a loan to a borrower with a recent charge-off. The regulation does not contain a ATR worksheet. Apparently your bank has built one or adopted one developed by a third party. If your policy allows loans to an applicant with a recent charge-off, then determine if your policy requires the charged-off debt to be included in the debt on your worksheet.

[jholzknecht]

This largely a matter of bank policy. Some lenders will not make a loan to a borrower with a recent charge-off. The regulation does not contain a ATR worksheet. Apparently your bank has built one or adopted one developed by a third party. If your policy allows loans to an applicant with a recent charge-off, then determine if your policy requires the charged-off debt to be included in the debt on your worksheet.

[jholzknecht]

Interesting question. The regulation is silent on this issue. An existing FAQ states that forced-placed insurance cannot be automatically renewed. A proposed FAQ will, if finalized, allow what you have proposed here. Technically, you are not allowed to close a loan with forced-placed insurance. If the borrower does not obtain insurance, then you can’t close the loan. With the proposed FAQ, it is clear that the agencies intend to change this position. So, the question is will an examiner cite a violation while we are on the cusp of the rule being changed. It sounds like the insurance agency will provide coverage that is effective on the date of closing, so little risk exists.

[jholzknecht]

You still must provide the Special Flood Hazard Notice a reasonable time before completion of the transaction. Since flood insurance is already in place providing the notice at closing, before the documents completing the renewal are signed, would be a reasonable time. Some examiners might argue the point, but you should prevail. To avoid the argument provide the notice a reasonable time before completion.

[jholzknecht]

The warranty agreement will help but may not provide total protection.

If there is an error on a disclosure the borrower can sue your bank, in addition to the original creditor.. The bank will then have to defend itself, which can involve many thousands of dollars of legal fees. What does does the warranty agreement cover? Does it cover only loan losses? Will it cover damages paid to the consumer? Does it cover your legal fees? Does it reimburse you for the hours spent defending the case?

Most banks conclude that they need to conduct due diligence.

[jholzknecht]

There is no regulatory required list of documents required. Your bank has liability for any errors that are obvious on the face of the documents. Consider the loan as if you were originating the transaction. Does Regulation Z apply? Were the TRID loan estimate and closing disclosure provided? Were the disclosures correct? Repeat the process for other applicable regulations such as flood.

[jholzknecht]

Unless an exemption applies, a creditor is not allowed to make a HPML secured by a first lien on a consumer’s principal dwelling unless an escrow account is established before consummation. Exemptions include:
(A) A transaction secured by shares in a cooperative;
(B) A transaction to finance the initial construction of a dwelling;
(C) A temporary or “bridge” loan with a loan term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months; or
(D) A reverse mortgage transaction subject to § 1026.33.

There is also a small creditor exemption that applies if the institution:
(A) The institution makes a loan in a rural or underserved area;
(B) The institution and its affiliates originates no more than 2,000 covered transactions secured by first liens, that were sold, assigned, or otherwise transferred to another person, or that were subject at the time of
consummation to a commitment to be acquired by another person;
(C) The institution and its affiliates had total assets of less than $2,230,000,000; and
(D) Neither the creditor nor its affiliate maintains an escrow account for any extension of consumer credit secured by real property or a dwelling that the creditor or its affiliate currently services, other than:
(1) Escrow accounts established for first-lien higher-priced mortgage loans for which applications were received on or after April 1, 2010, and before June 17, 2021; or
(2) Escrow accounts established after consummation as an accommodation to distressed consumers to assist such consumers in avoiding default or foreclosure.

The regulations were recently revised. There is a temporary opportunity to get out of escrowing. To be exempt from escrowing you must meet all of the conditions listed above. You must stop opening new escrows and you can only service existing escrows that were HPMLs originated prior to June 17, of this year. If you want to stop escrowing, action is needed by June 17, 2021.

[jholzknecht]

The compensation rules referred by JGo9 are included in Regulation Z 1026.36.

[jholzknecht]

Still waiting on the courts. It appears that the CFPB may make further changes.

[jholzknecht]

Some bankers have been denied credit in this situation. The credit is not automatic. Must document that the waiver is are responsive to the needs of low- and moderate-income individuals, small businesses, and small farms affected by COVID-19.

[jholzknecht]

Thanks to all of you for submitting the question and for the thorough analysis.

I suspect that the mobile home was taken as collateral (security agreement) but the security interest was never perfected (UCC-1 or mortgage). A loan secured by a dwelling is HMDA reportable, whether the security interest is perfected or not.

Valerie – Can you confirm my suspicion?

[jholzknecht]

This is a great question. While I work extensively with HMDA and CRA. I do not work extensively with call reports.

I am not aware of the change in the definition under HMDA impacting the way these loans are reported on the call report.

I will encourage CMG members and others utilizing our Forums to respond to this question.

[jholzknecht]

Fees in Section A are generally paid to the creditor. If the appraisal inspection fee is paid to a non-originating creditor, such as a mortgage broker, then the description of the fee should include the name of the party to whom the fee is payable.

[jholzknecht]

If the bank imposes a fee, such as a wire fee, it is listed in Section A. When that fee is paid by the seller, then on the closing disclosure it is moved from the “borrower-paid” column to the “Seller-Paid” column.

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