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Paul,
I hope you are staying safe from the storms, the Pandemic, and other threats.
I agree with Robin and you. Your current allocation is not correct. The proposed allocation should be assure compliance, but does not fully protect the borrower or your bank.
Jack
The simple answer to your question is “Yes.”
HMDA applies to covered loans. Covered loans includes closed-end mortgage loans and open-end lines of credit. Either a closed-end or open-end loan must be secured by a dwelling. So far it appears your loan is covered.
There is a list of 13 excluded transactions in Section 1003.3(c). The tenth item on the list excludes a loan that is made primarily for a business or commercial loan, unless the loan meets the definition of a home improvement loan, a home purchase loan or a refinance. Your loan appears to fit the definition of a home purchase loan, which includes open-end or closed end loans secured by a dwelling that is for the purpose, in whole or part, of purchasing a dwelling. A dwelling is a residential structure, whether or not attached to real property. There are several exclusions from the definition of dwelling including a structure originally designed as a dwelling but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices. This last item gets close to excluding your transaction, but the structure is not used for the stated purpose.
There are a lot of layers in this scenario. There are no examples in the regulation or the Commentary that directly reflect the facts presented here.
A discount point is payable to the creditor and falls into the 0% tolerance category. The desired change cannot occur unless there is a basis for making the changes, such as in the case of a changed circumstance or a rate lock.
There is no discussion in Regulation Z or the Commentary that allows the creditor to add additional finance charge due to change in the price that Fannie is willing to pay for the loan has declined. There are examples where the rate changes as a result of a rate lock. In your case the rate was locked and is not changing.
Angie,
Under the requirements in 1026.9(c)(1) you must provide notice 15 days prior to the effective date of the change on a home equity line. But the rules in 1026.40 do not allow changes to HELOC unless certain conditions exist. Section 1026.40(f)(3)(iii) allows a change if the consumer agrees to the change.
So instead of just providing a notice of change, provide the customer with a notice explaining the change and obtain the consumer’s consent (signature) agreeing with the change.
Vicki,
This issue is not just limited to TRID loans. Other closed-end credit loans subject to Regulation Z also trigger new disclosures when refinanced. If the loans is merely modified, then new disclosures are generally not triggered.
Regulation Z requires disclose of the fees imposed, it does not generally regulate which fees made be charged or the amount of such fees. If you intend to impose any fees when modifying an existing loan the fees and costs should be explained to the borrower. A TIL disclosure is a helpful format for disclosing those costs and fees. So while a TIL disclosure may not be required for a modification it may be a convenient way to disclosure the fees.
The flood regulations require a flood determination when a lenders increases, renews or extends a loan, unless the original determination was made not more than seven years before the date of the transaction, the basis for the determination was set forth on the SFHDF, and there were no map revisions or updates affecting the security property since the original determination was made. When a new determination is obtained the cost can be passed on to the borrower. The other costs can generally be passed on to the borrower.
JGo9 – Nothing comes immediately to mind. I will look at this later this evening and will ask Robin to peek at it as well.
We need to better understand your transaction.
You mention that the balloon was not included in the Loan Terms. Did it appear in the projected payments section on page 1? Was the balloon reflected in other disclosures, such as “In 5 years” on page 3?
Which “closing documents” included the balloon?
Did you use the same origination system to prepare the LE, CD, and the closing documents?
It is not clear whether a post closing disclosure will resolve any of the issues.
You may also want to look at Section II-C 3. c.. Borrowers collecting unemployment insurance typically do not qualify for a home loan. Lenders won’t allow unemployment insurance as an income source on an application, unless the borrower is a seasonal worker, such as a construction worker, contractor or someone who works in the entertainment industry.
I agree with your analysis. A temporary loan is exempt from HMDA reporting requirements. A loan is temporary if it is designed to be replaced by a separate permanent financing extended by any financial institution to the same borrower at a later time.
You can not make, increase, renew or extend a loan secured by a building or a mobile home located in a special flood hazard area within a participating community without sufficient flood insurance. That rule very much limits actions that are available to you. It will be much easier, for you and the borrower, if the borrower purchases adequate insurance. One option is to demand payment in full at the time the loan matures. You could release the collateral so the loan is not secured by a building.
The question is whether the original lender is a “creditor” or or not. The definition of creditor has several elements, one of which is, does the person extend credit “regularly.” The Commentary states, “A person regularly extends consumer credit only if it extended credit (other than credit subject to the requirements of § 1026.32) more than 25 times (or more than 5 times for transactions secured by a dwelling) in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of §1026.32 or one or more such credit extensions through a mortgage broker.” If the person makes a single loan subject to Section 32 they are a creditor. If not subject to Section 32, then if the person extends credit more than 5 times in the preceding year, he or she is a creditor.
If the person is a creditor then they must comply with all of the requirements of Regulation Z. When your bank purchases a loan from another creditor it is liable for any errors obvious on the face of the disclosure.
The full list of the content of the ARM application disclosure is contained in Section 1026.19(b)(2). Section 1026.19(b)(2)vii requires the disclosure of rules including rate and payment limitations, both increases and decreases and ceilings and floors.
The application disclosure is a representative example. If the ceilings or floors are the same for all borrowers then the disclosure reflects those caps. If different borrowers have different rate caps then the disclosure can reflect a range of caps. The disclosures must be updated annually, but can be updated more frequently if the terms of the program change.
Chris – I don’t understand arguments like this.
• If you are wrong what is the result?
o The consumer gets a disclosure that wasn’t required.
• If you are right what is the result?
o The consumer receives a disclosure that is required. Failure to provide that disclosure could result in liability and penalties down the road.What is the basis for the loan officer’s position? The only one inconvenienced by providing the disclosure is the lending staff that has to prepare the disclosure in addition to the other loan documents. I refer to this as the lazy banker syndrome. It could also be the uneducated loan officer syndrome. If that is the case, shame on you for not training your staff on one of the basics of lending compliance – be safe, not sorry. Does this loan officer wear a face mask when meeting with staff or customers?
