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This is an interesting post. Thanks to The Bank for submitting the question, thanks to benefoos for clarifying the manufactured home park community issue, and thanks to Robin for solving the puzzle.
You can read a lot of Commentary that leads to the conclusion that the transaction is exempt, but the single sentence in Paragraph 3(c)(2) chinches it – the transaction is reportable.
I agree with Robin, the mandatory acceptance of private flood insurance are related to the requirement to purchase flood insurance when making, increasing, renewing and extending a loan as required by Section .3(a), not the force place requirements contained in Section .7(d). The best guidance on this subject comes from the Interagency Qs & As.
Q 64. When may a lender rely on a private insurance policy that does not meet the criteria set forth by FEMA?
Answer: A lender may rely on a private insurance policy that does not meet the criteria set forth by FEMA only in limited circumstances. For example, when a flood insurance policy has expired and the borrower has failed to renew coverage, private insurance policies that do not meet the criteria set forth by FEMA, such as private insurance policies providing portfolio wide blanket coverage, may be useful protection for the lender for a gap in coverage in the period of time before a force placed policy takes effect. However, the lender must still force place adequate coverage in a timely manner, as required, and may not rely on a private insurance policy that does not meet the criteria set forth by FEMA on an ongoing basis.
I agree with Robin’s conclusions.
Since you granted the consumer the right to rescind he or she has the right even though the transaction appears to be exempt from the regulatory requirement. If the consumer wanted to rescind and you refused the request it is likely that you would have a problem (UDAP). It is unlikely that providing the proceeds before the expiration of the three-day rescission period will be a concern since the transaction is exempt from the requirement and the consumer benefits from the action.
Evelyn,
The lender can make a loan in a non-participating community. I have included a few sections from our Flood Insurance for Cancelled Communities manual.
More information about the manual and the recorded webinar is available at : https://mycomplianceresource.com/product/flood-insurance-for-cancelled-communities-webinar-recording/
Jack
Applicability of Regulation
Interagency Flood Insurance Questions and Answers #1Does the Regulation apply to a loan where the building or mobile home securing such loan is located in a community that does not participate in the National Flood Insurance Program (NFIP)?
Yes. The Regulation does apply; however, a lender need not require borrowers to obtain flood insurance for a building or mobile home located in a community that does not participate in the NFIP, even if the building or mobile home securing the loan is located in a SFHA. Nonetheless, a lender, using the SFHDF, must still determine whether the building or mobile home is located in an SFHA. If the building or mobile home is determined to be located in an SFHA, a lender is required to notify the borrower. In this case, a lender, generally, may make a conventional loan without requiring flood insurance, if it chooses to do so. However, a lender may not make a government-guaranteed or insured loan, such as a Small Business Administration (SBA), Veterans Administration (VA), or Federal Housing Administration (FHA) loan secured by a building or mobile home located in an SFHA in a community that does not participate in the NFIP. See 42 U.S.C.4106(a). Also, a lender is responsible for exercising sound risk management practices to ensure that it does not make a loan secured by a building or mobile home located in an SFHA where no flood insurance is available, if doing so would be an unacceptable risk.
Non-Participating
Community
FDIC Exam Manual 4/2016 –
V – 6.2
Although a lender may make, increase, extend, or renew a loan in a nonparticipating community, a lender is still required to determine whether the security property is located in a Special Flood Hazard Area (SFHA) and if so, to notify the borrower. The lender must also notify the borrower that flood insurance coverage under the NFIP is not available because the community does not participate in the NFIP. If the nonparticipating community has been identified for at least one year as containing an SFHA, properties located in the community will not be eligible for federal disaster relief assistance in the event of a federally declared disaster.Options Available in Non-
Participating Community
FDIC Exam Manual 4/2016 –
V – 6.2
Because of the lack of NFIP flood insurance coverage and limited federal disaster assistance available, a lender should carefully evaluate the risk involved in making such a loan. A lender making a loan in a nonparticipating community may want to require the purchase of private flood insurance, if available. Also, a lender with significant lending in nonparticipating communities should establish procedures to ensure that such loans do not constitute an unacceptably large portion of the financial institution’s loan portfolio.On June 27, 2019, the Defense Manpower Data Center (DMDC) will make significant changes to the Military Lending Act (MLA) website to enhance security of the site and better protect the personal information of Service members. All users of the site will be required to create user accounts. A user account will be required to access both the Single Record Request and the Multiple Record Request capabilities of the MLA site. No search for active service on the MLA website will be possible without a user account.
In addition to the username, password, company name, and challenge questions currently required to create a user account, beginning June 27, 2019, new MLA website users will be required to supply the user’s first name, last name, address, and e-mail address in order to create their user account.
Starting around mid-August 2019, existing MLA website users will be required to update their accounts with the additional fields.
I could write a small book in response to this wide open question. Let me make a few suggestions to get you started.
1. Yes, a policy and procedures that establish the standards for using risk-based pricing should be adopted. In a strict risk-based system the score/rate guidelines should be formalized (i.e.; if your score is X then your rate is Y.) Will the system allow exceptions or overrides when the lender is not comfortable with the resulting rate? If so, the P & P should explain when exceptions or overides are allowed and establish a process for tracking exceptions/overrides over time. How frequent are the exceptions/overrides? What is the range of exceptions/overrides? What are the characteristics of borrowers receiving exceptions/overrides? What loan officers are making exceptions/overrides?
2.The Fair Credit Reporting Act and Regulation V, Section 1022.70, require risk-based pricing notices. There are options for providing such disclosures. One option uses a tier-pricinng approach to determine who needs to recieve the risk-based pricing notice. The exceptions in Section 1022.74 allow the lender to use an appropriate credit score notice in lieu of providing the risk-based pricing notice.
3.The disclosures required in an advertiseement are determined by the details included in the advertisement. If simply stating that a new small loan product is being offered, then not much specific informtion is required. If you are trying to disclose a rate, things get complicated. One option to simplify the process is to use a representative example. “If your credit score is X then the interest rate is Y.” Truth in Lending and Regulation Z require advertsing disclosures. The disclosures required for open-end credit are explaining Section 1026.16 and the requirements for closed-end credit are explaained in Section 1026.24. Don’t forget about UDAP concerns. Explaining complicated pricing mechanisms can become confusing and result in charges of “unfair” or “deceptive” practices.
Waiting for the annual analysis is sufficient, but you can jump in at any point and do a short cycle to get the payment amount reset and refund the surplus now.
Update: The proposed rule was published in the Federal Register on May 21, 2019. The comment period ends on August 19, 2019.
PMI is a finance charge. When it is paid at or before closing it is a prepaid finance charge. When it is paid monthly it is a regular finance charge. In any event the amount of the PMI premiums should be included in the finance charge.
When you enter the monthly payments into the APRWIN do you include the PMI premiums in the payment? If not, run the transaction through APRWIN again with the PMI amount added to the principal and interest and see if that results in an answer more to your liking.
I agree fully with Robin’s answer, but I have a question. Was the $150,000 loan amount documented? When the borrower requested the increased amount, did you receive an updated application? Did the officer place a memorandum in the file explaining the increased amount? The standard notice of incompleteness does not include the amount of the application, but I have seen versions of the form that do include that information. Did the notice of incompleteness include the $150,000 application amount?
No itemization of the amount financed is required with the TRID disclosures. The amount financed appears on the Closing Disclosures, but does not even appear on the Loan Estimate. Why would an itemization be needed when the amount financed is not required?
Most states generally allow banks to hold real property received in satisfaction of debt or to acquire real property needed for business purposes, such as acquiring a branch location, but otherwise restrict banks from investing in real property.
It is not clear why the third party option is being considered, but acquiring the property from a third party rather than in direct satisfaction of the debt may disallow the property as OREO.
There are several ways to approach your question. For your internal purposes it is your LTV and you decide how it’s calculated. If you are working with an investor, the investor will tell you how they want the ratio calculated. HMDA requires reporting of the LTV ratio using the ratio of the total amount of debt secured by the property to the value of the property. Regulation C does not address credits in relation to the calculation.
Good question, but difficult to answer.
For purposes of the right of rescission (12 C.F.R. 1026.23) the definition rules in Regulation Z (12 C.F.R. 1026.35) states that you use the “specific day” definition of business day. Under the specific day definition a business day is all calendar days except for Sunday and federal holidays. Saturday is a business day whether your lobby is open or not.
Requirements for delivering a copy of the appraisal are contained in both Regulations B (12 CFR 1002.14) and Z(1026.35). Regulation B uses the term “business day,”but does not define the term. For purposes of delivering a copy of the appraisal, as required by Regulation Z (12 C.F.R. 1026.35) the term business day uses the “general rule” which defines a business day as any for which your financial institution is open for substantially all of its business functions. There is a wee bit of a judgment call in what constitutes “substantially all” business functions. If your customers can obtain substantially all business functions in any office on a Saturday, then Saturday is deemed to be a business day for purposes of delivering a copy of an appraisal, otherwise it is not.
