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We have several issues to unravel.
First, the Fair Credit Reporting Act does not allow you to order a credit report unless you have a permissible purpose. The law provides several different permissible purposes. Obtaining consent from the consumer is one permissible purpose. If the consumer applies for credit, that is a permissible purpose. So, if the consumer applies for credit you have a permissible purpose, even without consumer consent.
For purposes of TRID, once the consumer has submitted the six pieces of information you must deliver the loan estimate in a timely fashion. Submission of the social security number is sufficient; consent is not required.
Interesting dilemma.
Typically the requirement to unconditionally refinance an obligation subject to conditions within the borrower’s control is triggered by language similar to the following, ” We will refinance your balloon balance on terms no less favorable than your original terms if you are current on your loan payments, have submitted a current financial statement, and your credit report does not evidence any decline in your financial position.”
The extra balloon payment paragraph you add on some loans is used by many institutions on balloon loans. You may want to discuss with counsel whether including that language infers with your requirement under state law.
If your institution is unconditionally obligated to refinance, under state law or by contract, the loan would be reported for HMDA using the “Other” purpose.
It appears that you are making a loan to build a building on property located in a special flood hazard area. Flood insurance is required. If the insurance company doesn’t understand how to insure a construction loan, finding a new insurance company may make sense.
The loan is not used to purchase the property.
In my experience, most lenders would refinance the loan and include the balance due to the contractor. But it appears that you are not refinancing the loan.
Since your loan is not for purchase or refinance, and the credit will not be used to finance the initial construction of a dwelling on the property identified in paragraph (a)(6), since the dwelling is already complete, that leaves “Home Equity” as the Purpose, by default.
Government monitoring information is required by Regulation B or by HMDA.
* Regulation B requires collection if the loan is to purchase or refinance a loan. That does not appear to be the case.
* HMDA requires collection for closed-end mortgage loans made by HMDA reporting banks. You did not provide information to use to determine if your institution is covered by HMDA. If your institution is covered by HMDA then collection of monitoring information for the loan in question would be required.Section 1003.4(a)(10) requires the collection of the following information about the applicant or borrower:
i. Ethnicity, race, and sex, and whether this information was collected on the basis of visual observation or surname;
ii. Age; and
iii. Except for covered loans or applications for which the credit decision did not consider or would not have considered income, the gross annual income relied on in making the credit decision or, if a credit decision was not made, the gross annual income relied on in processing the application.Comment 4(a)(10) (iii) states, “When a financial institution evaluates income as part of a credit decision, it reports the gross annual income relied on in making the credit decision. For example, if an institution relies on the verified gross income of the applicant in making the credit decision, then the institution reports the verified gross income.”
A review of available HMDA resources does not include a statement to only use the income of the individual for a business purpose loan to a natural person.
If the income relied on is the gross income of the business, then that income is reported. The author notes that using the income of a business, rather than the income of the individual, in a loan to an individual is not typical.
A credit decision is reported as approved but not accepted if a credit decision had been made approving the application before closing or account opening, subject solely to outstanding conditions that are customary commitment or closing conditions, but:
• The applicant or the party that initially received the application fails to respond to the financial institution’s approval within the specified time;
• The closed-end mortgage loan was not otherwise consummated; or
• The account was not otherwise opened,In your case since no credit decision had been made the loan is not approved or denied, but reporting the application as withdrawn seems appropriate.
I am not aware of a single source that lists all of the possible exceptions. Exceptions can include state laws and rules imposed by specific courts.
Arguably, you are in compliance. The amount of the insurance should equal to the lease of:
– Loan Amount$469,000;
– FEMA’s Max for a dwelling $250,000; or
– The value of the improvements. This amount is not clear. The value of the improvements is generally the appraised amount less the value of the land.The above determines the minimum amount required. While FEMA will not issue a dwelling policy in an amount greater than $250,000, a private policy in a larger amount may be obtained. In no circumstance should insurance in an amount that exceeds the value of the improvements be required.
According to 1026.19(e)(2)(i)(A), neither a creditor nor any other person may impose a fee on a consumer in connection with the consumer’s application for a mortgage transaction subject to paragraph (e)(1)(i) of this section before the consumer has received the disclosures required under paragraph (e)(1)(i) of this section and indicated to the creditor an intent to proceed with the transaction described by those disclosures. It appears you provided the disclosure and the borrower provided the intent to proceed. Regulation Z clearly permits you to order an appraisal at that point.
Regulation Z does not require a signature on the Loan Estimate or the intent to proceed, but many banks require a signature on one, the other, or on both of the forms.
Any fee listed in the loan costs or other costs section may be paid by the seller. That is why page 2 contains columns for borrower-paid, seller-paid, and paid by others.
If you have a specific example you would like to discuss, provide the details and we will respond.
If any of the customers are recorded saying good things about your products, be sure to comply with the FTC Endorsement guides.
The fees should be disclosed by the category of fee. For example, the mortgage recording fee should be listed in the Other costs section as “Taxes and other government fees.”
As you are aware, Section 1026.42(f)(2) of Regulation Z, which deals with the issue of valuation independence, contains a presumption of compliance. The first element of the presumption requires the creditor to compensate the fee appraiser in an amount that is reasonably related to recent rates paid for comparable appraisal services performed in the geographic market of the property being appraised. The regulation is primarliy concerned with appraisal fees that exceed the market rate, which might be an attempt to influence the appraiser. At this point, it is not presumed that your bank is in compliance. The regulation states, “If a creditor or its agent does not meet one of the non-required conditions set forth in paragraph (f)(2), the creditor’s and its agent’s compliance with paragraph (f)(1) is determined based on all of the facts and circumstances without a presumption of either compliance or violation.”
You should discern the reasons for the deletion of the fee. If the appraisal was for a house owned by family or a friend, there could be an issue with appraisal independence. I am not as concerned by the appraisal independence rule under Regulation Z but with the USPAP rules.
pparks has provided a very thorough response to the question. pparks suggests including the explanation in the adverse action file. that is an excellent suggestion, but let me clarify – Comment 1002.9 – 2. clearly states, “When an applicant expressly withdraws a credit application, the creditor is not required to comply with the notification requirements under §1002.9.
Getting the cost on the closing disclosure is the most important concern. Where the item goes on the form is of secondary importance.
Section B, “services You Cannot Shop for” is an option, but the Commentary has a fairly comprehensive list of items included in the section, and wire fees are not on the list. This does not appear to be the best option.
Section C is for items for which the borrower is able to shop. It appears the attorney has been selected, the fee is essential, and the borrower cannot choose another provider for the service. So, Section C does not appear appropriate.
Section H, “Other Costs,” includes any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the disclosure. This appears to be the best option.
For any item that is a component of title insurance or is for conducting the closing, the introductory description “Title –” shall appear at the beginning of the label for that item. The item appears to be related to conducting the closing, so “Title -” should be added.
