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Neither HMDA nor Regulation C directly addresses your issue, therefore we all are guessing at the proper way to disclose the purpose of your loan. We suggest you may want to seek guidance on this issue from the CFPB.
Comment 2(j) – 3. states, ” A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time.”
The term “home purchase” is defined as, ” a closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of purchasing a dwelling.” The term dwelling includes a manufactured home. The term “construction loan is not defined, but logically includes a loan to construct a dwelling. A loan to purchase and install a manufactured home does not clearly fit the concept of a construction loan.
While your reference to Paragraph 3(c)(2),“Secured by unimproved land” exemption, does refer to the construction of a dwelling and the purchase of a dwelling to be placed on land in the same context, that section does not deal with temporary financing. Paragraph 3(c)(3), which does deal with temporary financing, does not include as an example of temporary financing a loan to purchase and install a manufactured home. We believe that such a loan is temporary if it is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.
An argument can be made that your loan would be a home purchase loan. An argument can also be made that your loan is a refinance, a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower. If Comment 2(j) – 3 referred to replacing temporary financing instead of replacing a construction loan we would be more persuaded by your argument.
Paragraph 4(a)(12) – 5..i. of the Regulation C Commentary states, “If a rate is reset after a lock-in agreement is executed (for example, because the borrower exercises a float-down option or the agreement expires), then the relevant date is the date the financial institution exercises discretion in setting the rate for the final time before final action is taken. The same rule applies when a rate-lock agreement is extended and the rate is reset at the same rate, regardless of whether market rates have increased, decreased, or remained the same since the initial rate was set.” The language clarifies that the rate-set date is the date the financial institution exercises discretion in setting the rate for the final time before final action is taken.
Your secondary market team correctly notes that using the date of reset could result in a different APOR, which in turn could result in a different rate spread. While that may be an inconvenient result that is the result.
Your secondary market team is working hard to make this issue go away. Their argument that the rate is not “reset” is creative, but is pretty much blunted by the language of the Commentary that states, ” The same rule applies when a rate-lock agreement is extended and the rate is reset at the same rate.”
The secondary market team’s concerns about the impact of a change in the APOR on HOEPA, HPML and HCPT are valid. All three sections (HOEPA – section 1026.32, HPML – Section 1026.35, and HPCT – 1026.43) require use of the APOR as of the date the rate is set for the final time before consummation. For example on November 6, 2017 the APOR for a 15 year fixed-rate non jumbo loan was 3.34. If the APR was 4.84 the transaction’s rate spread of 1.50 would not result in a Higher Priced Mortgage loan for purposes of 1026.25. If the rate was reset at the same rate on November 13, 2017 the APOR of 3.31 on that date results in a rate spread of 1.53, which makes the loan a HPML.
This a great example of effective use of the Forum. Pcorder submitted a legitimate question after completing a search for the answer. Rcooper provided the perfect answer to a question where the answer is not readily available.
A “community development loan” means a loan that:
(1) Has as its primary purpose community development; and
(2) Is not reportable as a home mortgage (HMDA loans), small business, small farm, or consumer loan, unless it is a multifamily dwelling loan.Your loan appears to have the appropriate purpose, but the line of credit appears to be a HMDA reportable loan and therefore would not qualify for CD credit unless the properties are multi-family properties.
You are only required to deliver the MLA disclosure to a covered borrower on a covered transaction. There does not appear to be a problem with providing the disclosure to all CC applicants. You are just performing unnecessary work. The extra paper provided to the borrower may be confusing.
Your questions leads me to believe that your are concerned that your vendor will not provide you with the ability to determine who is or is not a covered borrower by next week. That confuses me. There is already a free, easy-to-use tool to perform that task for you. You don’t need a vendor. Correct me if I have interpreted your situation incorrectly.
You may be OK based on ” where the consumer or property is located” but the provider listed needs to be able to perform the service. For example, would a title company in Indiana provide a title policy for a property located in Oklahoma? If not that would be a problem.
You should discuss this with your LOS vendor. You may be entering the data into the system incorrectly or it could be a system error. A 7/1 should be a 7/1.
Michele,
Are you questioning the product description? You described it as a 7/1 ARM. Is the rate fixed for the first 7 seven years with interest only payments for the first 12 months and fully amortizing payments for the next 6 years? If so a description of “1 year interest only, 7/1 Adjustable rate” would appear appropriate.
You have considered all of the major issues. Some lenders are happy to get a payment on a charged-off loan from any source. Accepting a payment directly from the consumer generally triggers payment adjustments under the terms of your contract with the collector. Requiring the consumer to deal directly with the collector eliminates that burden. As long as you have addressed the issues listed in your question and the language of your note or loan agreement doesn’t prohibit you from requiring payments be made to the collector, which would be highly unusual, you should be fine.
If your peers are HMDA reporters vast amounts of data are available on the FFIEC’s (ffiec.gov) website. If they are not HMDA reporters it is more difficult to get data. You can always get limited data from their call report. You can also review their CRA file. It will contain their Public Evaluation, HMDA Data, branch information, assessment area data, and possibly much more.
You have provided enough information to scare me, but not enough to determine if there is a problem or not. Your bank is forming partnerships with home builders and others. A partnership is a legal agreement under which, among other items, profits are split. Very likely such an arrangement would qualify as an Affiliated Business Arrangement. You need to get a full understanding of all of the details of the arrangement. If the builder refers those who need financing to your bank and your bank in return provides the builder a “thing of value” you have all of the elements of a Section 8 violation. If the builders simply make uncompensated referrals you should be fine.
Provide us with more details and we can better assist you in determining if there is a violation or not.
I haven’t worked with this issue in a long time. Generally any contract with a minor is unenforceable, even if an adult is a party to the loan. There are exceptions for certain necessities. You are better off making the loan to the adult only and leaving the minor off the contract. You should have a discussion with bank counsel before entering into a contract with a minor.
