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This is a great discussion. This topic appears on our list of possible webinar topics. We may need to move it up higher on the list.
The concept of “application” for purposes of the Regulation Z integrated disclosures has already been well explained by Kelly. That concept is very different that the concept of “application” for purposes of Regulations B and C.
For purposes of HMDA/Regulation C the term “application” generally has the same meaning as in ECOA/Regulation B. One difference, a prequalification is generally considered as an application under Regulation B, but not under Regulation C.
Regulation B defines an term “application” to mean an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested. An application is deemed to be “complete” once you have received all the information that you regularly obtain and consider in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral).
Regulation B Comment 2(f) – 1. states, “A creditor has the latitude under the regulation to establish its own application process and to decide the type and amount of information it will require from credit applicants.”
The term “procedures” refers to the actual practices followed by a creditor for making credit decisions as well as its stated application procedures. For example, if a creditor’s stated policy is to require all applications to be in writing on the creditor’s application form, but the creditor also makes credit decisions based on oral requests, the creditor’s procedures are to accept both oral and written applications.
What it takes to have an application varies from one loan type to another. For example, you need an appraisal and title work for a mortgage loan, but that information is not needed for an unsecured loan.
Financial institutions are required to collect data regarding applications for, and originations and purchases of, home purchase loans, home improvement loans, and refinancings for each calendar year. Remember you define what constitutes an application.
For purposes of HMDA your application could be coded as:
• Code 1–Loan originated
• Code 2–Application approved but not accepted
• Code 3–Application denied
• Code 4–Application withdrawn
• Code 5–File closed for incompleteness
• Code 6–Loan purchased by your institution
• Code 7–Preapproval request denied
• Code 8–Preapproval request approved but not accepted (optional reporting)Codes 1 through 4 are pretty straightforward. Use Code 5 when you send a written notice of incompleteness under Section 1002.9(c)(2) of Regulation B and the applicant did not respond to your request for additional information within the period of time specified in your notice. If you purchase loans from other lenders use Code 6. Since you do not process preapprovals you can eliminate codes 7 and 8.
We applaud your efforts to simplify the process of defining “applications,” but unfortunately the mess of federal regulations make that impossible. As you can see, the amount of application information needed to trigger integrated disclosures is worlds apart from the information needed for purposes of Regulations B and C.
A general lender credit is included in the closing costs in both sections. In Calculating Cash to Close, at the top of page 3, the general lender credit should be included in “Total Closing costs (J)” In the Summaries of Transactions, at the bottom of page 3, the general lender credit should reflect Closing Costs Paid at Closing (J), which should be the Total Closing Costs (J) from Calculating Cash to Close at the top of Page 3 minus the Closing Costs Paid Before Closing, which is also displayed at the top of Page 3 in the Calculating Cash to Close section.
In most states lenders can pursue a deficiency balance. I believe that is the case in Indiana. Assuming you lend only in Indiana, the correct disclosure is that state law does not protect the borrower. If your bank lends on a regional, or broader basis, the answer changes according to state law.
First, let me clarify that the same definition of “affiliate” is used for both Section .19 and Section .35.
• Comment 19(e)1. The term “affiliate,” as used in § 1026.19(e), has the same meaning as in § 1026.32(b)(5).
• Section 1026.32(b)(5) states “Affiliate means any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.).”Next I assume you are referring to the “points and fees coverage triggers that appear in Section 1026.32(a)(1)(ii). Title insurance premiums are generally not included points and fees calculation unless they are paid to affiliate, which they are not in your case.
Matt,
As I am certain that you are aware Regulations Z and the Official Commentary do not mention Amish Aid, and I am not ware of any provide guidance the CFPB may have issued. Although I am familiar with Amish Aid there is littler depth to my knowledge on the topic. I was under the impression that insurance was provided by the church and no individual premiums are paid. If there are scheduled payments my answer may differ.
A safe approach may be to disclose typical homeowners insurance premiums for your area on the Loan Estimate. If at closing typical insurance is not selected and “no cost” Amish Aid” is relied on then no cost would be reflected on the Closing Disclosure and the cost from the Loan Estimate used in the good faith analysis would also be zero.
The Bank,
The key to a timely delivery of the Loan Estimate is that the disclosure must leave your hands witthin three days. It appears that when you upload the disclosures on day 2 they become available to the consumer and you have made a timely delivery of the disclosures at that time. Mailing it two days ater does not increase your level of compliance, but it does not hurt either.
As Robin explained in response to your second question, disclosures are deemed received by the consumer three days after you send them.
MCCompliance offers a good suggest for documenting compliance. Thanks to MCCompliance for the reply.
I assume you are referring to the federal preemption to state usury statutes that has been in place since the ’80s. I am not aware of any change in federeal law that impacts the preemption. You should check with your vendor for clarification of why the box was eliminated. I suspect it is part of ongoig streamlining efforts.
Question: If we do have a changed circumstance affecting tolerances and we re-disclose on the Closing Disclosure prior to consummation, do we not have to provide any rebates for tolerance cures? Further, how would the revised charges be displayed on the Cash to Close comparison chart? Would we show the revised charges under both the Loan Estimate & Closing Disclosure columns or only under the Closing Disclosure column?
Answer: The CFPB has not clarified this issue yet. Hopefully they will do so before August 1st. Until then the consensus seems to be no cure would be needed the final number on the closing disclosure would appear in both the Loan Estimate and Closing Disclosure columns.Question: The deposit account where we remit funds to the vendor is held in the Bank’s name and therefore why the payee is Bank for benefit of Vendor.
Answer: By having the account in the bank’s name you are creating an issue that is eliminated if the account is in the vendor’s name.3) This method of payment is not addressed in the final rule – nothing endorses or prohibits the practice.
Why do you handle the payment this way? What advantage is gained over having the settlement agent cut the check to the vendor, then depositing the check in the vendor’s account at your bank?
Your situation seems to be:
• A “changed circumstance under Section 1024.2(b)(ii), which states, “Changed circumstances means information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE.”
• Covered by Section 1024.7(f)(2) – Changed circumstances affecting loan. If changed circumstances result in a change in the borrower’s eligibility for the specific loan terms identified in the GFE, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances affecting the loan actually resulted in higher charges.You mentioned that you have already reviewed Regulation E so we assume there is no problem under 15 U.S. Code § 1693k – Compulsory use of electronic fund transfers.
Also make sure the consumer is aware that the failure to open an account by a specific date will result in a change in product to one with a higher fee for those do not maintain an account with the bank. If the arrangement is not clearly explained to the consumer you are at risk of a UDAAP violation.
You should check state law for any possible prohibition against requiring an account in connection with the loan.
A loan is entered on the HMDA LAR in the year in which action is taken. The “date action is taken” may be reported for a construction/permanent loan as either the settlement date or the date the loan converts to the permanent financing. Since your institution choose to use the date the loan converts to permanent financing as the date action was taken, the loan should have been reported in 2014. Since the loan was paid off in 2013 there was no permanent loan in 2014. The loan paid off in 2013 was a construction only loan, which is not HMDA reportable.
Question: If we are not allowed to obtain a copy of a purchase contract at the time of application, how are we supposed to disclose some of the cash to close figures?
Answer: You can only disclose what you know at the time the Loan Estimate is prepared. In more than one case the instructions mention that a creditor may “know” an amount that will be paid in the transaction from information obtained verbally from the consumer, from a review of the purchase and sale contract, or from information obtained from a real estate agent in the transaction. If you suspect that item will be paid in the transaction ask the customer, the realtor or other party to the transaction. If you are truly not aware of an item and become aware of it later you have a “changed circumstance” and you can provide a new disclosure reflecting the amount.Question: On pg 82 on the loan estimate it says if the creditor is aware of the commission to include it but if we are not should we guess about the commissions by assuming it is 3% since most loans do have commission?
Answer: Section 1026.37(g)(4) requires an itemization of other amounts the “consumer is likely to pay… and which the creditor is aware at the time of issuing the Loan Estimate.” From information in your question it appears “likely” that the customer will have to pay the commission. It seems that the commission will have to be paid unless you have knowledge that an exception will be made in this case. If you do not have a copy of the sales contract that details commission you may want to inquire if there is an agent involved in the transaction to whom a commission will be due.Question: Pg 79 on the loan estimate for property tax if we have county and city can it be listed out such as property tax – county and property tax – city?
Answer: On page 2 of the loan estimate under the heading “Other Costs” and the subheading “Initial Escrow Payment at Closing” a line is labeled Property Tax. That line is followed by 5 blank lines that can be labeled and used for any other escrowed items. That results in six lines available for itemizing property taxes.
Mary,
Regulation Z generally does not require any particular period of time from origination to the due date of the first payment. Some provisions in Regulation Z require substantially equal payments; but those provisions allow flexibility for long or short odd days until the first payment.
Your state law may require a 30-day period to the first payment date, so check with your bank counsel on that issue.
