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Thanks for submitting this thoughtful, well researched question.
I agree fully with Dan’s comments. Let me add one small distraction. Fannie and Freddie give some small credit to income from a guarantor. The borrower must be able to meet a 43% DTI ratio on their own, but the total DTI ratio could increase to 45% with income of the guarantor. This information only impacts a loan made under the Special QM rules under Section 1026.43(e)(4).
Robin has done a fantastic job explaining the finance charge ramifications of your question. Let me explore another aspect of the proposed transaction.
There appears to be no issue if:
* The borrower is purchasing a single-premium credit life policy and is paying the full premium in cash; or
* The borrower is purchasing monthly pay credit life policy and is billed monthly for the premium which is paid in cash.Adding the premium to the existing mortgage loan may be an issue. Does your note and mortgage allow the bank to make advances to purchase optional credit insurance? Maybe not. Your contract probably allows advances to pay for required insurance that the borrower has failed to maintain, but that is not the situation your bank faces.
You could make a separate loan, not secured by a dwelling, for the purpose of purchasing the life insurance.
You could refinance the transaction and finance the premiums for monthly premium, but not single premium, credit life insurance.
You have several options. It is not clear that any of the options will work for the borrower and for your bank.
I have always encouraged lenders to obtain the consumer’s written permission to pull a report at the time of the pre-approval or pre-qualification.
3. If you are escrowing this issue is not a concern. If the customer is purchasing the policy the option for monthly premiums will make it easier for some borrowers to afford the premiums. Many find it easier to make small monthly payments as opposed to a single large annual payment.
4.The following language appears at the beginning of a standard FEMA dwelling policy: FEDERAL EMERGENCY MANAGEMENT AGENCY
FEDERAL INSURANCE ADMINISTRATION
STANDARD FLOOD INSURANCE POLICY
DWELLING FORMIf this language is missing it appears that you do not have a FEMA policy.
I have struggled with this provision as well. My advice has been to provide the notice in any event. While there is nothing that states that it must be given, as is the case for the providing the appraisal,there is also nothing that states that it is not required.
The notice states, in part, “We will promptly give a copy of any appraisal, even if your loan does not close.” How would the applicant know to expect an appraisal on a withdrawn or denied application if he or she did not receive the notice?
Clearly the best practice is to give the notice. Is the failure to provide the notice a violation? That will be up to the individual examiner, until this matter is clarified in the regulation. I would be surprised to see an examiner cite this as a violation.
In a face-to-face application if the applicant does not provide all of the monitoring information then you must collect the information based on visual observation or surname. Code 7 is used when the applicant or co-applicant is not a natural person or when information is unavailable because the institution has purchased the loan.
The following guidance might be of assistance to your loan officers:
Classification of Federal Data on Race and Ethnicity
There are a number of things that can cause the balloon payment on the note to differ from the balloon payment on the TIL disclosure:
* Different loan terms;
* Different interest rates;
* Rounding amounts in one case but not the other;
* Using different calculation calendars (360/360 versus 365/360); and
* Others.You need to determine the cause of the difference in your case. The difference could be a truth-in-lending violation or a UDAAP violation.
Be sure to have your Indiana counsel review all forms, in addition to the loan fees, to be sure the forms comply with Indiana law, including the UCCC (Uniform Consumer Credit Code).
There is also some fairly complicated law regarding choice of law when you operate in multiple states. Discuss this with counsel.
A worksheet similar to what you describe can be beneficial to the consumer, but can be a compliance nightmare – resulting in TIL, RESPA and UDAAP violations. None of the existing regulations contemplate the use of a worksheet. The new integrated disclosure, which are effective on August 1, 2015, do explain how to use such a worksheet, but it isn’t 2015 yet..
If the form looks too much like a GFE, examiners may determine it is a GFE subject to all of the RESPA rules. If the numbers on the worksheet differ from the numbers on the actual GFE you may have a UDAAP violation.
These RESPA arguments can also be applied to Truth in Lending issues. It may be deemed an incomplete TIL disclosure and differences between the worksheet and the actual TIL may be deemed to be a UDAAP violation. If the examiner determines that the form is an advertisement or a solicitation additional problems, such as a lack of an APR, could arise.
Make sure the form does not resemble a GFE or a TIL. Include qualifying language that states the form is not a GFE or TIL, that numbers are preliminary estimates and that more refined estimates will be provided later in the GFE and TIL, and that form is not an advertisement of solicitation for credit.
Robin’s advice is solid.
Your questions indicate a syndrome I refer to as “dancing on the edge.” Some also refer to this as taking calculated risks. I pretty consistently drive a little faster than the posted speed limit. I try to keep my speed within a range that I deem to safe enough to avoid a ticket. It usually works. I don’t get tickets often and I am willing to pay an occasional ticket to fulfill my “need for speed.”
When regulators find you dancing on the edge they may or may not cite a violation, but over time they form an opinion that your program is reckless, just barely in compliance and occasionally just barely out of compliance. If you can live with an occasional violation and a downgraded management rating in order to continue dancing on the edge, go for it.
If you want to avoid the occasional violation and restore your management rating set your LTV at 89% so you are unquestionably in compliance. Even a small miscalculation won’t send you tumbling over the edge, because you are dancing a safe distance away from the edge.
For more information on the horses running in the Derby go to https://www.kentuckyderby.com/horses . All of these horses having interesting back stories.
David are you a Duck Dynasty fan?
I always get excited about the horses this time of year. Yesterday morning Patti (my wife), Amy (our director of marketing and my daughter) and I visited the backside of Churchill Downs (the working end of the track where the barns are located). We made a special stop to visit Foolhardy, a four-year old horse in which I have a small ownership interest. For a Louisville native, who has been going to the track since I was five-years old, owning an interest in a race horse is exciting. Owning an interest in a horse scheduled to run in the first race on Derby Day is a dream come true.
Cheryl – Great choice. I am sure others will agree with your pick. No doubt California Chrome is the class of the field. My only concern is that favorites rarely win the Derby. I compare three-year old horses at this time of year to 16 year old boys – some mature early and some later. The favorites are the horses that have matured early. There are horses in the field that are just maturing and they will be among the favorites for the rest of the year. The challenge is to identify those that are about to blossom.
I am not clear on the form you reference. If you are referring to the a statement that indicates that the borrowers occupy the dwelling, the form is not required by any of the “compliance regulations.” Generally the form is required by the investor or under the requirements of a specific GSE program.
If I have missed the point, which happens far too often, please set me straight.
Given the amount of the prepayment penalty you almost certainly with have a section 32/HOEPA loan. You can eliminate the concern by converting your $250 fee to a 2% of the amount prepaid fee.
The regulations do not mention using the amount of fees paid on the consumer’s behalf as an offset against the prepayment penalty. The regulations do mention that fees paid by the creditor on behalf of the consumer are prepayment penalties if reinstated in the event of prepayment.
