[jholzknecht]

Section 1026.4(c)(7) of Regulation Z states that filing fees may be excluded from the finance charge in transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount.

Section 1026.4(d)(7) states that VSI premiums may be excluded from the finance charge if:
i. The insurer waives any right of subrogation.
ii. The other requirements of § 226.4(d)(2) are met. This includes, of course, giving the consumer the option of obtaining the insurance from a person of the consumer’s choice. The creditor need not ascertain whether the consumer is able to purchase the insurance from someone else.

[jholzknecht]

Section 20 of the Federal Deposit Insurance Act (12 U.S.C. 1829a) prohibits participation in a lottery. The law defines a lottery to include any arrangement whereby three or more persons (the “participants”) advance money or credit to another in exchange for the possibility or expectation that one or more but not all of the participants (the “winners”) will receive by reason of their advances more than the amounts they have advanced, the identity of the winners being determined by any means which includes–

(A) a random selection;

(B) a game, race, or contest; or

(C) any record or tabulation of the result of one or more events in which any participant has no interest except for its bearing upon the possibility that he may become a winner.

[jholzknecht]

A credit report should not be pulled before the customer applies for credit. You should be able to document the application. Following are a few pertinent comments from the FTC Commentary. If your lenders are going to pull a report before an application has been submitted, they should obtain written consent from the customer. (See the final comment below.)

An application by a consumer for credit gives rise to a permissible purpose to obtain a consumer report, regardless of form. When a consumer applies for credit, whether in person, by phone, by mail, or by electronic means, the creditor has a permissible purpose to obtain a consumer report on the applicant, and thus does not need specific authorization from the applicant.

In order for a creditor to have a permissible purpose to obtain a consumer report to review an account, it must have an existing credit account with the consumer and must use the consumer report solely to consider taking action with respect to the account (e.g., modifying the terms of an open end account).

A consumer’s written consent qualifies as an “instruction” that provides a permissible purpose under this section if it clearly authorizes the issuance of a consumer report on that consumer.109 For example, a consumer’s clear and specific written statement that “I authorize you to procure a consumer report on me” provides a permissible purpose under this section.

[jholzknecht]

Part of your questions is easy to answer, part is not. The easy part – you should use the language from section A of the model Affiliated Business Arrangement Disclosure. Section B is used only when the service provider is an attorney, credit reporting arrangement or real estate appraiser.

The fee side of your question is a little tougher. Is the processing fee received by your bank a separate charge to the borrower or is it paid to your bank from your sister bank’s revenue?

For purposes of RESPA your processing fee should be included in the total of Block 1- “our origination charge” on the GFE and on Line 801 of the HUD-1. This is true for either of your two loan scenarios.

For purposes of TIL, if the borrower pays a separate processing charge, the charge may may be excluded from the finance charge under section 1026,4(c)(7a0 of the regulation, which provides that certain fees, such as document preparation fees, may be excluded from the finance charge, if certain conditions are met. Charges for underwriting would be a finance charge. If may be easier to include the full amount of the fee is the finance charge.

For purposes of TIL, if the fee paid to your bank is paid from your sister bank’s revenue, rather than as a separate fee imposed on the borrower, then the charge is already included in the finance charge.

For TIL the answers about disclosure of the fees are the same for either of your loan scenarios.

In the first loan scenario, you may have an issue in that the borrower cannot be required to use the services of your bank, as indicated in the model disclosure in Appendix D.

[jholzknecht]

Exhibit A to a Title Opinion is generally a description of the property.
• Part 1026.4(c)(7) of Regulation Z (Truth in Lending) states that real estate related charges, including title charges, are excluded from the finance charge in a transaction secured by real property or in a residential mortgage transaction if the fee or charge is bona fide and reasonable in amount.
• Appendix A to Part 1024 Regulation X states, “Line 801 is used to record “Our origination charge,” which includes all charges received by the loan originator, except any charge for the specific interest rate chosen (points). This number must not be listed in either the buyer’s or seller’s column. The amount shown in Line 801 must include any amounts received for origination services, including administrative and processing services, performed by or on behalf of the loan originator.”
o The RESPA FAQs state, “The amount shown in Line 801 must include any amounts received for origination services, including administrative and processing services, performed by or on behalf of the loan originator.”
o There is no discussion regarding which fees are performed by or on behalf of the loan originator. Generally, charges for preparing a mortgage or deed of trust are performed on behalf of the loan originator; since the document is only needed when a lender is making a loan. Title charges are generally incurred whenever a property transfer occurs, whether there is a loan or not. So title charges are generally not performed on behalf of the loan originator. Such charges should appear in the 1100 Series.

[jholzknecht]

In their appraisal regulations, the Agencies identified certain real estate-related financial transactions that do not require the services of an appraiser and that are exempt from the appraisal requirement. One exemption applies to business loans with a transaction value of $1 million or less when the sale of, or rental income derived from, real estate is not the primary source of repayment.
 To apply this exemption, the Agencies expect the institution to determine that the primary source of repayment for the business loan is operating cash flow from the business rather than rental income or sale of real estate.
 For this type of exempted loan, under the Agencies’ appraisal regulations, an institution may obtain an evaluation in lieu of an appraisal.

As part of the credit approval process and prior to a final credit decision, an institution should review appraisals and evaluations to ensure that:
 They comply with the Agencies’ appraisal regulations and are consistent with supervisory guidance and its own internal policies.
 An appraisal or evaluation contains sufficient information and analysis to support the decision to engage in the transaction.

Persons who review appraisals and evaluations should:
 Be independent of the transaction and have no direct or indirect interest, financial or otherwise, in the property or transaction, and be independent of and insulated from any influence by loan production staff.
 Possess the requisite education, expertise, and competence to perform the review commensurate with the complexity of the transaction, type of real property, and market.
 Be capable of assessing whether the appraisal or evaluation contains sufficient information and analysis to support the institution’s decision to engage in the transaction.

An institution should assess the level of in-house expertise available to review appraisals for complex projects, high-risk transactions, and out-of-market properties.
 An institution may find it appropriate to employ additional personnel or engage a third party to perform the reviews.
 When using a third party, an institution remains responsible for the quality and adequacy of the review process, including the qualification standards for reviewers.

Regulation Z contains detailed rules to assure the independence of the appraisal process, but Regulation Z does not apply to loans made primarily for a business purpose.

[jholzknecht]

Following is a long answer to a short question.

Under certain circumstances, renewals, refinancings, and other subsequent transactions may be supported by evaluations rather than appraisals. The Agencies’ appraisal regulations permit an evaluation for a renewal or refinancing of an existing extension of credit at the institution when either:
(i) There has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies; or
(ii) There is no advancement of new monies, other than funds necessary to cover reasonable closing costs.

A subsequent transaction is exempt from the appraisal requirement if no new monies are advanced (other than funds necessary to cover reasonable closing costs) even when there has been an obvious and material change in market conditions or the physical aspects of the property that threatens the adequacy of the institution’s real estate collateral protection.
 Conversely, when new monies are advanced (other than funds necessary to cover reasonable closing costs) and there has been an obvious and material change in market conditions or the physical aspects of the property that threaten the adequacy of the institution’s real estate collateral protection, the institution must obtain an appraisal unless another exemption applies.

If an evaluation is permitted under this exemption, an institution may use an existing appraisal or evaluation as long as the institution verifies and documents that the appraisal or evaluation continues to be valid. Even if a subsequent transaction qualifies for this exemption, an institution should consider the risk posed by the transaction and may wish to consider obtaining a new appraisal.

The Agencies allow an institution to use an existing appraisal or evaluation to support a subsequent transaction in certain circumstances.
 An institution should establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property (that is, remains valid).
 Such criteria will vary depending upon the condition of the property and the marketplace, and the nature of the transaction.
 The documentation in the credit file should provide the facts and analysis to support the institution’s conclusion that the existing appraisal or evaluation may be used in the subsequent transaction.

[jholzknecht]

The following information from the Commentary to Regulation C indicates which property is reported when the loan involves multiple properties. Your should report property type for the property being reported.

4(a)(9) Property location.
1. Property location—multiple properties (home improvement/ refinance of home improvement). For a home improvement loan, an institution reports the property being improved. If more than one property is being improved, the institution reports the location of one of the properties or reports the loan using multiple entries on its HMDA/LAR (with unique identifiers) and allocating the loan amount among the properties.
2. Property location—multiple properties (home purchase/refinance of home purchase). For a home purchase loan, an institution reports the property taken as security. If an institution takes more than one property as security, the institution reports the location of the property being purchased if there is just one. If the loan is to purchase multiple properties and is secured by multiple properties, the institution reports the location of one of the properties or reports the loan using multiple entries on its HMDA/ LAR (with unique identifiers) and allocating the loan amount among the properties.

[jholzknecht]

The APR for a discounted ARM should the composite APR, which reflects the discounted rate until the first rate change date, then the fully indexed rate for the remaining term. The payment schedule should reflect multiple payment streams, which also reflect the discounted rate until the first rate change date, then the fully indexed rate for the remaining term.

[jholzknecht]

Generally a new TIL disclosure is needed when you are doing a refinance ( a new note), but not when you are doing a modification (an extension/modification agreement. But some examiners demand a new disclosure on a modification when the modification are extensive, such as increasing the APR in addition to extending the maturity date. The safe answer is to give the new disclosure. While the argument for not giving the new disclosure is winnable, do you really want to get into an argument with the examiner.

[jholzknecht]

As indicated in the following section, your transaction appears to be covered by Regulation E.
“Sec. 205.3 Coverage.
(b) Electronic fund transfer. (1) Definition. The term electronic fund transfer means any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account. The term includes, but is not limited to—
(i) Point-of-sale transfers;
(ii) Automated teller machine transfers;
(iii) Direct deposits or withdrawals of funds;
(iv) Transfers initiated by telephone; and
(v) Transfers resulting from debit card transactions, whether or not initiated through an electronic terminal.”

The following section further clarifies the rules.
“12(a) Relation to Truth in Lending
1. Determining applicable regulation.
i. For transactions involving access devices that also function as credit cards, whether Regulation E or Regulation Z (12 CFR part 226) applies depends on the nature of the transaction. For example, if the transaction solely involves an extension of credit, and does not include a debit to a checking account (or other consumer asset account), the liability limitations and error resolution requirements of Regulation Z apply. If the transaction debits a checking account only (with no credit extended), the provisions of Regulation E apply. If the transaction debits a checking account but also draws on an overdraft line of credit attached to the account, Regulation E’s liability limitations apply, in addition to §§226.13 (d) and (g) of Regulation Z (which apply because of the extension of credit associated with the overdraft feature on the checking account). If a consumer’s access device is also a credit card and the device is used to make unauthorized withdrawals from a checking account, but also is used to obtain unauthorized cash advances directly from a line of credit that is separate from the checking account, both Regulation E and Regulation Z apply.”

[jholzknecht]

The first loan does not appear to be for home purchase, home improvement or for refinance, and therefore is not HMDA reportable.

When Regulation C refers to lines of credit it refers to Home Equity lines of credit subject to Regulation Z. Apparently your line of credit is not covered by Regulation Z, so there is no direct discussion of this product in Regulation C. But the guidance for lines of credit states that reporting of lines of credit is optional, and if reported, only the portion that is for home purchase or home improvement is reported. If you choose to report, report that portion of the line that the borrower indicates at application is for home purchase or home improvement.

[jholzknecht]

Thanks for the excellent post. The original answer from JGo9 was completely accurate, but he acknowledged that he was not familiar with Texas law. Your answer completes the picture. That is the value of this Forum – various voices coming together with different experiences to provide accurate and complete answers.

[jholzknecht]

The answer provided by JGo9 is accurate and here’s why.

The definition of “adverse action” includes a termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts.So, your action appears to be adverse action. But excluded from the definition of adverse action is any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account. So, assuming your bankrupt borrower is in default, no adverse action notice is required.

Generally Regulation Z requires advanced notice if the credit limit is decreased.

[jholzknecht]

As long as you can accurately reproduce the file within the required time frames, an electronic file is allowed. Many banks have had electronic CRA files for years.

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