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Under Section 1026.20, a transaction is a refinance if there is a new transaction that satisfies and replaces the original transaction. If the reamortization where the rate is increased or a fee is charged is accomplished using a new note, it is a refinance. If the same result is achieved using a modification agreement, then it is not a refinance.
Apparently, my long answers are longer than you want to read. I will keep it short this time.
No.
No.
Section 1026.7(b)(6)(iii) states, “Charges imposed as part of the plan other than charges attributable to periodic interest rates must be grouped together under the heading Fees, identified consistent with the feature or type, and itemized, and a total of charges, using the term Fees, must be disclosed for the statement period and calendar year to date, using a format substantially similar to Sample G–18(A) in Appendix G to this part.” Charges imposed as part of the plan include:
(A) Finance charges identified under §1026.4(a) and §1026.4(b).
(B) Charges resulting from the consumer’s failure to use the plan as agreed, except amounts payable for collection activity after default, attorney’s fees whether or not automatically imposed, and post-judgment interest rates permitted by law.
(C) Taxes imposed on the credit transaction by a state or other governmental body, such as documentary stamp taxes on cash advances.
(D) Charges for which the payment, or nonpayment, affect the consumer’s access to the plan, the duration of the plan, the amount of credit extended, the period for which credit is extended, or the timing or method of billing or payment.
(E) Charges imposed for terminating a plan.
(F) Charges for voluntary credit insurance, debt cancellation or debt suspension.Section 1026.7(b)(6) does not address “start-up fees.”
Section 1002.2(e) of Regulation B, the regulation that requires the collection of government monitoring information, defines the term applicant to mean, “any person who requests or who has received an extension of credit from a creditor, and includes any person who is or may become contractually liable regarding an extension of credit. For purposes of §1002.7(d), the term includes guarantors, sureties, endorsers, and similar parties.
TRID is part of Regulation Z. Section 1026.2(a)(11) of Regulation Z uses the term consumer, rather than the term applicant. The term consumer means a cardholder or natural person to whom consumer credit is offered or extended. Comment 2(a)(11) clarifies, “Guarantors, endorsers, and sureties are not generally consumers for purposes of the regulation, but they may be entitled to rescind under certain circumstances, and they may have certain rights if they are obligated on credit card plans.”
To conclude Regulation B states that the term applicant does not include a cosigner unless the cosigner is an applicant. TRID has nothing to do with the collection of monitoring information.
Matt,
Section 1026.7(a) which states, “(a) Rules affecting home-equity plans. The requirements of paragraph (a) of this section apply only to home-equity plans subject to the requirements of §1026.40. Alternatively, a creditor subject to this paragraph may, at its option, comply with any of the requirements of paragraph (b) of this section; however, any creditor that chooses not to provide a disclosure under paragraph (a)(7) of this section must comply with paragraph (b)(6) of this section.”
Clearly you are permitted to use either 7(a) or 7(b). As you point out your periodic statement contains elements of both 7(a) and 7(b). Using the heading “Fees” and providing totals for the period and YTD are consistent with use of 7(b). The failure to “break out the finance charge related fees or total them” is a concern under 7(b).
Based on your description, it appears that your current periodic statement does not comply with 7(b). Examiners typically consider consumer harm when deciding whether or not to cite a violation.
A related issue revolves around Comment 7(a)(6)(i) – 8 which states, “8. Start-up fees. Points, loan fees, and similar finance charges relating to the opening of the account that are paid prior to the issuance of the first periodic statement need not be disclosed on the periodic statement. If, however, these charges are financed as part of the plan, including charges that are paid out of the first advance, the charges must be disclosed as part of the finance charge on the first periodic statement. However, they need not be factored into the annual percentage rate. (See § 1026.14(c)(3).)” This comment applies when using 7(a) but not with 7(b). You claim to use 7(b), but your statement includes elements of both 7(a) and 7(b). It is possible that an examiner might cite a violation for failure to comply with Comment 7(a)(6)(i) – 8.
I suggest a thorough review of the existing statements. Has the existing core provider acknowledged responsibility for errors in the existing statement format? Equally important is assuring that the new core system produces a correct statement going forward.
Of course, you may agree to modify the terms of an existing loan. Use of a modification agreement would be appropriate, and generally would not trigger new disclosure requirements. If you decide to modify the existing loan by having the borrower sign a new note, the transaction would be a refinance, which would trigger new disclosures and other requirements.
There are other options. Instead of a construction to permanent loan you could do separate construction and permanent loans. The permanent loan could be done in the correct amount at origination.
RESPA does not authorize you take money from the escrow and apply it for other purposes. The customer’s money in the escrow account is placed there for a very specific purpose, such as paying taxes or insurance. If there is an overage, a short cycle statement can be run to determine the exact amount of the escrow, then the surplus must be sent to the customer (check or credit to a deposit account). Then, if the customer chooses, they could apply the surplus to resolve the past due status.
Amounts paid on a loan to construct a residence (construction loan) or to refinance a loan incurred to construct a residence are reportable on Form 1098 as points if they:
• Are clearly designated on the loan documents as points incurred in connection with the loan, such as loan origination fees, loan discount, discount points, or points;
• Are computed as a percentage of the stated principal loan amount;
• Conform to an established business practice of charging points in the area where the loan is issued and do not exceed the amount generally charged in the area;
• Are paid in connection with a loan incurred by the payer of record to construct (or refinance construction of) a residence that is to be used, when completed, as the principal residence of the payer of record;
• Are paid directly by the payer of record; and
• Are not allocable to an amount of principal in excess of $750,000, or $1 million if you know that the written binding contract exception applies.Generally points on a refinance are not reportable; however amounts paid to refinance a loan to construct a residence are not points to the extent they are allocable to debt that exceeds the debt incurred to construct the residence. It is not clear how you documented the conversion to permanent financing. Points are reported in the year the construction loan is originated and in the year the loan to refinance the construction loan is originated. The same is not true for a modification.
This has always been an awkward question. Section 1026.18(s) deals with closed-end credit. Your transaction is open-end credit. All the same, guidance from 1026.18(s) is used to determine the presence of a balloon payment.
Section 1026.18(s) defines a balloon payment as one that is more than two times the regular periodic payment. In the HELOC rules, Section 1026.40(d)(5)(ii) states, “A balloon payment results if paying the minimum periodic payments does not fully amortize the outstanding balance by a specified date or time, and the consumer must repay the entire outstanding balance at such time.” The problem is that a transaction may be a balloon under Section 1026.40(d)(5)(ii), but may not be a balloon under Section 1026.18(s). For open-end credit, that requires a minimum payment of 5% of the outstanding balance plus accrued interest or $50, whichever is less. If the full outstanding balance is due at maturity that amount may be a balloon under Section 1026.40(d)(5)(ii), but may not be a balloon under Section 1026.18(s), if the final payment is $100 or less.
Assuming the loan is otherwise HMDA reportable, the presence of a business as the primary borrower does not disqualify the loan from HMDA reporting. Certain business purpose loans are excluded from HMDA reporting. The Commentary includes guidance on reporting certain fields, such as ethnicity, race and sex, when a applicant is a business entity.
Good questions. Your concern is well placed. The most recent guidance on the topic was published by the CFPB on October 7, 2020. The guidance was in the form of fourteen Frequently Asked Questions (FAQs) on the RESPA Section 8 issues (https://www.consumerfinance.gov/policy-compliance/guidance/mortgage-resources/real-estate-settlement-procedures-act/real-estate-settlement-procedures-act-faqs/). Of course, the guidance doesn’t specifically address your questions. I share my thoughts on your questions below. You should consider getting a legal opinion from your bank’s legal counsel on these issues.
1. Attend realtor open houses (uninvited) to introduce themselves and explain mortgage products/programs available to the realtor.
• An essential element of a Section 8 violation is that a fee or a thing of value is paid to the referring party. It does not appear that a fee or thing of value is provided to the referring party.2. Attend realtor open houses (with an invite from the realtor) to be available to provide financing information or a pre-qualification to potential homebuyers.
• It does not appear that a fee or thing of value is provided to the referring party.3. Attend realtor open houses (with an invite from the realtor) as above, but also provide a flyer to potential homebuyers that contains information about the listing and realtor along with contact information for the mortgage loan officer and examples of financing options. (I’m of the opinion that the flyer is prohibited because there is no shared cost.)
• The flyer may be considered a thing of value for the realtor.4. Call on all realtor offices that are members of the local realtor association to provide information about products/programs along with food and/or bank promotional items (i.e., pens, notepads, key chains, etc.).
• The food and/or bank promotional items might be considered as things of value to the realtor.5. Host Lunch & Learn events about mortgage products/programs with invitations to all members of the local realtor association.
• The lunch might be considered as a thing of value to the realtor. The FAQs address such an event and it appears that by inviting all members of the local realtor association you have minimized the risk of a violation.6. Participate in a homebuyer education class hosted by a realtor.
• Your participation in the event is not explained. Merely sitting in the class as a student would pose minimal risk. If your institution is sponsoring the class and paying a portion of the expenses related to the class there is increased risk of a violation. The FAQs address education issues.7. Provide training at the request of a realtor office or local realtor association.
• You have not provided information to determine if there is a value to the realtor. If your presence as a trainer draws attendees there is potential value to the realtor; if the realtor charges a fee for the training then it is likely that your presence increases the value to the realtor. The FAQs address education issues.8. Serve on a committee at the local realtor association.
• The realtors refer business to your bank. The concern is your bank delivering a fee or a thing of value to the realtor. Donating your time to serve on a board at the realtor associations seems unlikely to result in a violation.Good question. Good input from pparks.
HMDA contains an exemption, in Section 1003.3(c)(10), for a closed-end mortgage loan or open-end line of credit that is or will be made primarily for a business or commercial purpose, unless the closed-end mortgage loan or open-end line of credit is a home improvement loan under § 1003.2(i), a home purchase loan under § 1003.2(j), or a refinancing under § 1003.2(p). The open-end line of credit is for a business purpose and it does not appear to be for home improvement, home purchase or refinance. So the line of credit would be exempt.
Pparks notes that the initial purpose is business, but if later transactions are consumer purpose maybe the line is for consumer, not business, purpose; which would trigger HMDA and right of rescission issues.
For a transaction to qualify as a line of credit, there is an expectation of repeated transactions. If line is used only to purchase the business and there are no further extensions contemplated, then the transaction is not a line of credit. It would be a closed-end extension of credit. The closed end loan would require different documentation.
I am not aware of a mobile ATM exception to the ADA requirements for ATMs.
Drive-up ATMs should be ADA compliant.
You need to work with your determination company to see if the flood zone has changed. FEMA changes maps, rate structure, and grandfathering rules from time to time. The changes are based on the specific property. You can also do your own flood determination using FEMA’s Flood Maps (at https://msc.fema.gov/portal/home) at no charge.
