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An adverse action notice must include a statement of the action taken; the name and address of the creditor; a statement of the provisions of section 701(a) of the Act; the name and address of the Federal agency that administers compliance with respect to the creditor; and either:
(i) A statement of specific reasons for the action taken; or
(ii) A disclosure of the applicant’s right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the creditor’s notification. The disclosure shall include the name, address, and telephone number of the person or office from which the statement of reasons can be obtained. If the creditor chooses to provide the reasons orally, the creditor shall also disclose the applicant’s right to have them confirmed in writing within 30 days of receiving the applicant’s written request for confirmation.A consumer may request:
* Clarification of the reasons for the action taken. Directing such inquiries to loan officers is appropriate.
* Section 701(a) is the ECOA notice that indicates the consumer can contact your regulator regarding discrimination. The consumer might contact you instead of your regulator.
* In part II of the adverse action form the consumer is told if the denial is based on information obtained from a third party, the consumer can contact you regarding the nature of the information received from the third party.
* You are required to state the reasons for the action taken or to give the consumer the right to request a statement of reasons. If you do not state the reasons then you need to be ready to respond to consumer’s request for the statement of reason.
You should have procedures for responding to any of these items.Question 1
Section 1026.42 of Regulation Z contains provisions related to valuation independence. This section applies to any consumer credit transaction secured by the consumer’s principal dwelling.Section 1026.42(d)(1)(i) states, “No person preparing a valuation or performing valuation management functions for a covered transaction may have a direct or indirect interest, financial or otherwise, in the property or transaction for which the valuation is or will be performed.” The rule specifically mentions employees and affiliates, but does not mention shareholders.
There does not appear to be a direct violation resulting from the shareholder conducting a valuation; however, if there is any indication that the return the appraiser would earn as a shareholder is influencing the valuation, examiners would likely cite a valuation.
Question 2
RESPA and Section 1025.15 of Regulation X place restrictions and require a disclosure for an affiliated business arrangement. Such an arrangement means the relationship among business entities where one entity has effective control over the other by virtue of a partnership or other agreement or is under common control with the other by a third entity or where an entity is a corporation related to another corporation as parent to subsidiary by an identity of stock ownership. “Control” means that a person:
(i) Is a general partner, officer, director, or employer of another person;
(ii) Directly or indirectly or acting in concert with others, or through one or more subsidiaries, owns, holds with power to vote, or holds proxies representing, more than 20 percent of the voting interests of another person;
(iii) Affirmatively influences in any manner the election of a majority of the directors of another person; or
(iv) Has contributed more than 20 percent of the capital of the other person.
Depending on the level of ownership, your shareholder might have control that could result in an affiliated business arrangement. As indicated above “control” requires a significant level of ownership, generally more than 20% of the company’s ownership.
Section 1002.5(b) of Regulation B states, “A creditor shall not inquire about the race, color, religion, national origin, or sex of an applicant or any other person in connection with a credit transaction, except as provided in paragraphs (b)(1) and (b)(2) of this section.” The exceptions allow collection of monitoring information as required by Section 1002.13 or under a substitute monitoring system, such as Regulation C.
There is no example that indicates that a rate lock extension fee is an example of a borrower requested change, and at the same time there is no statement that disqualifies the item. It is a bit of a stretch, but if you are going to proceed on this basis add a memo to the file explaining that the borrower requested the extension and that a revised disclosure is provided to reflect the borrower requested change.
TRID applies to a transaction subject the Regulation Z that is secured by a dwelling. A loan made in the commercial department may be subject to Regulation Z. If the loan is made to an entity, such as a corporation or a LLC, then Regulation Z and TRID do not apply. Although a TRID disclosure is not required in such a transaction, it is not a violation to provide the disclosure. If the TRID disclosure contains errors, the financial institution would have liability, either under Truth in Lending or under UDAAP.
You are allowed to provide a revised loan estimate at any time. But if your goal is to provide a revised loan estimate and to be able to adjust the tolerance, thereby avoiding a cure, then the revised disclosure must be due to a changed circumstance or a an interest rate lock to name two of the five scenarios listed in Section 1026.19(e)(3)(iv) under which tolerance adjustments are allowed. This could qualify as a changed circumstance, which includes new information specific to the transaction that you did not rely on when providing the original loan estimate. The interest rate lock is not such a good fit since it is allowed if the points or lender credit change because the interest rate was not locked when the original loan estimate was provided.
If you go with the changed circumstance option, the revised disclosure must be provided with in three business days (general rule) of receiving sufficient information to establish a valid reason for issuing a revised disclosure.
As discussed in your prior post, it is not clear that the mobile homes are transitory housing. We will have to trust your conclusion on that point.
The two Report of Condition categories are very similar. One distinguishing feature is that 1.e.(2), “Loans secured by other nonfarm nonresidential properties,” are those nonfarm nonresidential property loans where the primary source of repayment is derived from rental income associated with the property (i.e., loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. The primary source of loan repayment will determine if the loan is reported under 1.e.(2).
Under a FEMA policy, the lienholders are paid in the order of the priority of the liens. The same is likely true for a private policy, but that can only be determined with certainty by reviewing the private policy.
I agree that the Purpose should be listed as “Construction.” For a transaction that does not involve a seller you disclose the estimated property value based on your own estimate, unless you have already received an appraisal.
For purposes of HMDA, a dwelling is a residential structure. The definition of a dwelling is not limited to the principal dwelling or other residence of the applicant or borrower. A dwelling could include an investment property or non-owner occupied properties. Transitional residences are not considered dwellings. A mobile home is no more likely to be a transitional dwelling than is an apartment building. If the employees are long-term residents then the mobile homes are likely to be dwellings. If the employees are only in the mobile homes for a few days then they are less likely to be dwellings.
For purposes of CRA, covered institutions must collect data for small business and small farm loans and for HMDA-reportable mortgage loans. Small business loans are defined as those whose original amounts are $1 million or less and that were reported on the institution’s Call Report as either “Loans secured by nonfarm or nonresidential real estate” or “Commercial and industrial loans.” Small farm loans are defined as those whose original amounts are $500,000 or less and were reported as either “Loans to finance agricultural production and other loans to farmers” or “Loans secured by farmland.” Depending on the amount of the loan and the Call Report categorization the loans maybe CRA reportable.
I am not aware of a Kentucky law that requires a home equity line of credit (HELOC) to be secured by the consumer’s principal dwelling. However, if a HELOC is secured by a consumer’s principal dwelling various federal laws, such as Truth in Lending, impose additional requirements such as the right to rescind.
From the details provided the transaction sounds more like a refinance than a purchase loan. Regulation C defines a refinance as 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. It sounds like your construction-permanent loan loan was replaced by a purchase-construction loan from another lender. In the situation where a permanent financing loan replaces a construction loan the transaction is reported as a purchase loan.
It seems that the confusion revolves around using the interest rate or the APR. It is not clear to me from the information provided in the question what happened to the points, the interest rate and the APR. More explanation would be helpful. Regulation C states that the relevant date to use to determine the average prime offer rate for a comparable transaction is the date on which the interest rate was set by the financial institution for the final time before final action is taken (i.e., the application was approved but not accepted or the covered loan was originated).
As we predicted in late 2020, the area of Fair lending is red hot. Under the Biden Administration major attention has been focused on Limited English Proficiency, Sexual orientation and gender identity, and Redlining. The CFPB has issued a 900+ page proposed regulation covering Data Collection and Reporting for Small Business Loans.
