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Good afternoon,
When reviewing the official interpretation on the CFPB website (https://www.consumerfinance.gov/rules-policy/regulations/1026/7/#a-6-i). It states –
Terminology. Although the creditor is required to indicate any time period the consumer may have to pay the balance outstanding without incurring additional finance charges, no specific wording is required, so long as the language used is consistent with that used on the account-opening disclosure statement. For example, “To avoid additional finance charges, pay the new balance before _” would suffice.
Based on this guidance, I would agree you do not need to have the language you have already disclosed in the HELOC disclosure and the credit agreement BUT it does indicate you would need some statement to “remind” them of the grace period. As shown above in what was taken from the CFPB.
Please let us know if you have additional questions.
1026.3 3(a) is the section in TILA that speaks to exemptions. Under this section Primary purpose is the factor when considering if the disclosures are needed.
Primary purposes – A creditor must determine in each case if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt.
The whole purpose is to protect the consumer. So, the fact that you have a business and a Natural person as borrowers will not determine if you must follow the TILA rules. You will need to determine what the purpose of the loan is.
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After reviewing Fannie and Freddie rules as well as the CFPB appraisal requirements. these are defined as two separate actions. Definitions state a home appraisal is an estimate of a home’s fair market value. A home inspection is a thorough inspection of a property that determines the condition of the property and reveals any repairs that need to be made. The key difference between appraisal and inspection is the appraisal focuses on the home’s value, while the inspection focuses on the home’s condition. Additionally, most final inspections are done because either (1) the home is new or being remodeled; or (2) the home has FHA or other deficiencies.
As far as the HPML appraisals rules – An FI is required to deliver copies of any appraisals to covered applicants no later than three business days before the loan is consummated. It doesn’t speak to the CD requirements BUT clearly states no later than three business days before the loan is consummated.
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I would agree with your assessment, it makes sense, but there doesn’t seem to be a consideration for loans sold verse loans kept. As you know, the current ATR/QM Rule requires a lender to make a reasonable, good faith determination of the borrower’s ability to repay the mortgage and defines several categories of Qualified Mortgages (QMs). Loans that meet the definition of a Qualified Mortgage are considered to have met the Ability-to-Repay requirements and enjoy certain protections from liability.
In the General QM change, the original definition of General QM required that DTI must not exceed 43% and Appendix Q must be used to verify debts/income to be considered QM, among other criteria. In December 2020, the CFPB issued a revision to the General QM Rule, removing the DTI limit and Appendix Q and replacing it with limits on the loan’s pricing. Under the amended rule, a loan will meet the General QM definition if the annual percentage rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by less than 2.25% (or up to 6.5% depending on the loan amount and transaction type) at the time the interest rate is set.
With out solid guidance, IMO make sure whatever you do is documented in policy/procedures and consistent.
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No, you may not place any funds on hold unless you have reason per Availability of Funds and Collection of Checks (Reg CC )(https://www.ecfr.gov/current/title-12/chapter-II/subchapter-A/part-229).
From a business decision – Suggestions to consider: Placing the funds on deposit into a short term CD. A draw type account for the construction loan purposes that they can make interest on.
These are of course just suggestions but are not hard fast requirements. Your FI, will need to make decisions on how you would handle and disclose this type of transaction for all borrowers to avoid potential fair lending, fair banking, and/or UDAAP issues.
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The rules do not allow for any “On-Us check” to be placed on hold. In account B that you reference, when was the deposit made (you have timing issues to consider)? Was this a new account? Would you have reasonable cause to have held the check? Was it a large check?
More details would help to see if there is a way to protect the funds. Dollar amounts, dates of the deposit, and account status (new, frequent overdrafts) will help in determing what actions can be taken to protect the funds.
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My understanding for the levy in a garnishment is that both are collection tools to seize assets. When researching the difference levies will apply to financial accounts and the garnishment will apply to wages placed into the account.
A levy allows a creditor to withdraw money from a financial account—most commonly, a checking or savings account. With a levy you will be freezing a financial account and then taking the money in that account and sending to cover the request.
A garnishment will instruct the FI to take a portion of deposited wage (following the exclusions) and sending them where instructed.
With the different types of definition’s for the two types you may just want to make sure your procedures are written for the little differences.
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My understanding is the same as yours. Interest is required to be paid at least annually. That can mean by depositing the interest into the CD, check, or even an electronic transfer. This method does ensure that 1099-INT will be reported properly.
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Regulation C (HMDA) requires institutions to report lending data to their supervisory agencies on a loan-by-loan and application-by-application basis by way of a “register” reporting format. Based on this direct requirement, I would say you do have to collect the information at the time of application for each of the loans.
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I agree with you. Based on everything I researched last week. You should be disclosing the interest rate of 2.50% not 2.49% per section (230.4(b)(1)(i)) and indicating what you stated “Interest will not be compounded on this account. Interest will be mailed to you by a check quarterly.” That will make it very clear to the customer.
Based on what I am understanding from your question your concerned that:
1. You are not disclosing the APY correctly on the CD TISA disclosure (out of curiosity, do you use a provider?) and
2. Should the disclosure explain how the interest is to be credited – by check, credited back to the CD, into another account.1) You are correct that you should be disclosing the frequency with which your CD compounds, and it is in most cases reflected in the
annual percentage yield (APY). However, the assumption for the APY is it will be calculated based on leaving the interest in the CD for its
entire term.If the depositor is going to take periodic disbursements of interest, such as monthly or quarterly payment then the money will not fully
compound which causes the difference in how the APY will be disclosed and pay interest. A couple of things:
a. When advertising the CD, the rules state that you must disclose the APY (230.8 (c)(2)) under the assumption that the interest
will be going back into the CD, and this may be where some of the confusion lies.
b. When providing the account disclosure at account opening, disclose based on how the account operates. So, in this case, you may
have the interest rate the same as the APY or slightly different if they are taking disbursements other than monthly. (230.4(b)(1)(i))
c. Disclosure for advertising and at account opening should clearly state “Withdrawal of interest prior to maturity” as applicable:
a) A statement that the annual percentage yield assumes interest remains on deposit until maturity and that a withdrawal
will reduce earnings for accounts where –
(I) Compounding occurs during the term, and
(II) Interest may be withdrawn prior to maturity or
b) A statement that interest cannot remain on deposit and that payout of interest is mandatory for accounts where:
(I) The stated maturity is greater than one year,
(II) Interest is not compounded on an annual or more frequent basis,
(III) Interest is required to be paid out at least annually, and
(IV) The annual percentage yield is determined in accordance with section E of Appendix A of Regulation DD.2) Yes, you should be explaining how the interest will be managed.
You are correct. THE CFPB has not opined on the topic as of today.
The TRID rules no not specifically addresses how to disclose builder risk premiums. The product is similar to inspection and handling fees. When inspection and handling fees are paid after closing they do not appear on the CD, but instead appear on an attachment to the CD. Our position here at Compliance resource is that if the CFPB clarifies builders risk premiums paid after closing they would use the same logic as for the inspection and handling fees. Until the CFPB clarifies the proper handling of builder risk premiums, we suggest, if the borrower will pay the charge, that the charge be included included in the prepaids.
We continue to watch for clarification through regulatory guidance or through reported violations.
When a trust is used in connection with a mortgage per Fannie Mae requirements;
“Each individual establishing the trust (inter-vivos) whose credit is used to qualify for the mortgage must acknowledge all of the terms and covenants in the security instrument and any necessary rider, and must agree to be bound thereby, placing his or her signature after a statement of acknowledgement on documents”Based on this requirement, I would say that yes, Joe Doe and any other “natural” person who established the trust would have to sign the closing disclosure in alignment with the Trust. If Joe Doe is also a Borrower he would have to sign for himself as well.
As far as the order of borrowers being listed on on the mortgage loan it would be the Trustor, but the legal title of the deed is put into the Trust’s name. As always with legal documents please make sure you follow the financial institution’s attorneys advice.
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Choosing to provide a coupon book is a business decision. If your FI is choosing to not provide these in the future you will just need to determine the date you will eliminate the practice and use that date as your go forward standard. Things to consider:
1. You can charge for the book if you have customers who would like one. However, you will not want to use it as a fee income opportunity. To avoid any potential UDAAP issues, the fee needs to be reasonable. IMO, reasonable will be the cost to the bank is passed off to your customer. If lenders are allowed to waive fees, this will be another one you will need to track and monitor to ensure customers are being treated the same.
2. Monthly statement for car loans – there is no regulatory requirement that FIs send out periodic statements for this type of loan. So not offering coupon books will not change the practice you are using today. There are FIs that do send out periodic statements on installment loans, however it is a business decision.Best,
KimberlyNOTICE: This email message, including any attachments, is intended only for the addressee, and may contain confidential and privileged information either as protected work product or confidential client information. Any unauthorized review, use, disclosure or distribution is prohibited. If you are not the intended recipient, do not read, copy, retain, or disseminate this message or any attachment, and please contact the sender by reply e-mail or at 888.760.5646 and destroy all copies of the original message and attachments. Neither the transmission of this message or any attachment, nor any error in transmission or misdelivery shall constitute waiver of any applicable legal privilege.
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When considering an answer to your question. It appears you have a policy in place that doesn’t allow for the release of liability and considerations to policy is an exception to your FI’s lending requirements. In my opinion you have more fair lending risk than either UDAAP or Consumer Purpose at this stage of the life of loan. You need to look at this as a business decision and the impact it would have on safety and soundness and fair lending risks. If you were to grant an exception to policy couple of things to consider:
1. What happens in the case of a default? How will the FI recover the loss?
2. Do you have strong guidelines in place to make an exception to the policy? Have you have clearly defined requirements to grant the exception so that any other borrower has the same opportunity? Factors of consideration are based on tangible equally achievable standards, things like payment history, LTV, DTI and credit score. Nothing that is subjective? (I.e. good customers, good friends with so and so… )Hope this helps.
Kimberley
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