Forum Replies Created
-
Posts
-
The first transaction described does not require flood insurance because while there is a mobile home on the land it is not affixed to a permanent foundation; therefore, flood insurance is not required.
The second transaction may require flood insurance. You stated that there is a single family residence on the property and that the barn only is located in a SFHA. The barn would typically require flood insurance; however, it may be exempted under the detached structure exemption if the barn is not used for agricultural purposes (used for personal storage for example), is detached completely from the residence, and does not serve in any way as a residence. If the barn can’t meet these three requirements, it would need to be covered by flood insurance based on the lesser of: the loan amount, the maximum required coverage from FEMA, or the replacement cost value.
There are specific situations that target the right of rescission rules when dealing with an open-end line of credit, such as a HELOC. The requirements are housed in Reg. Z – 1026.15(a)(1)(i)and (ii):
(1)(i) Except as provided in paragraph (a)(1)(ii) of this section, in a credit plan in which a security interest is or will be retained or acquired in a consumer’s principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind:
Each credit extension made under the plan;
The plan when the plan is opened;
A security interest when added or increased to secure an existing plan; and
The increase when a credit limit on the plan is increased.(ii) As provided in section 125(e) of the Act, the consumer does not have the right to rescind each credit extension made under the plan if such extension is made in accordance with a previously established credit limit for the plan.
If the HELOC is being renewed (not refinanced) before maturity and none of the above situations are occurring then there is no required right of rescission.
This issue relates to Section 8 violations as detailed in RESPA, section 1024.14. The requirements prohibit any person from accepting a kickback, fee, or other thing of value involving a settlement service of a federally related mortgage loan.
Given your details above, it sounds as if the construction company’s placement of a lender’s name on their website would not be a violation as the bank/lender is not receiving a kickback, fee, etc. and the customer gets to select any lender of their choosing.
The second scenario doesn’t appear to be an issue either as the customer is the one benefiting from choosing the lender by receiving a lower rate or fee.
Careful consideration needs to be given regarding the relationship between the construction company and the lender. Is there any type of agreement between them that results in the lender or the construction co. receiving anything of value? The lender is providing a service that is considered a settlement service and shouldn’t be receiving any kickback, fee, etc.
According the Regulation B, a prequalification becomes an application when the lender evaluates information about the consumer, decides to decline the request, and then communicates that decision to the customer. If a decision was not made then the prequalification hasn’t become an application and there is no violation of Regulation B.
Is there a need to force-place hazard? Does the bank have a blanket policy in place for protection on properties that are in foreclosure? If the borrower is going to be assessed a charge for coverage that is placed then all regulatory requirements would need to be met, including the 45 day notice and 15 day reminder notice.
A construction only transaction is typically exempt for HMDA purposes as temporary financing. If the original construction only transaction is not replaced by a new debt obligation and is only a modification of the original terms it is not considered a new extension of credit and would not be considered a closed-end mortgage loan for HMDA purposes.
That being said, I would strongly advise against modifying a construction only transaction into a permanent transaction. A refinance is the preferred method for moving a transaction from the construction phase to the permanent phase. A modification agreement may not have the proper language needed to support the bank’s interest in the transaction and/or collateral. If the bank makes it a practice of modifying construction loans into permanent financing, I would recommend consulting an attorney to verify the process does not constitute a refinance.
The refinance would be covered under HMDA.
The initial 6-month loan likely would have been excluded under the temporary financing exemption; however, the refinance could not. The definition of temporary financing is a loan or line of credit designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. The 6-month loan fits this definition.
The new new loan fits the definition of a refinance – closed-end mortgage loan or 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.
The requirements for collecting GMI on a telephone application are dictated in Appendix B to Part 1003 under #11, 12, and 13 – Link.
If the application is taken by telephone and the applicant elects to not provide the information then you would report “information not provided by applicant in mail, internet, or telephone application.” If you later meet with the applicant in person during the application process then you are expected to collect the race, ethnicity, and sex based on visual observation or surname; however, you do not collect the subcategories, only the aggregate categories.
The best way to handle it is send the counteroffer notice (Model form C-4 in Appendix C of Reg. B) which details the terms of the counteroffer and includes the adverse action notice if the applicant doesn’t accept the counteroffer. By utilizing this form, it would be acceptable to move forward with the transaction, once the counteroffer is accepted, and report the transaction as an origination.
HMDA does not require you to develop a product that you may not recognize in your institution. If you do not designate a refinance as a “cash-out” refi, there is no requirement to do so.
1003.4(a)(2)-2. Purpose—refinancing and cash-out refinancing. Section 1003.4(a)(3) requires a financial institution to report whether a covered loan is, or an application is for, a refinancing or a cash-out refinancing. A financial institution reports a covered loan or an application as a cash-out refinancing if it is a refinancing as defined by § 1003.2(p) and the institution considered it to be a cash-out refinancing in processing the application or setting the terms (such as the interest rate or origination charges) under its guidelines or an investor’s guidelines.
Example: iii. Assume a financial institution does not distinguish between a cash-out refinancing and a refinancing under its own guidelines, and sets the terms of all refinancings without regard to the amount of cash received by the borrower at closing or account opening, and does not offer loan products under investor guidelines. In this example, the financial institution reports all covered loans and applications for covered loans that are defined by § 1003.2(p) as refinancings for purposes of § 1003.4(a)(3).
If the director is being considered as the co-borrower on the loan, I would consider proving his ability-to-repay in the same manner you would co-borrowers on all mortgage related loans. If income is typically utilized to strengthen the loan and prove ability to repay then I would consider it on this loan as well. You also have to consider that this loan includes a director and should be underwritten with the same standards as required of all borrowers.
Was the husband not being on the loan part of the counteroffer? You wouldn’t deny the individual, you would deny the transaction. If you made a counteroffer and originated it based on the counteroffer then you report it as an origination; there would not be a denial reported in this case.
Unfortunately, the information is spread throughout Regulation C – HMDA. You can retrieve the definition for application under section 1003.2(b) and for covered loan under section 1003.2(e). As far as whether you should collect monitoring information, you can retrieve that from Appendix B of Regulation C.
First you have to determine who the applicant is. If the applicant is the business (non-natural person) you wouldn’t collect demographic information; whether an application is taken is dictated by your financial institutions procedures.
If the applicants are the individuals but the transaction is a business purpose transaction it is typically an exempt transaction for HMDA unless it is for home purchase, home improvement, or refinance. In this case, you can take one application with multiple applicants and if you are HMDA covered you would collect demographic information for all four individuals.
This is a source of confusion in the regulation. The best way to get an understanding on when to report the AUS and the results is by reviewing the scenarios that are provided in the regulation starting in Paragraph 4(a)(35)-1.i through 4(a)(35)-1.iv. Here is a summary of those scenario’s:
If a bank uses an AUS to evaluate an application prior to underwriting, the bank complies by reporting the name of the AUS it used to evaluate the app and the result generated by that system.
If a bank uses an AUS to evaluate an application and intends to sell it but instead decides to hold it in portfolio, the bank complies by reporting the name of the AUS used and the result generated.
Basically, if you run it through an AUS prior to underwriting, you report the AUS.
Paragraph 4(a)(35)-3.i through 4(a)(35)-3.iv runs you through scenarios when utilizing multiple systems. Generally, you report the AUS for the securitizer or insurer who purchases the loan. However, in 3.iv it states if a bank obtains two or more AUS results at the same time (meaning you run the loan through multiple systems simultaneously) the bank complies by reporting the name of all of the AUSs used by the bank to evaluate the application and the results generated by each. You can report up to five on the LAR.
