Forum Replies Created
-
Posts
-
Since it is after the time of consummation, there is no “fix” per se; however, I would go into the database now and run the borrower through to insure you in fact do not have a covered borrower. You may want to put a memo in file explaining the situation and include the DOD certificate. While it will not be in compliance at least you can show that you have addressed the issue and provided additional training.
Yes, if application is taken in 2017 and final action is taken in 2017, you can collect under the current “aggregate” rules or you can collect under the new “disaggregate” rules. If action is taken in 2017 you only report the aggregate categories.
If application is taken in 2017 and final action is taken in 2018, you can collect under the current “aggregate” rules or the new “disaggregate” rules but are still in compliance if you report based on the requirements in effect at the time of collection, rather than the time of final action. This exception in the commentary to the regulation in 1003.4(a)(10)(i)-2.
In summary, it is acceptable to start collecting in 2017.
The new HMDA requirements apply to closed end mortgage loans or open-end lines of credit that are secured by a dwelling, unless an exception has been met. The transaction you describe in your question appears to be a covered transaction under the new rules unless it meets one of the 12 exemptions. If you take an application at the end of 2017 but final action isn’t taken until 2018, you should capture the new data fields for reporting on the 2018 LAR. You may want to consider, toward the end of 2017, implementing a procedure that would require additional information to be gathered at application in the event that final action is not taken until 2018. If final action is taken prior to 2018, you would simply report the current required fields on the 2017 LAR.
You need to look to your contract and determine if it is covered within the contract. Usually the contract allows delinquent taxes to be added to principal, but doesn’t address how the additional amount will be repaid. Take a look at your contract if you haven’t already. If the contract is silent to recalculating the payment amount, the safest course of action would be to have the borrower sign an agreement to accept the new payment amount.
If it is truly being used as a “hotel” then yes it would be considered transitory; however, you would want to look to the structure as a whole utilizing one of the reasonable standard methods – income method, square footage method, etc. to determine if you have a dwelling.
Currently, the transaction would not be covered by HMDA because you are just taking the land as collateral which falls into an exemption for vacant land.
However, under the new HMDA requirements effective 1/1/2018, a manufactured home community will be considered a dwelling and would be a reportable transaction, even if individual units are not being taken as collateral:
2(f) Dwelling:
2. Multifamily residential structures and communities. A dwelling also includes a multifamily residential structure or community such as an apartment, condominium, cooperative building or complex, or a manufactured home community. A loan related to a manufactured home community is secured by a dwelling for purposes of § 1003.2(f) even if it is not secured by any individual manufactured homes, but only by the land that constitutes the manufactured home community including sites for manufactured homes. However, a loan related to a multifamily residential structure or community that is not a manufactured home community is not secured by a dwelling for purposes of § 1003.2(f) if it is not secured by any individual dwelling units and is, for example, instead secured only by property that only includes common areas, or is secured only by an assignment of rents or dues.
Under Regulation B, 1002.9(c) states:
Within 30 days after receiving an application that is incomplete regarding matters that an applicant can complete, the creditor shall notify the applicant either:
(i) Of action taken, in accordance with paragraph (a) of this section; or
(ii) Of the incompleteness, in accordance with paragraph (c)(2) of this section.Based on your statement, you are taking one of the prescribed paths dictated by the regulation, i.e. action taken. You are marking the adverse action as application incomplete and requesting what is needed.
There is a statement in the commentary 1002.9(a)(1)-3 that states:
3. Incomplete application—denial for incompleteness. When an application is incomplete regarding information that the applicant can provide and the creditor lacks sufficient data for a credit decision, the creditor may deny the application giving as the reason for denial that the application is incomplete. The creditor has the option, alternatively, of providing a notice of incompleteness under §1002.9(c).That being said, if you are denying the transaction due to incompleteness then sending the adverse action is the appropriate action to take and the transaction would be reported as a denial on the LAR.
If the lender is seeking to receive the information from the borrower to try and complete the application, then you would want to utilize model form C-6 in the regulation. If utilizing this model form, the customer has the ability to complete the application and the lender can make the appropriate credit decision. Utilizing this method would be reported on the LAR as incomplete. If the borrower doesn’t respond to the notice of incompleteness the lender does not have to send the adverse action notice as the language in the model notice is sufficient.
In addition, you need to ensure the loan is not an HPML as there are additional stipulations that do not allow an escrow to be cancelled on an HPML.
If this loan is going to balloon or renew at a future date then that event may fall into one of the MIRE events described above and may not be worth cancelling escrow now and then having to redo it down the road.
Currently, there is no required date to utilize the new Uniform Residential Loan Application – 1003. When the URLA was originally published in August 2016, the implementation date was 1/1/2018 but financial institutions had the ability to utilize the form as early as 1/1/2017.
Since the URLA was originally published, additional guidance has been released by Fannie Mae that removed the 1/1/2018 effective date from the bottom of the application and replaced it with “Not for Current Use”. A “Demographic Information Addendum” was published that can be utilized by lenders to collect the expanded demographic categories under HMDA while still utilizing the existing URLA dated 7/05(revised 6/09). If utilizing this addendum, the FI should cross out the existing demographic collection area of the existing URLA. The addendum can be used beginning 1/1/2017.
Below are the links to the guidance document and the addendum:
https://www.fanniemae.com/content/news/urla-announcement-november-2016.pdf
https://www.fanniemae.com/content/guide_form/urla-demographic-addendum.pdfThis is more of a safety and soundness issue than a compliance issue but you are doing it accurately. Keep in mind, if you are doing the construction and permanent separately, you need to provide the Loan Estimate for both phases (construction and perm) of the transaction within 3 business days of receiving the construction phase application.
Unfortunately, the regulation doesn’t specifically address this type of situation, of course! However, a few things to consider:
1. The intent of the funds from the construction-to-perm loan is to convert the commercial building into a mixed-use structure, so ultimately the loan will be covered by a dwelling.
2. You could utilize the square footage test or the projected income test to determine whether the structure is being utilized primarily for commercial purpose or residential purpose. If you have information regarding the projected income of the retail space you may be able to classify it as primarily commercial and could avoid the HMDA reporting requirement.
3. Based on the explanation that 68% is residential and 32% is commercial, it appears that you may be utilizing the square footage method and it would be deemed residential.Considering these factors I believe it is a covered transaction that should be reportable as a home improvement transaction.
Because this is an obscure transaction, you may want to consider reaching out to your regulatory agency to seek an opinion as well to ensure your financial institution and the agency are interpreting it consistently.
Answer #1: Does the MLA supercede the Talent Amendment? The Military Lending Act has gone by several names in the past – John Warner National Defense Act (JWNDAA) as well as the Talent Amentdment. In essence, they are one and the same. The original regulation went into effect on October 1, 2007 and these latest provisions released by the DOD will go into effect on October 3, 2016, with the exception of credit cards which will be October 3, 2017.
Answer #2: Yes, any type of consumer credit to a covered borrower could be covered under MLA, unless it meets an exception. An indirect lending transaction may meet the exception, if the transaction is an auto-purchase loan and the auto being purchased is held as collateral by the bank. With respect to MLA Question #2 – Hybrid Transaction this is currently just referring to the purchase of personal property, not auto-purchases. If the additional funds are going to go towards financing something related to the purchase, i.e. taxes, tags, etc. it is acceptable and is not considered “cash out” to the borrower. Notice on page 6 of the manual, third bullet: A hybrid purchase money and cash advance loan is not expressly intended to finance the purchase of personal property, because the loan provides additional financing that is unrelated to the purchase.
This issue is addressed in the recent MLA Q/A interpretive rule that was issued in August 26th in the Federal Register. Question #10 states:
Section 232.5(b)(2)(B) prohibits a creditor from accessing the DMDC database
-
after
the time a consumer entered into a transaction or established an account, namely “to ascertain whether a consumer had been a covered borrower as of the date of that transaction or as of the date that an account was established.” The point is to ensure that your FI has made a clear determination if the borrower you are lending to is in fact a covered borrower prior to consummating the transaction. This will ensure your FI will provide accurate documentation and disclosures and verify MAPR doesn’t exceed 36%.
The Q/A goes on to state that the regulation does not prohibit a creditor or assignee from accessing the DMDC database for other purposes, such as determining whether a previously covered borrower retains that status. That being said, you should be fine to access the database on a renewal to determine status of the borrower.
Seller credits are not subject to tolerance requirements. You disclose them as accurately as you can given the information that has been made available to the creditor. If the seller credit decreases, you should disclose the updated amount in the Closing Disclosure.
You will report the gross annual income relied upon in making the credit decision for the individual applicant. Because the co-applicant is not a natural person, you would not report income for the co-applicant.
HMDA Appendix A states the following:
6. Income. Enter the gross annual income that your institution relied on in making the credit decision.
a. Round all dollar amounts to the nearest thousand (round $500 up to the next $1,000), and show in thousands. For example, report $35,500 as 36.
b. For loans on multifamily dwellings, enter “NA.”
c. If no income information is asked for or relied on in the credit decision, enter “NA.”
d. If the applicant or co-applicant is not a natural person or the applicant or co-applicant information is unavailable because the loan has been purchased by your institution, enter “NA.”
