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Institutions may, but are not required to, report applicant ethnicity, race, or sex of the applicant or co-applicants for purchased loans. Income is also not required to be reported on purchased loans. Even if this is a loan you originated in the past, it is now considered a purchased loan so you may report NA in those fields. Treat the loan as a purchase, not an origination and follow the rules in Appendix A closely for a purchase.
The fee would be aggregated in the Recording Fees and Other Taxes line item of the Loan Estimate. We have only received oral clarification from the CFPB that including the fee in this line item will meet the necessary requirement for “itemizing and disclosing” necessary to meet the exemption from the finance charge. Keep in mind, you are unable to add a line item in this section of the LE or CD.
A future lien release may be excluded from the finance charge if it is itemized and disclosed properly as it is considered a tax paid to a public official for releasing a security interest in the property. As long as the bank is not holding the fee in an account for future use, i.e. an escrow account, it may be excluded. It sounds to me that while you are holding it in a misc. expense GL, it is not being utilized for future use but instead held until release of the lien. I think you are fine to exclude the fee from the finance charge.
Yes, you have interpreted the regulation correctly. When the model form H-25 is utilized to separate the consumer’s and seller’s closing costs, the seller-paid loan cost and other costs that are paid by the seller can’t be omitted from the consumer’s closing disclosure; however, the loan cost and other costs paid by the consumer may be left blank on the disclosure provided to the seller – 1026.38(t)(5)(v)(B). This was confirmed by the CFPB in the webinar mentioned above. Look to 1026.38(t)(5)(v) for the only allowed exceptions when utilizing form H-25.
In order to determine if TRID applies, we first have to determine if Reg. Z applies. As you mentioned in the Reg. Z flowchart, if a transaction is primarily business, commercial, or ag. purpose then the transaction is not covered by Reg. Z. That determination is sometimes a fine line; however, you stated that based on revenue stream and/or potential rental income the transactions were primarily for business, comm., ag. purpose; therefore, Reg. Z would not apply and TRID would not apply. There is no specific percentage requirement in the regulation; however, “primarily” typically means greater than 50%. You have to walk through the Reg. Z coverage rules first before you move on to whether or not you have a TRID transaction.
Of course, TRID applies any time you have closed-end consumer transaction secured by real property which can sometimes mean there is no residence involved. It could just be a closed-end consumer credit transaction secured by land. Key is to walk through Reg. Z flowchart first, then the TRID flowchart. Let me know if you have additional questions.
The disclosure of realtor commissions on TRID disclosures is driven by 1026.37(g)(4) – Other Costs section; however, there is nothing in the regulation, commentary, or preamble that “requires” the disclosure of all realtor commissions on the Loan Estimate in the event the sales contract doesn’t specify the responsible party.
.37(g)(4) states the section includes, “…an itemization of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate…” The Loan Estimate must be based on the creditor’s good faith – best information reasonably known to the creditor at the time of disclosure. If it is not customary and standard in your area for the borrower to pay any of the real estate commission due then it shouldn’t be disclosed unless otherwise detailed in the sales contract or obtained through some other form of due diligence on the creditor’s part. The commissions will, however, need to be disclosed on the Closing Disclosure based on the 1026.38(g)(4)-4.
Mortgage insurance premiums as defined by FHA are not included in the prohibition of financing in 1026.36(i)(2). This prohibition applies to credit insurance which generally insures a consumer in the event of a specified event, and the benefit provided is to make the consumer’s periodic payments while the consumer is unable to make them.
FHA requires two types of mortgage insurance premiums: upfront premium (UFMIP) can be paid as a lump sum at closing, or rolled into the loan. Either way, it’s a one-time payment. The annual mortgage insurance premium is a recurring expense that has to be paid for the life of the loan in some cases.
Here is a link to a blog article from the FHA Handbook that describes the insurance requirements under FHA.
It is HMDA reportable as it is a dwelling and is considered construction to permanent. It would be exempt as temporary financing if it was construction only. See below for guidance from the regulation:
1003.2 Definitions: 5. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered “temporary financing” under Regulation C and is not reported.
I think I need additional information to better answer this question. Since you stated that the loan is not temporary financing, I assume that this is a construction to permanent loan? Are you doing a completely separate loan for the costs overrun or are you refinancing the original loan and adding the additional funds?
April,
I have some follow-up questions with this situation. Did the flood maps change where this house is located? Do you have “life of loan” coverage through the former company? If it were me in this situation, I would have the “new” determination company provide me with a map overlay, at a minimum, to show that the home is no longer in a flood zone. You need strong documentation as to why the coverage was dropped.
On another note, the loan shouldn’t have been made if the borrower wasn’t willing to purchase flood coverage. The flood insurance is supposed to be in place, initiated by the borrower, prior to the loan closing. Forced place insurance is reserved for those circumstances where a borrower has allowed the coverage to lapse and the 45-day notice requirements need to be met.
Under Reg. C, Dwelling means a residential structure (whether or not attached to real property) so it includes a mobile home without the land. As you stated in your first paragraph it would be HMDA reportable and if you don’t have a property location you would report NA.
Under the current rules, your second paragraph describes a “purchase” for HMDA purposes but your reporting rules depend on whether you have a “prequalification” or a “preapproval” program. There is a difference in these two types of programs:
Prequalifications under HMDA is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective applicant would likely qualify for credit under an institution’s standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify. Regulation C does not require you to report prequalification requests on the HMDA/LAR, even though these requests may constitute applications under Regulation B for purposes of adverse action notices. If the loan you described falls under this category, it would not be reportable on the LAR.
To be a covered under a preapproval program, a written commitment is issued under the program and must result from a full review of the creditworthiness of the applicant, including such verification of income, resources and other matters as is typically done by the institution as part of its normal credit evaluation program. If you have a preapproval program, it may be reportable under this option.
I am of the opinion that you would handle this transaction the way you have in the past. You have a preapproval at this point, not a true application. You don’t have an application under TRID until you receive the property address. If that is received after the October 3rd implementation date then you would utilize the LE for disclosures.
It is okay to require the customer to open an account as a condition of the loan; however, what is prohibited is conditioning the extension of credit on the customer repaying the loan by automatic payment from that account. See 1005.10(e) below:
(e)Compulsory use. (1) Credit. No financial institution or other person may condition an extension of credit to a consumer on the consumer’s repayment by preauthorized electronic fund transfers, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer’s account.
Another concern to consider if requiring the customer to open an account as a condition of the loan is consistency. If this will be a stipulation of the loan, how will it be monitored? Will it be allowed to be “waived” by the loan officer? This may considered an unfair practice under UDAAP so you will want to establish very specific procedures for this product.
Yes, if you are including pro rated taxes as part of the transaction then you would include the estimate in the Loan Estimate to ensure it gets calculated into your cash to close figure.
If the seller will be paying a portion of the taxes at closing you would list it as a seller credit on the Loan Estimate based on 1026.37(h)(1)(vi). This information may be obtained from a verbal conversation with the borrower, from reviewing the sales contract, or from the real estate agent. This estimate must be based on the best information reasonably available at the time the Loan Estimate is provided.
Finally, the last question is not specifically addressed in the regulation; however, if the borrower is paying the taxes to the seller as part of the transaction than it would need to be accounted for in the borrower’s closing costs. The best place to do that would be the prepaid section – Block F. This would then allow that amount to be reflected in the closing costs for the borrower.
My thought is that it needs to be consistent between both LE and CD.
The piece of regulation that dictates how it should be detailed is 1026.37(m)(4) which states: (4) Late payment. A statement detailing any charge that may be imposed for a late payment, stated as a dollar amount or percentage charge of the late payment amount, and the number of days that a payment must be late to trigger the late payment fee, labeled “Late Payment.”
In the commentary to .37(m)(4) it states – 2. Applicability of State law. Many State laws authorize the calculation of late charges as either a percentage of the delinquent payment amount or a specified dollar amount, and permit the imposition of the lesser or greater of the two calculations. The language provided in the disclosure may reflect the requirements and alternatives allowed under State law.
So based on the regulation you can use dollar amount or percentage and number of days; however, there may be something in your state law dictating otherwise. You will need to check state law to ensure that is not the case.
I do think that regardless of the method utilized it should be consistent between the LE and CD to prevent confusion for the borrower.
