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Great job on your research!
I am of the opinion based on the regulation that the example you gave is considered “temporary financing” and would not be reportable under the regulation. The loan officer documented that the loan wouldn’t be replaced with permanent financing and would be paid off with proceeds from the sale of the home. I think this is a very true example of temporary financing and was well documented by the lender.
In addition, the guidance of determining if the loan will be replaced by permanent financing must be based on the lenders best indication by the customer that the loan will be replaced by more permanent financing. If the lender determines that the customer is likely to replace the temporary loan with permanent financing, whether by your financial institution or another, it should not be considered temporary and would be reportable.
In the commentary to 1002.7(d)(6) this issue is addressed (see below). I am assuming that since the business is owned 50/50 by mother/son then it is structured as a partnership. Based on the commentary it appears that the creditor may require the personal guarantee of the partners and would be allowed to accept the personal guarantee of the spouse of one of the partners as long as the creditor can demonstrate the need to have the additional guarantor on the loan, i.e. additional income needed. The spousal guarantee of the partners can’t be required as you noted in your question.
Paragraph 7(d)(6).
1. Guarantees. A guarantee on an extension of credit is part of a credit transaction and therefore subject to the regulation. A creditor may require the personal guarantee of the partners, directors, or officers of a business, and the shareholders of a closely held corporation, even if the business or corporation is creditworthy. The requirement must be based on the guarantor’s relationship with the business or corporation, however, and not on a prohibited basis. For example, a creditor may not require guarantees only for women-owned or minority-owned businesses. Similarly, a creditor may not require guarantees only of the married officers of a business or the married shareholders of a closely held corporation.2. Spousal guarantees. The rules in §1002.7(d) bar a creditor from requiring the signature of a guarantor’s spouse just as they bar the creditor from requiring the signature of an applicant’s spouse. For example, although a creditor may require all officers of a closely held corporation to personally guarantee a corporate loan, the creditor may not automatically require that spouses of married officers also sign the guarantee. If an evaluation of the financial circumstances of an officer indicates that an additional signature is necessary, however, the creditor may require the signature of another person in appropriate circumstances in accordance with §1002.7(d)(2).
There is still a bit of unknown surrounding the described situation above; however, this is what we have been made aware of recently.
The regulatory agencies have agreed that if a bank was only escrowing for HPML purposes prior to July 6, 2012, the small lender exemption may be utilized. However, you stated that you allowed customer’s the option to escrow outside of HPML’s; therefore, it appears that because the bank offered this option apart from HPMLs your financial institution would not qualify under the small lender exception.
This is only speculation on our part as we have nothing in regulation or the interagency Q/A’s at this point. We are hoping that the regulatory agencies will provide additional insight into this topic prior to escrow provisions becoming effective January 1, 2016.
Jack wrote a recent blog article on this topic linked here: https://mycomplianceresource.com/logic-behind-the-small-bank-flood-escrow-exemption/
You are correct that the commentary states that you calculate Estimated Closing Costs Financed (Paid from you Loan Amount) by subtracting the estimated total amount of payments to third parties not otherwise disclosed in 1026.37(f) Loan Costs and (g) Other Costs. The “other” third parties that this is referring to would be the amount paid to the seller if it is a purchase transaction or the amount paid to other debtors if it is a refinance and you have payoffs. So for an example:
Refinance Transaction with Cash Out:
Loan Amount = $250,0000
Payoff of Debts in Loan = $200,000
Result is = $50,000So this positive result would be disclosed as a negative number to the extent that is doesn’t exceed closing costs. If Closing Costs = $5,000, then it would be disclosed as a negative $5,000. If the result above had been a negative or a zero, the amount would be disclosed as a $0.
This detail can be found in the commentary at 1026.37(h)(1)(ii)-1. There is another example of this in preamble to the regulation as well:
https://www.consumerfinance.gov/eregulations/sxs/1026-37-h-1-ii/2013-28210?from_version=2015-01321You can find this information in 1026.19(e)(3)(iv)(D) that states that a creditor may use a revised estimate of a charge instead of the original LE if the points or lender credits change because the interest rate was not locked when the Loan Estimate was provided.
No later than 3 business days after the date the interest rate is locked, the creditor shall provide a revised LE to the consumer with the revised interest rate, the points, lender credits, and any other interest rate dependent charges and terms.When originally released, the regulation would’ve required the revised LE to go out the same day, then a “proposal” was issued to change that requirement to “no later than the next business day after the date the rate is locked”; however, the final regulation states “no later than three business days after the date a rate lock agreement is entered into.
Under the current rules, flood insurance is required on each structure that secures a loan that is situated in a SFHA. If the structure is a residential building with 1-4 units covered under a standard dwelling policy, up to 10% of the dwellings coverage may be allocated to the detached garage as long as the garage is not utilized for residential (dwelling), business, or agricultural purposes.
This rule changes effective October 1, 2015 when the new Interagency Flood rules go into effect. At that point a detached structure that is part of a residential property but is detached from the primary residential structure of such property and does not serve as a residence may be exempt as a detached structure. This is defined in the FDIC’s 12 CFR 339. There are definitions in this section in regards to further defining a “residential property”, “detached”, and “residence”.
I think this question addresses two separate issues:
1. The six items required under TILA/RESPA for a completed application define when the Loan Estimate is triggered for delivery purposes. Once these six items are received by the bank, the Loan Estimate must be delivered within 3 business days (using General rule) to the customer. These six items however do not define when you have an application under HMDA.
2. The HMDA definition for an application is defined as follows:
Application.— (1) In general. Application means an oral or written request for a home purchase loan, a home improvement loan, or a refinancing that is made in accordance with procedures used by a financial institution for the type of credit requested.
How do you define a definition for HMDA purposes within your financial institution? Is it the same as MCCompliance where it is detailed in your policy/procedure as the 6 items for RESPA? Do you have a defined preapproval program or not?
If you do not have a defined preapproval program and utilize the 6 items as your “application” as defined under RESPA, then you could report it as “file closed for incompleteness”. You could consider these loans as “pre-qualifications” and not report them on the HMDA LAR as long as you have defined your application requirements in your HMDA policy or procedure.
I agree with Robin on this as well. The affiliate definition can cause some confusion but if you look at the explanation provided in Robin’s response, the attorney would need to meet one of the requirements in (A)(B) or (C) to qualify as an “affiliate”. If he is a “major stockholder” as stated above, he may fit that definition.
Unless one of those is met, then the attorney may be considered under an Affiliated Business Arrangement under RESPA, which is defined as:
Affiliate relationship 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”, (under RESPA) as used in the definitions of “associate” and “affiliate relationship,” 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.
If this definition is met, an Affiliated Business Arrangement Disclosure must be provided to the borrower under RESPA.
Shelia, I actually am not aware of anyone that offers reverse mortgages nor have I had much experience with them in my own personal banking career; however, I have a few concerns that I would consider if looking to implement this product. As you know reverse mortgages are exempt from many of the regulatory requirements we are accustomed too; however, I do believe examiners would take a long hard look at the product, if implemented, during exams for things like UDAAP. These products generally tend to be offered to the older clientele to assist with living expenses. It would be a product that could easily be considered deceptive if not thoroughly explained when presented to the customer or if there were complaints received after closings. Just something to consider in your research and implementation.
I hope there are others on the forum that have had some experience with the product and respond to your question, I would be anxious to hear of their experiences with the product.
I have seen this before in a past bank that I worked for and unfortunately there is not much you can do other than make your customers aware and do a very thorough review of the insurance information when you receive a change. It was something we had assigned to a specific person that stayed on top of it but it is time consuming to maintain. Maybe we have other members out there that have experienced this. Anyone else have suggestions?
Christopher,
I agree with your assessment due to the information you found in the commentary. In my opinion, if the creditor you are assigning these residential mortgage loans to agrees to allow your bank, the servicer, to continue to send out the required disclosures you should be in compliance with the regulation. I would ensure; however, that you have an agreement with the PIC, in writing, to continue to provide these disclosures.
Under the loan terms section of the Loan Estimate or the Closing Disclosure it would be possible for the loan amount to increase after consummation in the case of a loan that has negative amortization as a feature of the loan. You can refer to 1026.37(b)(6) that states: The maximum principal balance for the transaction and the due date of the last payment that may cause the principal balance to increase. The disclosure further shall indicate whether the maximum principal balance is potential or is scheduled to occur under the terms of the legal obligation.
In other words, you would list the maximum amount the principal balance can increase to or has the potential to increase to by using the terms, “Can go as high as…”. Also, you would indicate the due date of the last payment that may cause the principal balance to increase by using the phrase “Increases until.”
Refer to H-24(F) in Appendix H to Part 1026 to see an example of a model form with negative amortization and the description listed when the loan amount can increase.
There are no definitive signature requirements under TILA, so considering the new TRID rules, the Loan Estimate nor the Closing Disclosure require a signature. A signature can be included at the option of the creditor according to the regulation 1026.37(n) and 1026.38(r).
Other disclosures that will require a signature are the Flood Notice, insurance acknowledgement if credit insurance is offered.
Many times, the financial institution will establish policy/procedures that require signature. In addition, state law should be reviewed as well to insure a signature is not required.
Yes, it is on page 348 of the preamble: https://files.consumerfinance.gov/f/201311_cfpb_final-rule-preamble_integrated-mortgage-disclosures.pdf.
