Forum Replies Created
-
Posts
-
I’m not sure there is an industry standard. Although reuse of credit reports has been a common practice for banks there may be some potential risks you want to consider with the requirements we have now. This was discussed at the ABA RCC this summer… although some in the audience preferred to use old reports, the consensus seemed to be that the best method is to pull new reports. I think it’s your best compliance practice and makes the process less confusing for your lending staff on when to pull/when not to pull and what needs to be considered.
Things to consider:
1) Your contract with the credit bureau to see if it allow reuse/prohibits reuse.
2) With rules related to a consumer’s ability to repay I think it could be argued that relying potentially out of date credit report information is not making “a reasonable and good faith determination.” Even if ATR rule may not apply to a transaction, I would consider the safety and soundness aspect of determining any borrower’s ability to repay. In addition to that you’d want to consider FACTA Red Flags – what’s your policy on using CRs to identify fraud alerts. Maybe you have a credit report on file, but someone has comes into another location to make a loan (and it isn’t your customer)… if your customer has put a fraud/active duty alert, security freeze etc. on their account with the bureaus and you don’t pull the report you won’t see that information.
3) the MLA. If you use the credit report safe harbor for identifying covered borrowers you need current information.I’m sure there are other things that could be affected, but this would be enough for me to want a new report.
in addition to the reasons above
Sounds like you have only a construction loan, not a construction-perm. Based on the section of the commentary you cited above, I don’t think you would collect.
This is a sticky situation. Here’s my take…
I would want to ensure I have a policy and apply it consistently. Your bank is not required under the flood regs to follow the private flood rules if flood insurance isn’t required, which it would not be for a property located in a non-participating community. However, as you’ve said, as the lender you may (and will) require insurance on this property to protect your collateral. Since the requirement to purchase doesn’t apply to a non-participating loan, you are not required to apply the private flood criteria; however, I think it would make sense from many perspectives: 1) it keeps the bank’s processes simpler for staff to follow which means less room for error; 2) the bank has a right from a safety and soundness perspective to adopt regulatory guidelines even if not required to do so; and 3) consistently applied criteria is a less likely to create any type of unequal treatment issues.Again, consistency – deciding on policy and adhering to it – is key. You don’t want to document in the file that this policy isn’t acceptable for borrower B due to safety and soundness concerns because it doesn’t meet the private flood rules (in order to avoid the issue that was created by the insurance agent oversharing with borrower A), but then accept a private policy from someone else in a non-participating community that doesn’t have the compliance aid statement.
I’ll forward to Jack to see if he has any additional thoughts for you.
Best of luck!As long as it isn’t a refinance – the existing debt is not satisfied and replaced -I think you’re correct.
From the FFIEC HMDA Guide to Getting it Right:
Under Regulation C, an “extension of credit” generally requires a new debt obligation. Comment 2(d)-2. Thus, for example, a loan modification where the existing debt obligation is not satisfied and replaced is not generally a covered loan (i.e., closed-end mortgage loan or open-end line of credit) under Regulation C. Except as described below, if a transaction modifies, renews, extends, or amends the terms of an existing debt obligation, but the existing debt obligation is not satisfied and replaced, the transaction is not a covered loan. It is important to note that Regulation C defines the phrase “extension of credit” differently than Regulation B, 12 CFR Part 1002.8 Comment 2(d)-2 and 2(o)-2.This is a contract between you and the customer. If the contract specifically states you may make changes without the customer’s consent then I think you could notify the customer. Otherwise, for existing customers who have this type of agreement, I would obtain a revised agreement from the customer before making the change.
This is just my two cents. You should contact an attorney for legal advice.
I wasn’t able to find a copy of the VA’s poster to review. I did find a copy of the VA EQUAL OPPORTUNITY LENDER CERTIFICATIONI that states you must
“prominently display the Equal Opportunity Lender poster in each place of business where VA loans are offered by the lender”.If you have a copy, I’d suggest reviewing it and comparing to the EHL poster. If there are differences it does seem you would need to display the VA poster as well as the EHL poster if you certified you would do so in your agreement as a VA lender. If questions still remain, you should check with the VA and your regulator for their advice.
Hey JGo9! Maybe I’ve misunderstood your questions…
Here’s the pre-TRID Reg Z language for mortgage loans subject to RESPA (now only applicable to reverse mortgage transactions subject to RESPA):
1026.39(a)(2)(ii) “If the annual percentage rate disclosed under paragraph (a)(1)(i) of this section becomes inaccurate, as defined in §1026.22, the creditor shall provide corrected disclosures with all changed terms. The consumer must receive the corrected disclosures no later than three business days before consummation. If the corrected disclosures are mailed to the consumer or delivered to the consumer by means other than delivery in person, the consumer is deemed to have received the corrected disclosures three business days after they are mailed or delivered.”The language for this is now in 1026.19(f)(2) related to re-disclosure of the CD:
(2) Subsequent changes.
(i) Changes before consummation not requiring a new waiting period. Except as provided in paragraph (f)(2)(ii), if the disclosures provided under paragraph (f)(1)(i) of this section become inaccurate before consummation, the creditor shall provide corrected disclosures reflecting any changed terms to the consumer so that the consumer receives the corrected disclosures at or before consummation. Notwithstanding the requirement to provide corrected disclosures at or before consummation, the creditor shall permit the consumer to inspect the disclosures provided under this paragraph, completed to set forth those items that are known to the creditor at the time of inspection, during the business day immediately preceding consummation, but the creditor may omit from inspection items related only to the seller’s transaction.
(ii) Changes before consummation requiring a new waiting period. If one of the following disclosures provided under paragraph (f)(1)(i) of this section becomes inaccurate in the following manner before consummation, the creditor shall ensure that the consumer receives corrected disclosures containing all changed terms in accordance with the requirements of paragraph (f)(1)(ii)(A) of this section:
(A) The annual percentage rate disclosed under § 1026.38(o)(4) becomes inaccurate, as defined in § 1026.22.
(B) The loan product is changed, causing the information disclosed under § 1026.38(a)(5)(iii) to become inaccurate.
(C) A prepayment penalty is added, causing the statement regarding a prepayment penalty required under § 1026.38(b) to become inaccurate.
Yes, you’re exactly right! As with any lending decision/policy you want to consider fair lending and across the board UDAP/UDAAP is always a factor. I would ensure there is a policy in place for this rather than lenders making this decision on an individual basis. You would want to consistently and fairly apply pre-payment penalties according your vetted policy in order to avoid disparate treatment or impact. And you would want to ensure any fee is clearly disclosed (and when it will be applied) in a way that is easily understood.
There are high cost home loan provisions in 360.100 that limits prepayment penalties that applies to loans made to a natural person that is for personal, family or household purposes.
There also provisions under 286.8-110 that has similar prepayment rules, but these are applicable to any mortgage loan that is for “personal, family, or household use”. That term isn’t defined, but some other key definitions are listed below.
Under 286 the following definitions apply:
“Mortgage loan” means any loan primarily for personal, family, or household use
that is secured by a mortgage, deed of trust, or other equivalent consensual security
interest on residential real property or any loan primarily for personal, family, or
household use that is secured by collateral that has a mortgage lien interest in
residential real property;“Mortgage loan company” means any person who directly or indirectly:
(a) Makes, purchases, or sells mortgage loans, or holds oneself out as being able
to do so; or
(b) Services mortgage loans, or holds oneself out as being able to do so;“Borrower” means any person that seeks, applies for, or obtains a mortgage loan;
“Person” means a natural person, or any type or form of corporation, company,
partnership, proprietorship, or association;The loan you mentioned doesn’t seem to be for “personal, family or household use” so this section wouldn’t apply. I’m not aware of any other rule that would prohibit a prepayment penalty on a commercial loan. I’ll ask Jack if he has additional info.
You are correct, you can’t require the customer to sign the form before you begin your investigation or in order to make your final decision regarding the claim. You can require written confirmation before you provide provisional credit. I’d want to make sure what the core processor is actually requiring – are they requiring the form be signed or just completed? I would not want to sign on behalf of someone else without proper legal authorization to do so. I think it would create risk for your staff and your bank. Notating on the form that the customer provided the information via telephone, email, etc. with the date/time/initials, etc. of the employee rather than signing on behalf of someone could possibly work. I’d suggest talking to your attorney about this and the risks involved.
This has been an issue for a few years now. I’ve heard this mostly from FDIC regulated institutions. The ABA got some clarification from the regulators via an interagency letter: https://bankingjournal.aba.com/2017/06/agencies-clarify-interpretation-on-lender-placed-flood-insurance/.
Let us know if we can answer any other questions.
What is the form… is it an internal form the bank implemented, a form your core processor provided and requires, etc.?
Follow-Up Question Received:
…Land loan, commercial land going to be divided into parcels and sold (no structure on the property) so my understanding HVCRE doesn’t applyAND I have a loan to renovate a retail center. Customer purchased center 15 years ago. It is my understanding that his 15% required cash at this point would be as complete renovated value less as is value in the appraisal. In this case, the as is value is less than what the customer originally paid, but it is my understanding that this does not matter – his 15% cash towards total renovation is based on our new appraisal -difference of as complete and as is.
Based on the commentary regarding renewals, I believe intent is to provide a copy of any appraisal/valuation you have done in connection with that credit decision. So, I would say yes, you would need to comply with the Reg B appraisal/valuation rules.
2. Renewals. Section 1002.14(a)(1) applies when an applicant requests the renewal of an existing extension of credit and the creditor develops a new appraisal or other written valuation. Section 1002.14(a)(1) does not apply to the extent a creditor uses the appraisals and other written valuations that were previously developed in connection with the prior extension of credit to evaluate the renewal request.
The customer is welcome to contact the merchant, but as you know you can’t require it. I know you aren’t requiring that, but make sure your procedures and the documentation reflect that since it sounds like that is what they will be doing. As for the bank, I would follow normal procedures once I received notification of error from the customer. A conversation with the customer regarding your requirements and process would be good customer service and might help them understand what you will be doing to help them. Reg E states:
(b) Notice of error from consumer. (1) Timing; contents. A financial institution shall comply with the requirements of this section with respect to any oral or written notice of error from the consumer that:
(i) Is received by the institution no later than 60 days after the institution sends the periodic statement or provides the passbook documentation, required by § 1005.9, on which the alleged error is first reflected;
(ii) Enables the institution to identify the consumer’s name and account number; and
(iii) Indicates why the consumer believes an error exists and includes to the extent possible the type, date, and amount of the error, except for requests described in paragraph (a)(1)(vii) of this section.
