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Tough call. The Compliance Resource team’s thoughts are if the action taken is “approved but not accepted” then report the rate and rate spread based on LE, since no CD provided. If action taken is “withdrawn” the rate and rate spread are reported as N/A.
We assume the app is treated as a single transaction. Both the fixed and variable rate loans have the same ULI. If treated as two apps (different ULIs) then the first was approved but not accepted and the second was withdrawn.
Our best guess is they handled the transaction as a single app, so report action taken as “withdrawn”, and report the rate and rate spread as N/A. If they handled the transaction as two apps then report the action taken on the first app as “approved but not accepted” with the rate and rate spread based on LE, since no CD provided. The action taken on the second app would be “withdrawn” and the rate and rate spread would be reported as N/A.
Regulation E, 1005.11(c)(2), state:
Forty-five day period. If the financial institution is unable to complete its investigation within 10 business days, the institution may take up to 45 days from receipt of a notice of error to investigate and determine whether an error occurred, provided the institution does the following:
(i) Provisionally credits the consumer’s account in the amount of the alleged error (including interest where applicable) within 10 business days of receiving the error notice. If the financial institution has a reasonable basis for believing that an unauthorized electronic fund transfer has occurred and the institution has satisfied the requirements of § 1005.6(a), the institution may withhold a maximum of $50 from the amount credited. An institution need not provisionally credit the consumer’s account if:
(A) The institution requires but does not receive written confirmation within 10 business days of an oral notice of error; or(B) The alleged error involves an account that is subject to Regulation T of the Board of Governors of the Federal Reserve System (Securities Credit by Brokers and Dealers, 12 CFR part 220); or,
(C) The alleged error involves a prepaid account, other than a payroll card account or government benefit account, for which the financial institution has not completed its consumer identification and verification process, as set forth in § 1005.18(e)(3)(ii).
(ii) Informs the consumer, within two business days after the provisional crediting, of the amount and date of the provisional crediting and gives the consumer full use of the funds during the investigation;…
It does not specify that the notice must be in writing, therefore, it can be either oral or written. However, to ensure clear communication with customers and to document compliance, many banks have implemented procedures that require their notification to be given in writing.
I agree. And 1026.4(b)(2): (2) Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account (except a prepaid account as defined in § 1026.61) to the extent that the charge exceeds the charge for a similar account without a credit feature.
I am not familiar with charge-off fees, but it seems technically it is being charged to all deposit accounts as part of the deposit function; then, a credit feature is being set up for some accounts. My other question is how often you recover a charge-off fee if it is not incorporated into the balance on an Extended Repayment Plan (credit agreement)? Is it essentially a credit fee because that is the only time you recover it?
Susan – We’ve received your question. I’ve passed it along to Jack Holzknecht. You should receive a response soon. Thanks for your patience.
I agree with your analysis and think it is the safest approach.
Trying to understand this a little better and also trying to consider the other side…is the same charge-off maintenance fee added to every ODP charged off amount or just those with the extended repayment plan? If it is added to every charge off amount before it becomes a loan, could it still qualify as a checking fee that is charged on all accounts not just associated with credit?
If I’m misunderstanding something let me know.
Hi Chris,
I apologize for the delay. Your question didn’t show up on our list of new questions last week (an issue we’re checking in to) and this week I was out of the office. You may have already found you answer, but in case you haven’t I’ll offer some information.If you are taking personal property/contents as collateral – sounds like you are – you must obtain flood insurance coverage for the contents if all three of the following conditions are met:
1. the bank has a security interest in the building and its contents or personal property;
2. the contents and/or personal property is within the building that is located in a special flood hazard area (SFHA); and
3. the personal property and/or contents have an insurable value.Here’s the link to Jack’s blog post on this which includes a link to the FDIC’s newsletter. It give good info on when contents coverage is required and an example: https://mycomplianceresource.com/flood-insurance-concern/.
Here is a link to the FDIC’s summary of coverage that will show you what types of contents are covered under the building coverage and what is considered contents: https://www.fema.gov/media-library-data/20130726-1620-20490-4648/f_679_summaryofcoverage_11_2012.pdf.After becoming familiar with the types of content considered part of the building and the content that requires separate coverage, compare that to your list to determine what you are taking that qualifies as personal property/contents. At that point you will need to determine the value of the content you are taking as collateral.
As for how to allocate the insurance coverage, the same coverage requirements apply. The flood faq (2009) tells us that both contents and building will be considered to have a sufficient amount of flood insurance coverage for regulatory purposes as long as some reasonable amount of insurance is allocated to each category. Also see q&a 39.
Hope this helps!
Kathy,
Sorry for the delay in responding. For an HPML you’re only required to escrow for taxes and insurance. However, it would make sense to include the HOA fees as well.1026.35(b) Escrow accounts. (1) Requirement to escrow for property taxes and insurance. Except as provided in paragraph (b)(2) of this section, a creditor may not extend a higher-priced mortgage loan secured by a first lien on a consumer’s principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer’s default or other credit loss. For purposes of this paragraph (b), the term “escrow account” has the same meaning as under Regulation X (12 CFR 1024.17(b)), as amended.
Hi Jeff – I’m sorry for the delay (for some reason your question didn’t show up on my page of new questions last week and I was out of the office earlier this week, so I am just now seeing it). Again, I apologize… Unfortunately, I am not going to be much help on this topic. I am sure you have already found your answer, but if you haven’t I think consulting an attorney would be best.
1002.13(a) Information to be requested. (1) A creditor that receives an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling, shall request as part of the application the following information regarding the applicant(s)…
It needs to meet three criteria:
1) it is a refinancing of a dwelling (even though it wasn’t secured by the dwelling, the original loan was to finance the purchase of the dwelling)
2) it is/will be the applicant’s principal residence (I assume this is the case)
3) it will be secured by the dwelling (you stated the refinance will be secured by the dwelling)As I noted above, it seems you meet the criteria for collecting monitoring information as stated above in 1002.13.
Did you attend the Reg E seminar Susan Costonis did last week? If so, I can send your disclosure to her for review – email it to me at robin@mycomplianceresource.com. Thanks!
Answer by rcooper:
The regulation says you may charge the borrower for the cost of insurance from the date of insufficient coverage:The national bank or Federal savings association, or its servicer, may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance, including premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount.
However, I don’t think the agencies anticipated this applying to loans that had insufficient coverage from inception the year prior. I think this paragraph was written assuming the insufficiency would be ID in a short timeframe through monitoring such as with a lapse. I am not sure if the insurance company would allow you to retroactively purchase coverage that far back – it probably differs among providers. Even if they would permit it, going back that far would only be beneficial to the customer if there had been a flood/flood damage to the property during that time. If there hadn’t been any flood damage and you are requiring them to purchase insurance retroactively for something that will not benefit them (but rather meet the bank’s regulatory requirement), I am concerned regulators might see it as a unfair to the consumer (similar to over-insuring when the insured amount would never actually be paid).
With all that said, I’d probably stick with your normal process and charge from the date you identify insufficient coverage and begin your 45 day process and let the insufficient coverage an closing fall where it may. If the bank wants to try obtain and pay for retroactive coverage back to origination, in order to try avoid a violation, you could give that a shot. But I wouldn’t be too hopeful as regulators will still be able to identify that there wasn’t a process in place to ensure sufficient coverage at closing and there was a lack of a review/monitoring system to ID insufficient coverage promptly.
I agree – I do not think you would be required to provide a new disclosure unless there is something in the original disclosure that causes you concern or to believe you should re-disclose (which I assume there is not).
There are three places that PMI could be disclosed on page 2 of the CD – Service You Cannot Shop For (see comment 1026.37(f)(2)1-2); Prepaids (Comment 1026.37(g)(2)) or Escrow (Comment 1026.38(g)(2). It seems you are not seeing the PMI listed on page 2 because it will be part of the mortgage payment (as shown on page one) rather than fitting into one of the three criteria on page 2 (at consummation, prepaid for future premiums, or part of escrow).
This specific scenario isn’t addressed in the regulation or commentary. However, based on comment 10034(a)(7)-3 states:
“Covered loan amount—preapproval request denied, application denied, closed for incompleteness or withdrawn. For a preapproval request that was denied, and for an application that was denied, closed for incompleteness, or withdrawn, a financial institution reports the amount for which the applicant applied.Its seems as though the applicant requested/applied for $150,000 and that is the amount you were using for underwriting. I think that is what you would report.
