[rcooper]

I agree with Pattie on getting legal counsel involved on drafting the contract. I think running your new procedure by your regulator prior to implementing could be helpful as well – at the least there are no surprises at the next exam and they may be willing to share their expectations or best practices they’ve seen. The old BSA/AML Exam Manual from 2006 had the following items, listed below, that examiners would look at. I don’t believe the current version of the manual lists the items out in this mannner (at least not that I saw), but I think it is still relevant.

• A list of the financial institutions on which the bank is relying, if the bank is using the
“reliance provision.” The list should note if the relied-upon financial institutions are
subject to a rule implementing the BSA/AML compliance program requirements of
31 USC 5318(h) and are regulated by a federal functional regulator.
Provide the following:
• Copies of any contracts signed between the parties.
• Copies of the CIP or procedures used by the other party.
• Any certifications made by the other party.

The current manual also details that the examiners will pull samples for testing, so self testing is something that should be done. And you’d want to monitor for BSA/AML enforcement actions against the other institution since that is also something the exam manual says examiners will consider.

Current Manual: https://bsaaml.ffiec.gov/manual/AssessingComplianceWithBSARegulatoryRequirements/01_ep:
If the bank relies on other financial institutions to perform its CIP (or portions of its CIP), select a sample of new accounts opened under the reliance provision…

Determine whether reliance is reasonable. The contract and certification provide a standard means for a bank to demonstrate that it has satisfied the “reliance provision,” unless the examiner has reason to believe that the bank’s reliance is not reasonable (e.g., the other financial institution has been subject to an enforcement action for AML or BSA deficiencies or violations).

[rcooper]

I agree. Disclosing the key factors that adversely affected the consumer’s credit score does not satisfy the ECOA requirement to disclose specific reasons for denying or taking other adverse action on an application or extension of credit. See comment 1002.9(b)(2)-9 below (I bolded a couple of sentences for emphasis.)

9. Combined ECOA–FCRA disclosures. The ECOA requires disclosure of the principal reasons for denying or taking other adverse action on an application for an extension of credit. The Fair Credit Reporting Act (FCRA) requires a creditor to disclose when it has based its decision in whole or in part on information from a source other than the applicant or its own files. Disclosing that a credit report was obtained and used in the denial of the application, as the FCRA requires, does not satisfy the ECOA requirement to disclose specific reasons. For example, if the applicant’s credit history reveals delinquent credit obligations and the application is denied for that reason, to satisfy §1002.9(b)(2) the creditor must disclose that the application was denied because of the applicant’s delinquent credit obligations. The FCRA also requires a creditor to disclose, as applicable, a credit score it used in taking adverse action along with related information, including up to four key factors that adversely affected the consumer’s credit score (or up to five factors if the number of inquiries made with respect to that consumer report is a key factor). Disclosing the key factors that adversely affected the consumer’s credit score does not satisfy the ECOA requirement to disclose specific reasons for denying or taking other adverse action on an application or extension of credit. Sample forms C–1 through C–5 of Appendix C of the regulation provide for both the ECOA and FCRA disclosures. See also comment 9(b)(2)–1.

Also, it is always a good idea to stick to the model forms when possible. If you look at the HMDA Getting it Right Guide (p. 23-24) it explains which HMDA codes correlate to the reasons on the AAN model form.

[rcooper]

I think you would need to include this cutoff time in your Reg CC/funds availability policy disclosure. Comment 229.16(b)-6 states:
The business day cut-off time used by the bank must be disclosed and if some locations have different cut-off times the bank must note this in the disclosure and state the earliest time that might apply. A bank need not list all of the different cut-off times that might apply. If a bank does not have a cut-off time prior to its closing time, the bank need not disclose a cut-off time.

Regulation E says a change in terms is required 21 days in advance for the following at noted below. The 21 day advance notice would not apply outside of this list.

(a) Change in terms notice. (1) Prior notice required. A financial institution shall mail or deliver a written notice to the consumer, at least 21 days before the effective date, of any change in a term or condition required to be disclosed under § 1005.7(b) of this part if the change would result in:

(i) Increased fees for the consumer;

(ii) Increased liability for the consumer;

(iii) Fewer types of available electronic fund transfers; or

(iv) Stricter limitations on the frequency or dollar amount of transfers.

Unless there is something in your Reg E disclosure about ATMs that would become inaccurate due to this ATM accepting deposits, I can’t see where a change in terms would be required under Reg E. However, you can provide information via a periodic statement that would satisfy Reg CC (required 30 days in advance unless the change expedites funds availability) and E (if needed) with little effort.

[rcooper]

We discussed in this post that you can report “$0” or a negative number for income if that is what was used. As for DTI, I’m not sure there is a clear cut answer. As you noted from the preamble, § 1003.4(a)(23) does not require reporting the debt-to-income ratio unless the financial institution has calculated and relied upon a debt-to-income ratio in evaluating an application.

My interpreation is that if you can’t calculate the DTI (because the income is $0) then it isn’t something you’ve relied on in making the decision and it would be reported as NA. I think that could be different for negative income based on how your bank has calculated and used it for the evaluating the app. I’ve seen others take the stance of using “0” for DTI in these cases.

I’ll ask Jack to weigh in with his thoughts.

[rcooper]

Hi Send2k1! You would report all of the units that secure the loan for 1003.4(a)(31), not just for the property identified on the LAR. I bolded text in the excerpts below to help explain. I hope that answers your question. If not, please let us know. Thanks!

1003.4(a)(31) states:
The number of individual dwelling units related to the property securing the covered loan or, in the case of an application, proposed to secure the covered loan.

Official Interpretation
Paragraph 4(a)(31)
1. Multiple properties. See comment 4(a)(9)-2 regarding transactions involving multiple properties with more than one property taken as security.

And 4(a)(9)-2 states:
Multiple properties with more than one property taken as security. If more than one property is taken or, in the case of an application, proposed to be taken as security for a single covered loan, a financial institution reports the covered loan or application in a single entry on its loan/application register and provides the information required by § 1003.4(a)(9) for one of the properties taken as security that contains a dwelling. A financial institution does not report information about the other properties taken as security. If an institution is required to report specific information about the property identified in § 1003.4(a)(9), the institution reports the information that relates to the property identified in § 1003.4(a)(9) (or, if the transaction is partially exempt under § 1003.3(d) and no data are reported pursuant to § 1003.4(a)(9), the property that the institution would have identified in § 1003.4(a)(9) if the transaction were not partially exempt). For example, Financial Institution A originated a covered loan that is secured by both property A and property B, each of which contains a dwelling. Financial Institution A reports the loan as one entry on its loan/application register, reporting the information required by § 1003.4(a)(9) for either property A or property B. If Financial Institution A elects to report the information required by § 1003.4(a)(9) about property A, Financial Institution A also reports the information required by § 1003.4(a)(5), (6), (14), (29), and (30) related to property A. For aspects of the entries that do not refer to the property identified in § 1003.4(a)(9) (i.e., § 1003.4(a)(1) through (4), (7), (8), (10) through (13), (15) through (28), (31) through (38)), Financial Institution A reports the information applicable to the covered loan or application and not information that relates only to the property identified in § 1003.4(a)(9).

[rcooper]

Maybe… You still need to determine that the bank has ensured that the compensation does not provide for:
o Compensation based on a term of a transaction, other than that allowed by Sections 1026.36(d)(1)(iii), (iv) and Comment 36(d)(1)3.v.E.1;
o Payments by a person other than the consumer; and
o Steering based on the loan originator receiving greater compensation from the creditor in that transaction than in other transactions that could have been offered to the consumer.

I’m assuning you’ve already vetted the first bullet related to compensation on the terms of the transaction since these are existing lenders your familiar with that. Since you’re dealing with a mortgage broker, which qualifies as a LO, I think you need to pay close attention to the r the dual compensation prohibition (review the commenatary to 1026.36(d)(2)) and the prohibition on steering. See rules below. We have a anti-steering form (Loan Options Form) that might help you with this. If you have specific question after reviewing please let us know.

1026.36(e)
A transaction does not violate the steering prohibition if the consumer is presented with loan options that meet the conditions in paragraph (e)(3) of this section for each type of transaction in which the consumer expressed an interest. For purposes of paragraph (e) of this section, the term “type of transaction” refers to whether:

(i) A loan has an annual percentage rate that cannot increase after consummation;

(ii) A loan has an annual percentage rate that may increase after consummation; or

(iii) A loan is a reverse mortgage.

(3) Loan options presented. A transaction satisfies paragraph (e)(2) of this section only if the loan originator presents the loan options required by that paragraph and all of the following conditions are met:

(i) The loan originator must obtain loan options from a significant number of the creditors with which the originator regularly does business and, for each type of transaction in which the consumer expressed an interest, must present the consumer with loan options that include:

(A) The loan with the lowest interest rate;

(B) The loan with the lowest interest rate without negative amortization, a prepayment penalty, interest-only payments, a balloon payment in the first 7 years of the life of the loan, a demand feature, shared equity, or shared appreciation; or, in the case of a reverse mortgage, a loan without a prepayment penalty, or shared equity or shared appreciation; and

(C) The loan with the lowest total dollar amount of discount points, origination points or origination fees (or, if two or more loans have the same total dollar amount of discount points, origination points or origination fees, the loan with the lowest interest rate that has the lowest total dollar amount of discount points, origination points or origination fees).

[rcooper]

Under Reg P, 12 CFR 1016.3(a)(1), affiliate means any company that controls, is controlled by, or is under common control with another company, so a holding company would be considered an affiliate. But when looking at 1016.6(a)(3) requires disclosure, in the privacy notice, of the categories of affiliates to whom the bank discloses NPI. The regulation does not require listing of all affiliates in the privacy notice, rather categories with examples are required. Some banks might list specific affiliates and some banks might be more general. 1016.6(c)(3) gives examples of how to disclose affiliates in the privacy notice:
Categories of affiliates and nonaffiliated third parties to whom you disclose. You satisfy the requirement to categorize the affiliates and nonaffiliated third parties to whom you disclose nonpublic personal information if you list the following categories, as applicable, and a few examples to illustrate the types of third parties in each category.

(i) Financial service providers, followed by illustrative examples such as mortgage bankers, securities broker-dealers, and insurance agents;

(ii) Non-financial companies, followed by illustrative examples such as retailers, magazine publishers, airlines, and direct marketers; and

(iii) Others, followed by examples such as nonprofit organizations.

[rcooper]

Thanks for your question. Unfortunately, we generally deal with tpyical bank products (deposits and loans) and their related compliance requirements and not with investment products. If your accounts meet the definition of “account” under CFPB’s Regulation DD then those requirements would apply. You might find some info looking at banking regulators’ handbooks related to asset management/investment guidance, the SEC might have guidance, and there could be state law requirements. I wish I could help you further.

[rcooper]

See p. 23 (FR p. 43110) of the 2017 final rule:

…Finally, the Bureau notes that the
2015 HMDA Final Rule and the 2018
FIG do not include any language that
would bar a financial institution from
reporting an applicant’s gross annual
income as ‘‘0’’ or even a negative
number when that is the accurate figure
that it relied on.117…

[rcooper]

Jack – I see what you’re saying and don’t disagree. Just to throw another question out…since there was no exchange of funds would it still be a purchase? Would one LLC’s loan paying off another’s loan constitute purchasing? “Exchange of funds” for the property meaning an official sales price exchanged for the property (ie the question states there was no sales price just a transfer of property).

[rcooper]

You’ll need to consider what your state law allows regarding e-signatures as it relates to notes. We recently heard from a member that her state bankers association has said her state law doesn’t allow esignatures for promissory notes or wills. So this is a good reminder to check state law, utilize your state bankers association as a resource, and consult an attorney. you are dealing with legal documents that could pose a great risk to the institution if not executed properly, so you want to make sure you get the process right.

As for the CD, you want to make sure you’re complying with the timeframes for when the CD is deemed received if it is emailed (see my post above). If nothing has changed on the CD you aren’t required to provide another one (unless investors require it), so assunming nothing has changed the CD would not need to updated.

And for the 5 day timing requirement, I am not aware of anything that would prohibit it. When you can begin accruing interest will also be matter of state law. Some states allow it during the rescission period and some states do not.

Again, you are dealing with legal documents that could pose a great risk to the institution if not executed properly. Consult with an attorney before you begin accepting esignatures on your notes and also regarding when the note will allow you to begin to accruing interest since there is a difference in the note date and closing date/date signed by borrower (keeping in mind any state law restrictions during the rescission period).

Let us know if you have any other questions.

[rcooper]

This is tricky. I don’t think it would qualify as a purchase since it is different borrowers (LLCs); even though the managing member is the same person the borrowers are different entities.

1003.2(j)-3:
3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional details about transactions that are excluded as temporary financing.

[rcooper]

I’m not sure I’m understanding the your question related to what they’re signing or the timeframe, so I’m going to offer some general info. Below are the applicable timing requirements for the CD and rescission and examples. As long as you’re following these timeframe rules you will be fine. Let us know if you still have questions.

1026.23(a)(3)(i): The consumer may exercise the right to rescind until midnight of the third business day (i.e. all calendar days except Sundays and the legal public holidays) following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, whichever occurs last…

1026.(a)(2) To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor’s designated place of business.

Keep in mind that the consumer could put the rescision notice in the mail to you on the third business day and you might not receive for a few days, so you would want to allow a few days after rescission to allow for the notice to be received. I believe some banks have a bank allow the customer to sign something after the end of the three days rescission period, before funding, stating that the customer didn’t rescind. This is not required by the reg and is not a waiver of the rescission time period… they use to verify that a notice wasn’t put in the mail.

1026.19(f)(1)(ii) Timing.

(A) In general. Except as provided in paragraphs (f)(1)(ii)(B), (f)(2)(i), (f)(2)(iii), (f)(2)(iv), and (f)(2)(v) of this section, the creditor shall ensure that the consumer receives the disclosures required under paragraph (f)(1)(i) of this section no later than three business days (i.e. all calendar days except Sundays and the legal public holidays)before consummation.

Comment 1026.19(f)(1)(iii):
2. Other forms of delivery. Creditors that use electronic mail or a courier other than the United States Postal Service also may follow the approach for disclosures provided by mail described in comment 19(f)(1)(iii)-1. For example, if a creditor sends a disclosure required under § 1026.19(f) via email on Monday, pursuant to § 1026.19(f)(1)(iii) the consumer is considered to have received the disclosure on Thursday, three business days later. The creditor may, alternatively, rely on evidence that the consumer received the emailed disclosures earlier after delivery. See comment 19(e)(1)(iv)-2 for an example in which the creditor emails disclosures and receives an acknowledgment from the consumer on the same day. Creditors using electronic delivery methods, such as email, must also comply with § 1026.38(t)(3)(iii). For example, if a creditor delivers the disclosures required by § 1026.19(f)(1)(i) to a consumer via email, but the creditor did not obtain the consumer’s consent to receive disclosures via email prior to delivering the disclosures, then the creditor does not comply with § 1026.38(t)(3)(iii), and the creditor does not comply with § 1026.19(f)(1)(i), assuming the disclosures were not provided in a different manner in accordance with the timing requirements of § 1026.19(f)(1)(ii).

Examples from Comment 1026.23(a)(3):
For example:

A. If a transaction is consummated on Friday, June 1, and the disclosures and notice of the right to rescind were given on Thursday, May 31, the rescission period will expire at midnight of the third business day after June 1—that is, Tuesday, June 5.

B. If the disclosures are given and the transaction consummated on Friday, June 1, and the rescission notice is given on Monday, June 4, the rescission period expires at midnight of the third business day after June 4—that is, Thursday, June 7. The consumer must place the rescission notice in the mail, file it for telegraphic transmission, or deliver it to the creditor’s place of business within that period in order to exercise the right.

[rcooper]

You would force place for the amount the policy is insufficient (e.g. in your example that would be $20,000).

[rcooper]

FYI – I talked to deposit guru this morning and she said she’s never seen a bank not keep copies of all the hold notices. That is my experience as well. Seems most banks do keep them all and this is what examiners are accustomed to. Another reason that you may want to talk with your examiners and prevent them from being surprised at their next visit. You might also talk with your external audit team if you use one, to find out what they see at other institutuions and how those instition’s examiners approach Reg CC without copies.

[Author]

Posts