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From the commentary and Guide to HMDA reporting: A Financial Institution reports whether the contractual terms include or would have included: (1) a balloon payment; (2) interest-only payments; (3) negative amortization; or (4) contractual terms, other than those listed above, that would allow for payments other than fully amortizing payments. 12 CFR 1003.4(a)(27). The HMDA Rule defines the terms balloon payment, interest-only payments, negative amortization, and fully amortizing payments by reference to Regulation Z, but without regard to whether the Covered Loan is subject to Regulation Z. Comment 4(a)(27). See 12 CFR 1026.18(s)(5)(i) for the definition of balloon payment, 12 CFR 1026.18(s)(7)(iv) for the definition of interest-only payments, and 12 CFR 1026.18(s)(7)(v) for information on when a contractual term would include negative amortization.
1026.18(s)(7)(iv) The term “interest-only” means that, under the terms of the legal obligation, one or more of the periodic payments may be applied solely to accrued interest and not to loan principal; an “interest-only loan” is a loan that permits interest-only payments.
Regulation Z allows you to use the CD to reset tolerances in the event of a changed circumstance. If you believe that you have a changed circumstance (and it sounds like you do) then you would be able to use the CD to reset the tolerance.
A helpful excerpt from the CFPB’s SECG (see sections 10.2, 11.11, 12.2, 12.3):
Like with a revised Loan Estimate, a creditor can use a corrected Closing Disclosure to reset tolerances when there is a changed circumstance or other triggering event. (Comment 19(e)(4)(ii)-1)
The three-business-day waiting period requirement applies to a corrected Closing Disclosure that is provided when:
The loan’s disclosed APR becomes inaccurate;
There are changes to the loan product; or
A prepayment penalty is added to the loan. (§ 1026.19(f)(2)(ii))
If other types of changes occur, creditors must ensure that the consumer receives a corrected Closing Disclosure at or before consummation. (§ 1026.19(f)(2)(i))Regulation E does not apply to business accounts. 1005.3(a) tells us that Regulation E “applies to any electronic fund transfer that authorizes a financial institution to debit or credit a consumer’s account“.
1005.2 state:
(b)(1) “Account” means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.(e) “Consumer” means a natural person.
This tells us that it will apply to a natural person’s (actual human) account (for personal, family, or household purposes).
You referred to the definition of “person”. This is different than the term natural person used in the definition of “consumer”. The definition of “person” may pop up when someone other than the consumer. For example, the Scope under 1005.1 states:
This part carries out the purposes of the Electronic Fund Transfer Act, which establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer and remittance transfer services and of financial institutions or other persons that offer these services. The primary objective of the act and this part is the protection of individual consumers engaging in electronic fund transfers and remittance transfers.
You see here that consumer and person are not the same and person means the definition you cited above.
I hope this makes sense and helps!
The changes that I believe you are referring to are in Section 301 of EGRRCPA and are additional requirements for consumer reporting agencies. A consumer reporting agency must provide the Summary of Consumer Rights to a consumer with each written disclosure by the agency to the consumer.
The only thing you might need to verify is, if your HR department pulls consumer reports for employment purposes, ensuring the CRA is providing you as the employer the updated disclosure.
Here’s a link to an article we posted on the changes: https://mycomplianceresource.com/category/egrrcpa/
I’d agree that it isn’t required under the SAFE Act and I’m not aware of anything in the KRS that requires registration for commercial lenders. If there is any possibility that these lenders will be involved in residential mortgage loans they should renew their registration.
Under the SAFE Act, Mortgage loan originator means
(1) An individual who:
(i) Takes a residential mortgage loan application; and
(ii) Offers or negotiates terms of a residential mortgage loan for compensation or gain.
I tend to agree with your auditor that it would be included under C as this is a fee resulting from the use of the provider selected by the borrower rather than providers on your list. Even though this specific fee isn’t required by your bank, you are requiring the use of an attorney and this is a fee required by the provider the borrower selected. If they had gone with someone on your list of providers the fee would not have been charged.
There isn’t a requirement to have the CD signed nor are there required procedures for documenting delivery, you just have to show evidence of compliance. I would consider if you feel it provides evidence of delivery in a timely manner, can it be applied consistently, is the spreadsheet documented as the actions are taken and does it show accountability of the person providing the documents/inputting the dates, and if there are investors involved are you meeting their standards? Personally, I would prefer to see some type of additional documentation that it was delivered or received either from the loan officer or the borrower, but it isn’t necessarily required.
Since this sounds like a big procedural change, potentially affecting numerous disclosures, you should consider consulting with your auditors or examiners to see what they expect and how they will view your process since they will ultimately be the ones reviewing the files.
The regulation allows for you to take an oral or written waiver. Make sure you are complying with any internal procedures that you have and if you take them orally make sure it is very well documented. I would say that most banks probably require the waiver to be in writing but, again, the regulation does give you the option.
1002.14(a)(1)-6 states:
6. Waiver. Section 1002.14(a)(1) permits the applicant to waive the timing requirement if the creditor provides the copies at or before consummation or account opening, except where otherwise prohibited by law. Except where otherwise prohibited by law, an applicant’s waiver is effective under § 1002.14(a)(1) in either of the following two situations:i. if, no later than three business days prior to consummation or account opening, the applicant provides the creditor an affirmative oral or written statement waiving the timing requirement under this rule; or
ii. if, within three business days of consummation or account opening, the applicant provides the creditor an affirmative oral or written statement waiving the timing requirement under this rule and the waiver pertains solely to the applicant’s receipt of a copy of an appraisal or other written valuation that contains only clerical changes from a previous version of the appraisal or other written valuation provided to the applicant three or more business days prior to consummation or account opening. For purpose of this second type of waiver, revisions will only be considered to be clerical in nature if they have no impact on the estimated value, and have no impact on the calculation or methodology used to derive the estimate. In addition, under § 1002.14(a)(1) the applicant still must receive the copy of the revision at or prior to consummation or account opening.
As for delivery…
the applicant must receive the appraisal/valuation at or before consummation or account opening, except where otherwise prohibited by law.
comment 1002.14(a)(4)-I states:
For purposes of this timing requirement, “provide” means “deliver.” Delivery occurs three business days after mailing or delivering the copies to the last-known address of the applicant, or when evidence indicates actual receipt by the applicant, whichever is earlier. Delivery to or actual receipt by the applicant by electronic means must comply with the E-Sign Act, as provided for in § 1002.14(a)(5).bjone,
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With the way both the statute and regulation are worded – no specific mention of ownership interest in the principal dwelling as a requirement for applicability or exclusion because lack thereof – I would say that HOEPA would apply to the transaction you have described, assuming no exemption applies.
Here is a link to the statute (https://www.law.cornell.edu/uscode/text/15/1639) and the regulation (https://www.gpo.gov/fdsys/pkg/CFR-2018-title12-vol9/pdf/CFR-2018-title12-vol9-sec1026-32.pdf).
The lack of a definition for what constitutes an introductory rate/period does create confusion and differing opinions.
From the Guide to the LE and CDP.16 https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/cfpb_kbyo_guide-loan-estimate-and-closing-disclosure-forms_v2.0.pdf
“An interest rate is an Adjustable Rate if the interest rate may increase after consummation, but the rates that will apply or the periods for which they will apply are not known at consummation. (§ 1026.37(a)(10)(i)(A))
Each description must be preceded by the duration of any introductory rate or payment period, and the first adjustment period, as applicable. (§ 1026.37(a)(10)(iv)) For example, a product with an introductory rate that is fixed for the first five years and adjusts every three years starting in year 6 is a 5/3 Adjustable Rate.
When there is no introductory period for an Adjustable Rate, disclose “0.” (Comment 37(a)(10)-1.i.A) For example, a product with no introductory rate that adjusts every year after consummation is a 0/1 Adjustable Rate.”Based on this and the commentary you mentioned above, we believe that if the introductory period differs from subsequent adjustment periods or if the rate differs from the index/margin for subsequent adjustments then that would be considered an introductory rate period. A discount/promotional rate would not be required for an introductory rate period. For example, take the 5/3 vs 0/1 ARM referenced in the commentary – both may use the same index/margin as the remainder of the loan term, but since the 5/3 is fixed for a period beyond when it would have adjusted it is considered an intro rate even though it isn’t discounted and the 0/1 isn’t considered to have an intro rate since it adjusts on time. As for your specific example, since the initial period is the same as subsequent adjustment periods (i.e. 5 years) it would depend on if the rate. If the rate is different from the index/margin rate for later adjustments then it would be considered an intro period and be disclosed 5/5. If the rate is tied to the index/margin rate (and since the initial period of 5 years is the same as the subsequent adjustment periods) it would not have an intro rate or period and would be disclosed as 0/5.
M cockrell,
I know this has been debated and we have answered similar questions on this issue in the past. I want to run it by our team to ensure our collective opinion is still the same – that there is no new information to consider – before responding. We will get back to you soon.Thanks for your patience!
Based on your comments, I assume the borrower didn’t notify you of the address change. (Depending on the circumstances of the loan, this could be out of the ordinary meaning your loan department might need to look into the loan/borrower). Either way, I’m sure your bank has already made contact with the borrower to determine his/her current mailing address.
As it related to the disclosures, it is the borrower’s responsibility to provide you, as the lender, with a change of mailing address so you may communicate timely and effectively. The flood regulations require that you notify the borrower of inadequate coverage and the need for the borrower to purchase flood insurance. It seems you did attempt to notify the borrower as required, but because the borrower failed to notify you of an address change notification was halted – the fault that it wasn’t received lies with the borrower not you as the lender. If you have documented the circumstances and your efforts to deliver the notice I don’t believe you would be criticized for following normal force-placement procedures. I would recommend that you make every attempt to provide the notice to the borrower ASAP, and remember to document your efforts. You want to create a clear picture for auditors and examiners.
Chris,
I agree with you completely. If you have not complied with the esign requirements it is as if you did not provide AAN. Regulation B says the AAN must be in writing and in order to comply with that requirement electronically you must comply with esign.Regulation B 1002.4(d)(2) states:
Disclosures in electronic form. The disclosures required by this part that are required to be given in writing may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). Where the disclosures under §§ 1002.5(b)(1), 1002.5(b)(2), 1002.5(d)(1), 1002.5(d)(2), 1002.13, and 1002.14(a)(2) accompany an application accessed by the applicant in electronic form, these disclosures may be provided to the applicant in electronic form on or with the application form, without regard to the consumer consent or other provisions of the E-Sign Act.
