[rcooper]

If you are discontinuing a non-required notice that your customers have come to expect it may be confusing to your customers if they don’t receive the notice from you. I don’t know of any requirement that says you must notify your customers that these will be discontinued. With that said, we have seen that many of the complaints regulators receive are due to a lack of communication between the bank and customer. It might be worth informing your customers when they will receive notices going forward.

Another thing to note is that you want to make sure these loans aren’t covered under 1026.20(c) and its commentary.

(1) Coverage. (i) In general. For purposes of this paragraph (c), an adjustable-rate mortgage or “ARM” is a closed-end consumer credit transaction secured by the consumer’s principal dwelling in which the annual percentage rate may increase after consummation.

and
Commentary 1026.20(c)(1)(i)-1: In general. An adjustable-rate mortgage, as defined in § 1026.20(c)(1)(i), is a variable-rate transaction as that term is used in subpart C, except as distinguished by comment § 1026.20(c)(1)(ii)-3. The requirements of this section are not limited to transactions financing the initial acquisition of the consumer’s principal dwelling.

Note: The reg and commentary provide a few exemption to this coverage rule.

[rcooper]

I discussed this with Jack. His advice is below:

It is doable as a single transaction under Regulation Z. The big question is will your LOS handle it and how will you input the numbers to get proper disclosures out of the LOS. None of the sample forms include a purchase/refi combo, so we and your LOS have to make a common sense best guess. Our guess won’t work if your LOS can’t match it. We suggest you check with your LOS vendor. If you decide to do it manually then we can help.

[rcooper]

The application would be considered received on the next day business day (i.e. when you are open for conducting substantially all your business functions) which for your bank sounds like Monday. I have heard some lenders place notices on their websites letting consumers know when application will be considered received if submitted after business hours; however, this is not a requirement.

[rcooper]

I’m running your question by Jack. We should have a response for you soon. Thanks for your patience.

[rcooper]

Page 98 of the proposal clarifies that you will only include gifted funds if they are paid at consummation. If they are paid to the consumer prior to consummation they are not disclosed on the LE. See the proposed clarification below. Although it is only proposed it is a good indication of what the regulators expect. Also see below the explanation of the “purchase and sales contract” language.

Proposal:
Comment 37(h)(1)(vii)-1 clarifies that amounts expected to be paid by third parties not involved in the transaction, such as gifts from family members, and not otherwise identified under § 1026.37(h)(1) are included in the amount disclosed under § 1026.37(h)(1)(vii), but the comment does not specify whether amounts received by the consumer prior to consummation must be included in the calculation. The Bureau is proposing to revise comment 37(h)(1)(vii)-1 to distinguish between amounts paid by third parties at consummation and amounts given to consumers in advance of consummation. As proposed, the revision to comment 37(h)(1)(vii)-1 would state that amounts expected to be paid at consummation by third parties not involved in the transaction, such as gifts from family members, and not otherwise identified under § 1026.37(h)(1), are included in the amount disclosed under § 1026.37(h)(1)(vii), although amounts expected to be provided to consumers in advance of consummation by third parties not otherwise involved in the transaction, including gifts from family members, are not required to be disclosed under § 1026.37(h)(1)(vii).
________

I believe the specific reference to the purchase or sales contract that you asked about where it says:

(vii) Adjustments and other credits. The amount of all loan costs determined pursuant to paragraph (f) and other costs determined pursuant to paragraph (g) that are paid by persons other than the loan originator, creditor, consumer, or seller, together with any other amounts that are required to be paid by the consumer at closing pursuant to a purchase and sale contract, disclosed as a negative number, labeled “Adjustments and Other Credits”;

Is talking about amounts that are described in the comment below:

6. Reduction in amounts for adjustments. Adjustments that require additional funds from the consumer pursuant to the real estate purchase and sale contract, such as for additional personal property that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(iii) or adjustments that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(v) can be included in the amount disclosed under § 1026.37(h)(1)(vii), and because the amount disclosed is a sum of adjustments and other credits, such amount would reduce the total amount disclosed. Additional examples of such adjustments for additional funds from the consumer include prorations for property taxes and homeowner’s association dues.

[rcooper]

If you require OTI and allow the customer to shop it would need to be on the shopping list in order to fall into the 10% tolerance category. If it is an optional purchase and disclosed as such on the LE then it is an unlimited change category and you would not need to include it on the shopping list.

[rcooper]

This is an issue that has been around for many years. It can be considered a fair lending or UDAAP issue. Here is a link to older but relevant ABA article on the topic: https://www.aba.com/Compliance/Documents/ce24c8f593a24f1ead883b4ce2648284SA_JointCreditReportsandFairLending2010Apr.pdf.

Check with your credit bureau – you may be able to pull credit reports for non-married joint applicants. Another option might be to pull individual credit reports for everyone. The important thing to remember is ensure everyone is treated the same, which is the point the article linked above makes.

If your bank decides to cover the cost of the credit report, you would still need to disclose the fee on the LE along with a specific lender credit to offset it.

[rcooper]

The regulation isn’t clearly worded on this point, but the commentary does state:
If, however, there are less than four business days between the time the revised version of the disclosures is required to be provided pursuant to § 1026.19(e)(4)(i) and consummation, creditors comply with the requirements of § 1026.19(e)(4) if the revised disclosures are reflected in the disclosures required by § 1026.19(f)(1)(i).

It does not clearly state that the closing disclosure can be reissued to reset tolerances due to a changed circumstance and the examples given don’t indicate that either. Because of that, the safe approach, at least until the CFPB clearly says in regulation, guidance or commentary that the CD can be reissued due to change circumstance, would be to assume that the fees used for tolerance purposes are set with the last loan estimate (or the closing disclosure if there are less than 4 business days before consummation when the change occurs).

[rcooper]

1026.37(g)(4) says to include:
Under the subheading “Other,” an itemization of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate, a descriptive label of each such amount, and the subtotal of all such amounts.

If it is something that the bank requires or that is commonly part of the particular type of transaction in question, then in my opinion you would need to include it and a changed circumstance would not be justified because you were aware that fee was either required or likely to be a cost to the consumer.

If you have additional questions please let us know.

[rcooper]

A gift from a family member would need to be shown under Adjustments and other credits of the Calculating Cash to Close table on the LE based on what 37(h)(1)(vii) and its commentary says and then disclosed as “paid by other” (if a specific credit) or disclosed under L of the Summary of Transaction table (if a general credit) of the CD.

I’m not aware of the regulation or commentary stating the gift must be given directly to the title company or the bank in order to be disclosed. If you want to let us know where you found this information (preamble, other guidance, etc.) we’ll be happy to review it and let you know our thoughts.

[rcooper]

It’s sounds like it’s just a mistake.
There isn’t anything in the rules that address how to correct this. Since it sounds like the disclosure was given timely and there was no real issue, the concern is documenting your file for auditors and examiners – when examiners see dates that differ from the signature date it can cause questions. I suggest a note to the file, either on a checklist if you maintain one or a memo, indicating the issue, why it occurred, when the disclosure was actually delivered and if you reminded the LO or your staff to verify the correct date before issuing. This note to the file will re-enforce when the disclosure was provided and prove that you recognized the error and have taken step to prevent it going forward.

[rcooper]

What’s causing this to happen? Is it simply a mistake on the borrower’s part, is your LOS vendor disclosing an incorrect date, or something else?

[rcooper]

You can order it but you can’t charge for it until the LE is provided and intent to proceed is given. If you don’t receive the intent you can’t charge the borrower and the bank would have to absorb the cost of the appraisal.

1026.19(e)(2) Predisclosure activity.

(i) Imposition of fees on consumer.

(A) Fee restriction. Except as provided in paragraph (e)(2)(i)(B) of this section, neither a creditor nor any other person may impose a fee on a consumer in connection with the consumer’s application for a mortgage transaction subject to paragraph (e)(1)(i) of this section before the consumer has received the disclosures required under paragraph (e)(1)(i) of this section and indicated to the creditor an intent to proceed with the transaction described by those disclosures. A consumer may indicate an intent to proceed with a transaction in any manner the consumer chooses, unless a particular manner of communication is required by the creditor. The creditor must document this communication to satisfy the requirements of § 1026.25.

(B) Exception to fee restriction. A creditor or other person may impose a bona fide and reasonable fee for obtaining the consumer’s credit report before the consumer has received the disclosures required under paragraph (e)(1)(i) of this section.

[rcooper]

Answer by Don Blaine:

No, the situation described above is not considered a “remittance transfer”. While there was a wire transfer eventually involved in the transaction, the “sender” aka “consumer” did not direct a “receiving institution” (likely your bank) to electronically deposit funds into an identified beneficiary’s account into an account at a foreign financial institution. A paper check sent to a person in a foreign county would never meet the definition of a remittal transfer even if funds were settled electronically between financial institutions. The request for electronic funds came from the foreign financial institution rather than from the consumer who mailed the check to a third party in London.

Regulation E’s 1005.30(e) provides the following definition for Remittance transfer -” the electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider.

[rcooper]

The threshold of exceeding the limits more than 3 times in a 12 month period is not written in the regulation; rather, it is has become an industry standard and something that most examiners expect to see. If you diverge from that standard too much you may be scrutinized by your examiners. For example, if a customer exceeds six limited transactions in January that would be strike one; if that same customer exceeds 6 limited transactions in April that would be strike two; and if that same customer exceeds six limited transactions in October that would be strike three. Exceeding the limit more than 3 times within a 12 month period would be considered “more than occasional”.

Most banks will notify the customer each time they have a strike (e.g. exceed their transaction limit for the month), so in the above example that would be in January, April and October (this is generally done with a letter to the customer). Once the customer has three strikes (e.g. exceed their transaction limit for the month/ 3 months in a twelve month period), which is the industry standard for “more than an occasional basis” the account is either closed, reclassified to a transaction account or if you want to leave them in a savings account you must prohibit transactions in that account.

Here’s a q&a we had in the forum recently on this topic: https://mycomplianceresource.com/forums/topic/regulation-d-excessive-transactions/

[Author]

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