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Assuming you meet the 2022 threshold on both Dec. 31, 2020 AND 2021, you would meet the large bank criteria for 2022 and should begin collecting data at that time. Once you have collected a full year of data you will be subject to examination under the large bank procedures, which under this scenario would be 2023 at the earliest. It is good that you are anticipating this change and will be ready to comply. When you are expecting transitions like this to occur it is a good idea to communicate with your examiners along the way to ensure there are no surprises for you or them.
We got some clarification from the CFPB through TRID FAQs that they released in 2020. I think looking at the Lender Credits FAQs, especially #3, will be helpful to you. Here’s the link to the FAQs: https://www.consumerfinance.gov/compliance/compliance-resources/mortgage-resources/tila-respa-integrated-disclosures/tila-respa-integrated-disclosure-faqs/#lender-credits.
CFPB TRID FAQ Lender Credits #3:
“Is a creditor required to disclose a closing cost and related lender credit on the Loan Estimate if the creditor will absorb the cost?No. The TRID Rule does not require disclosure of a closing cost and a related lender credit on the Loan Estimate if the creditor incurs a cost, but will not charge the consumer for that cost (i.e., the creditor will “absorb” the cost). In such cases, the absorption of the cost or charge would not “offset” an amount paid by the consumer. However, a creditor must disclose a closing cost and related lender credit on the Loan Estimate if the creditor is offsetting a cost charged to the consumer. Comment 37(g)(6)(ii)-2.
To illustrate, assume a creditor will require an appraisal, credit report, flood determination, title search, and lender’s title insurance policy in connection with a particular mortgage loan transaction. Further assume, that the creditor will incur attorney fees for loan documentation and recording fees in connection with the transaction. If, based on the best information reasonably available, the consumer will only pay an application fee of $500 and the creditor will absorb all other costs, the creditor is not required to disclose the appraisal fee, credit report fee, flood determination fee, title search fee, lender’s title insurance policy premiums, attorney fees for loan documentation, and recording fees on the Loan Estimate. Conversely, if the creditor agrees to provide a lender credit sufficient to offset all of these charges, except the application fee, the creditor must disclose the charges in the Loan Costs table and Other Costs table, as applicable, and include a corresponding total amount in the Lender Credits disclosure on the Loan Estimate.
Alternatively, the TRID Rule does not prohibit creditors from including amounts for costs that the creditor absorbs (i.e., does not charge the consumer) when the creditor is disclosing Lender Credits in the Total Closing Costs section of the Loan Estimate. Note, however, that the restrictions on decreasing lender credits, discussed in TRID Lender Credit Question 10, apply to any amounts the creditor includes in the Lender Credits disclosure on the Loan Estimate.
Updated Feb. 26, 2020“
If your bank makes, increases, extends, or renews a loan secured by improved real estate or by a mobile home, it must use the standard flood hazard determination form (SFHDF)
developed by FEMA to determine whether the building or mobile home offered as security property is or will be located in an SFHA in which flood insurance is available under the Federal
flood insurance statutes. This needs to be done for each property/parcel you are taking as collateral that includes improved real estate or a mobile home.I assume your bank has contracted with a vendor to make these determinations and that is your vetted process, so that is what you should follow for these parcels as well. The flood determination vendor is also likely to do life of loan moniroting which you would not have it you didn’t pull flood determinations through them.
Based on the exceprt you noted, and that I restated below, I think the applicant has technically withdrawn before you have made a decision to deny. I don’t believe you had made a decision to deny before you got notification that the applicant was withdrawing the application.
1003.4(a)(8)(i) 4. Action taken—application denied. A financial institution reports that the application was denied if it made a credit decision denying the application before an applicant withdraws the application or the file is closed for incompleteness. See comments 4(a)-2 through -4 for guidance on transactions in which more than one institution is involved.
5. Action taken—application withdrawn. A financial institution reports that the application was withdrawn when the application is expressly withdrawn by the applicant before the financial institution makes a credit decision denying the application, before the financial institution makes a credit decision approving the application, or before the file is closed for incompleteness. A financial institution also reports application withdrawn if the financial institution provides a conditional approval specifying underwriting or creditworthiness conditions, pursuant to comment 4(a)(8)(i)-13, and the application is expressly withdrawn by the applicant before the applicant satisfies all specified underwriting or creditworthiness conditions. A preapproval request that is withdrawn is not reportable under HMDA. See § 1003.4(a).
1003.(a)(8)(i) – 13 states, in part:
…If the applicant expressly withdraws before satisfying all underwriting or creditworthiness conditions and before the institution denies the application or closes the file for incompleteness, the institution reports the action taken as application withdrawn.I believe you are saying that the insurance agent is telling you that two of the buildings don’t house much of the contents. Regardless, if it is taken as collateral and located in an building in a SFHA you need to insurae the contents. If there are other details you can provide (e.g. the value of the contents would not exceed the minimum deductible, then that may a reason you would not insure because your nor the borrower would ever receive benefit of purchasing the policy). As for the barn that is not on a foundation, if the barn meets the definition of an eligible building then it would need insurance. Eligible building is “a structure with 2 or more outside rigid walls and a fully secured roof that is affixed to a permanent site.” (See page GR 3 https://www.fema.gov/pdf/nfip/manual201105/content/03_generalrules.pdf) I assume this barn like most have posts that are buried/embedded into the ground meaning it is affixed to a permanent site. Permanent foundation is term used when talking aobut what a manufactured homes or travel trailer must be affixed to in order to be insurable.
Proposed Q&A Security Interests 10 below, while discussing a different situation, makes it clear that if contents securing the loan is located in a building that is in a SFHA then the contents should be insured.
OTHER SECURITY INTERESTS 10. Is flood insurance required if the lender takes a
security interest in contents located in a building in an SFHA securing the loan but does
not perfect the security interest?Yes, flood insurance is required. The language in the loan agreement determines whether the
contents are taken as security for the loan. If the lender takes a security interest in contents
located in a building in an SFHA securing the loan, flood insurance is required for the contents,
regardless of whether that security interest is perfectedTo say a building would be uninsurable is not likely. To do so you would need something from the appraiser or perhaps insurance agent showing the value of the building. If that value is below the minimum deductible available, then this would show that the borrower could not purchase a policy that would ever pay him/her/them in the event of a loss and that purchasing a policy in such a situation would be of no benefit and actually cost the borrower money they would never recoup. See this recent post on determining insurable value for a low value building: https://mycomplianceresource.com/forums/topic/flood-insurance-on-old-barn/.
Let us know if you have any other questions.
I think you could take either approach – amend the application or withdraw/reapply. In either case, make sure you get joint intent. And if you’re amending the application, I’d note when the co-applicant first requeseted to apply. I believe you could have a changed cirucmstance in the event any fees are affected and you need to redisclose.
Take a look at the proposed Q&As, beginning on p. 100, with questions “Other Security Interests 7” through “Other Security Interests 10” that will help you determine when contents should be insured and then look at the FEMA document to help you figure out if you need contents coverage. (Here’s the link to the FEMA summary of coverage for commercial property: https://www.fema.gov/media-library-data/6a2ad0291e8d6a5452aa891a6c037039/fema_Summary_508C.pdf. See table on p. 2.
Let us know if you have any follow up questions.
Thanks!I agree – if the building is there you’ll need flood insurance. And based on the situation you have described demolition value sounds reasonable.
I recommend reading through Q&A 9 from 2011 and Q&A Amount 2 proposed 2020 (both linked below) that might help you decide on what approach you’d like to take to make sure you’re using the correct insurable value. Here’s what to consider…. In 2009 there was a proposed Q&A 10 that specifially discussed using demolition value or functional building cost on certain non-residential properties. That proposed Q&A, and any specific mention of demolition value, was elimiated in 2011 and somewhat enveloped into Q&A 9 of the 2011 Q&A which says you can use any reasonable approach that can be supported:
in calculating the required amount of
insurance, the lender and borrower
(either by themselves or in consultation
with the flood insurance provider or
other appropriate professional) may
choose from a variety of approaches or
methods to establish a reasonable
valuation. They may use an appraisal
based on a cost-value (not market-value)
approach, a construction-cost
calculation, the insurable value used in
a hazard insurance policy (recognizing
that the insurable value for flood
insurance purposes may differ from the
coverage provided by the hazard
insurance and that adjustments may be
necessary; for example, most hazard
policies do not cover foundations), or
any other reasonable approach, so long
as it can be supported.2011 Q&A: See 2011 Interagency Q&A, specifically 64177-78. The agencies said the discussion of using demolition value in Q&A 10 (2009) was unnecessary because Q&A 9 (2011) said you can use any reasonable approach that can be supported.
2020 Proposed Revisions to Q&As: The agencies have proposed revisions to the Q&As as well, but there is not change to the substance of Q&A 9 (from 2011), but it proposed to be renumber as “Amount 2”. You can still use any reasonable approach that can be supported.
Let us know if you need more information.
I believe you are talking about the asset threshold relief provision in the interim final rule issued by the agencies on November 17, 2020. This IFR states in footnote 13 that it will not apply to CRA asset threshold. See p. 77348, specifically footnote 13 which states (emphasis added in bold is my own):
This interim final rule does not address the exemption in the Board’s Regulation H from certain flood insurance escrow requirements for qualifying state member banks (less than $1 billion in assets as of December 31 of either of the two prior calendar years, provided other conditions are also met), 12 CFR 208.25(e)(3), or the provision in the Board’s Regulation BB defining small bank and intermediate small bank for purposes of determining applicable Community Reinvestment Act evaluation procedures. As currently defined in
Regulation BB: a small bank is a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.305 billion; an intermediate small bank is a small bank with assets of at least $326 million as of December 31 of both of the prior two calendar years and less than $1.305 billion as of December 31 of either of the prior two
calendar years; and a large bank is a bank with assets of at least $1.305 billion as of December 31 of both of the prior two calendar years, 12 CFR 228.12(u)(1). As indicated, the asset-based thresholds in these provisions take into account assets as of the end of the two previous calendar years. Therefore, the earliest that a bank with assets that did not exceed one of these thresholds as of December 31, 2019, could exceed the threshold is January 1, 2022. As a result, consistent with this interim final rule, asset growth in 2020 or 2021 will not trigger new regulatory requirements until January 1, 2022, at the earliest. For similar reasons, the interim final rule does not adjust thresholds in the OCC and the FDIC’s flood insurance escrow rule at 12 CFR 22.5(c) (OCC) and 12 CFR 339.5(c) (FDIC) and Community Reinvestment Act regulatory thresholds for small banks and intermediate banks at 12 CFR part 25 (OCC) and 12 CFR 345 (FDIC). The OCC also is not adjusting thresholds for depository institution management interlocks at 12 CFR part 26, as this part already permits any affected bank to request a waiver related to unanticipated asset growth. 14 This interim final rule only provides temporary relief with regard to the measurement date of assets. Other criteria that apply to certain of the affected regulatory provisions remain in effect, and the measurement date for other quantities has not been changed by this interim final rule.If this doesn’t answer your question let us know.
The detached structure exemption in 339.4(c) states:
The flood insurance requirement prescribed by § 339.3 does not apply with respect to:
Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. For purposes of this paragraph (c):(1) “A structure that is a part of a residential property” is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes;
(2) A structure is “detached” from the primary residential structure if it is not joined by any structural connection to that structure; and
(3) “Serve as a residence” shall be based upon the good faith determination of the FDIC-supervised institution that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.
The regulators didn’t define “residential property” for the detatched structure exemption and whether that includes residential properties in construcction. The language of the detached structure exemption seems to refer to existing structures. The preamble to the final rule does discuss defining “residential propoerty” but I don’t think it helps as it relates to construction of residential property. If you’d like to read the preamble, see the final rule beginning on p. 22. Because of the ambiguity, I would not apply the exemption until you have a residential structure. Also, you said the barn isn’t used for income, but ensure it is used primarily for personal, family, or household purposes and is NOT used primarily for agricultural, commercial, industrial, or other business purposes regardless of whether or not it produces income (e.g. stores farm equipment, livestock, harvest, etc. and the farm is the family business that would be a business purspose).
Your best bet is probably going back to the appraiser to try to obtain the depreciated value. You could also ask the insurance agent for assistance with determing ACV.
I believe you’re asking if it would be included in the points and fee calculation. The SECG, p. 25, summarizes it pretty well:
Real estate-related fees (§ 1026.32(b)(1)(iii))
The following categories of charges are excluded from points and fees only if:
1. The charge is reasonable;
2. The creditor receives no direct or indirect compensation in connection with the charge;
and
3. The charge is not paid to an affiliate of the creditor.
If one or more of those three conditions is not satisfied, you must include these charges in
points and fees even if they would be excluded from the finance charge:
Fees for title examination, abstract of title, title insurance, property survey, and similar
purposes
Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance
or settlement documents
Notary and credit-report fees
Property appraisal fees or inspection fees to assess the value or condition of the property
if the service is performed prior to consummation, including fees related to pestinfestation or flood-hazard determinations
Amounts paid into escrow or trustee accounts that are not otherwise included in the
finance charge (except amounts held for future payment of taxes)Let me know if I’ve misunderstood your question. Thanks!
