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Just to point out, it is easiest to include the credit score if you use the consumer report in any way. This will prevent any issues with not including it when you should have, which is a more common issue.
Under section 1100F of the Dodd-Frank Act, a person is not required to disclose a credit score and related information if a credit score is not used in taking the adverse action. (Note, if this is the case it must be clearly apparent/documented in the file that the score did not contribute to the denial in any way. – e.g. excellent score, but perhaps collateral is insufficient. Otherwise, it will be difficult to make a case that a credit score was not used as part of adverse action.)
A creditor that obtains a credit score and takes adverse action is required to disclose that score, unless the credit score played no role in the adverse action determination. (Again, the file should clearly show how the credit score did not affect the decision.)
If the credit score was a factor in the adverse action decision, even if it was not a significant factor, the creditor will have used the credit score for purposes of section 1100F of the Dodd-Frank Act. Therefore, if the score in any way contributes to the deicision it must be included.
From the FTC’s “Forty Years of with the FCRA“:
Section 615(a) provides that any party who “takes any adverse action with
respect to any consumer that is based in whole or in part on any information
contained in a consumer report” shall provide to the consumer orally, in writing,
or electronically: notice of the adverse action; the name, address, and telephone
number of the CRA (toll-free telephone number, in the case of a nationwide
CRA); a statement that the CRA “did not make the decision to take the adverse
action” and is unable to provide specific reasons for the action; and notice of the
consumer’s right to obtain a free file disclosure from the CRA, and to dispute with
a CRA the accuracy or completeness of any information in a consumer report
furnished by the CRA. Effective July 21, 2011, the party taking the adverse action
must also disclose any numerical credit score that contributed to the adverse
action, along with certain related information.“The Payday Lending Rule became effective on January 16, 2018. However,the Rule’s compliance date for the payment-related requirements is August 19, 2019. Thus, by its terms,the Rule does not require lenders to comply with the Rule’s payment-relatedrequirementsuntil August 19, 2019. See 12 CFR 1041.15. The compliance date, however, is currently stayed pursuant to a court order issued in Community Financial Services Association v. CFPB, No. 1:18-cv-00295 (W.D. Tex. Nov. 6, 2018). As a result, lenders have no obligation to comply with the Rule until the court-orderedstay is lifted.” – CFPB Small Entity Compliance Guide, p. 8, https://files.consumerfinance.gov/f/documents/cfpb_payday_small-entity-compliance-guide.pdf
Here’s an article Jack did on the topic in July when the CFPB published the final rule and related materials: https://mycomplianceresource.com/final-payday-lending-rule-published/.
The borrower would not be able to purchase another NFIP, but they could purchase a private policy to cover the difference betweent he NFIP policy coverage and the value of the structure. Since the first policy satisfies the flood reg coverage amount, an additional private policy would be a decision based on risk to the bank and borrower, rather than the regualtory requirement.
Hopefully we’ll get some FDIC banks to chime in, but until then I’ll give it a shot…
I think it certainly is a good possibility. The FRB of Philidelphia issued a publication a few years ago that gives an example of municiple bonds which were used to support local infrastructure part of which included local utilities. It’s available here on p. 18: https://www.philadelphiafed.org/-/media/egmp/images/publications/banks-community-reinvestment-act-opportunities/banks-community-reinvestment-act-opportunities.pdf.
And the Interagency Questions and Answers discusses qualified investments… you’ll find what I think is applicable content on p. 11: https://www.fdic.gov/resources/supervision-and-examinations/consumer-compliance-examination-manual/documents/11/xi-12-1.pdf. See below.
” __.12(t) – 2: Are mortgage-backed securities or
municipal bonds “qualified investments”?A2. As a general rule, mortgage-backed securities
and municipal bonds are not qualified investments because
they do not have as their primary purpose community
development, as defined in the CRA regulations. Nonetheless,
mortgage-backed securities or municipal bonds designed
primarily to finance community development generally are
qualified investments. Municipal bonds or other securities
with a primary purpose of community development need not
be housing-related. For example, a bond to fund a community
facility or park or to provide sewage services as part of a plan
to redevelop a low-income neighborhood is a qualified
investment.“Per FEMA A 30-day waiting period must pass before most flood policies become active. Some policies, however, start sooner:
If your building is newly designated in a high-risk Special Flood Hazard Area, and you buy flood insurance within the 13-month period following a map revision: One-day waiting period.
If you buy flood insurance in connection with making, increasing, extending or renewing your mortgage loan: No waiting period.
If you select additional insurance as an option on your flood insurance policy renewal bill: No waiting period.
If your property is affected by flooding on burned federal land, and the policy is purchased within 60 days of the fire-containment: Possible waiver of waiting period.Since it doesn’t meet one of these, yes, if the policy was cancelled or expired then a new 30 day wait period would apply. If you force-place through NFIP/MPPP there will be a 30 day wait period (private policies could differ), but if the policy lasped there should be a 30 day grace period that would cover your 30 day wait period if you fp at date of lapse.
Generally, when dealing with construction loans you can require flood insurance to be in place at origination or delay until the start of construction (and 30 days before disbursement). Proposed Interagency Flood Q&A addresses all of this and has some propsed changes to the existing Q&As that need to be considered. For example, if lender “… does not require the borrower to obtain flood insurance at loan origination, then it should have adequate internal controls in place at origination to ensure that the borrower obtains flood insurance no later than 30 days prior to disbursement of funds to the borrower.” (See Q&A 4 and 5 below). I’ve also pulled some other excerpts from the Proposed Q&As that I thought would be helpful.
As for what is considered adequate controls, that will likely differ depending on the institution. You need to ensure you have strong process that doesn’t allow room for exceptions with regards to this. A two line approval process seems necessary and you might also want to flag the system with a note, create a tickler XX (30+) days prior to disbursement to ensure insurance is in place, institute review forms for use prior to disbursement where the employee disbursing funds only does so after they receive the form with dual signatures and a copy of the insurance. These would all be ways to ensure you have an adequate internal controls to ensure the borrower obtains flood insurance as required.
Prposed “Construction #3” states:
Is a building in the course of construction that is located in an SFHA in which flood insurance is available under the Act eligible for coverage under an NFIP
policy?
Buildings in the course of construction that have yet to be walled and roofed are eligible for coverage except when construction has been halted for more than 90 days and/or if the lowest floor used for rating purposes is below the Base Flood Elevation (BFE)…Although an NFIP policy may be purchased prior to the start of construction, as a practical matter, coverage under an NFIP policy is not effective until actual construction commences or when materials or supplies intended for use in such construction, alteration, or repair are contained in an enclosed building on the premises or adjacent to the premises.
Proposed “Construction 4” states:
When must a lender require the purchase of flood insurance for a loan secured by a building in the course of construction that is located in an SFHA in which
flood insurance is available?…Alternatively, a lender may allow a borrower to defer the purchase of flood insurance until either a foundation slab has been poured and/or an EC has been issued or, if the building to be constructed will have its lowest floor below the Base Flood Elevation, when the building is walled and roofed. However, in order to comply with the Regulation,68 the lender must require the borrower to have flood insurance for the security property in place before the lender disburses funds to pay for building construction (except as necessary to pour the slab or perform preliminary site work, such as laying utilities, clearing brush, or the purchase and/or delivery of building materials). If the lender elects this approach and does not require the borrower to obtain flood insurance at loan origination, then it should have adequate internal controls in place at origination to ensure that the borrower obtains flood insurance no later than 30 days prior to disbursement of funds to the borrower. (See NFIP Flood Insurance Manual). (See also Q&A
Construction 5).and Proposed “Construction #5” states:
CONSTRUCTION 5. Does the 30-day waiting period apply when the purchase of the flood insurance policy is deferred in connection with a construction loan?
Yes. Under the NFIP, a 30-day waiting period applies anytime a lender requires flood insurance not in connection with the making, increasing, renewing or extending of a designated loan. Therefore, a 30-day waiting period will apply if a lender allows a borrower to delay the purchase of flood insurance in connection with a construction loan. (NFIP Flood Insurance Manual). (See also Q&A Construction 4).I believe it would be the later, “not have non-amorizing features since the loan is fully amortizing based on the overall 10 year maturity term.” I’ll ask Jack to chime in with his perspective as well.
Yes, I believe you’ve summed up 50 U.S.C. 3953(c) and are correct. It is interesting to me that the FDIC and FRB exam procedure don’t mention the waiver in 50 U.S.C. 3918, rather only the court order. The OCC procedures do mention the waiver.
I apologize we missed your question previously. This recent Q&A addresses the same issue and will provide with the information we know on this topic and our thoughts: https://mycomplianceresource.com/forums/topic/protect-my-kentucky-home-notice/
Additionally, the Protect My Kentucky Home website states the following:
Kentucky Department of Financial Institutions
“The state’s Department of Financial Institutions supervises the financial services industry.
Beginning January 1, 2009, all mortgagees shall provide the “Notification to Homeowners of the Kentucky Homeownership Protection Center” document to all Kentucky borrowers, as required by KRS 286.2-020. This form is available to download by going to http://www.kfi.ky.gov/nondepository/khpc.htm.”
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Unfortunately, neither here nor in the definitions for the applicable section of the KRS (286) does it define “homeowner” or “borrower”. Without relevant definitions, an exclusion, or some other clarification, I think it needs to be given. Again, you might be able to get additional clarification from the KDFI.I think a reasonable timeframe would be as promptly as you can do what needs to be done to get them out. If 30 days is as quickly as you do can do it and you can make your case I think that is reasonable. If you can do ir faster (e.g. 10, 15 days, etc.), I wouldn’t rely on 30 days as reasonable.
Reg DD says that subsequent notices can be provided on a periodic statement. I think you could use that method to communicate the correct information to the consumer. Regardless of the form be sure to document when and how you notified customers.
1. Form of notice. Institutions may provide a change-in-term notice on or with a periodic statement or in another mailing. If an institution provides notice through revised account disclosures, the changed term must be highlighted in some manner. For example, institutions may note that a particular fee has been changed (also specifying the new amount) or use an accompanying letter that refers to the changed term.I’d also confirm there hasn’t been any issues with providing the correct rate for amount equal to the threshold amount and document that for your file.
I’m assumuing that we’re talking about the highest tier (highest balance level) and it has the highest associated rate/APY. Based on those assumptions, if you are providing the highest rate on amounts at or above that amount, that is beneficial to the customer as you are giving them more opportunity to earn that higher rate. However, as you’ve stated, it means the disclosure is inaccurate and it could even be deemed misleading if you’ve told the customer they must have a higher balance than they actually need to obtain the highest rate. Therefore, I think you would need to provide a revised disclosure so the customer fully understands how they can obtain the rate associated with each tier.
It does not sound like there will be any change to your system as it seems it has been accurately set to provide the correct rate at the amount “equal to or greater than” the required dollar amount. Based on that assumption, you will not have an actual change to anything but the disclosures, is that correct? If so, I don’t believe you could actually provide the disclosure before the change since there wont’ be one. To build on that, the change to the disclosure isn’t reducing the APY and wont’ have an adverse affect on the consumer (it is only providing them with more accurate information).
12 CFR 1030.5:
a) Change in terms. (1) Advance notice required. A depository institution shall give advance notice to affected consumers of any change in a term required to be disclosed under Sec. 1030.4(b) of this part if the change may reduce the annual percentage yield or adversely affect the consumer. The notice shall include the effective date of the change. The notice shall be mailed or delivered at least 30 calendar days before the effective date of the change.If I have misunderstood any of this please let me know as it could affect my answer.
Mdunker, I’m sorry we missed this earlier…
I’ve always been of the opinion that you should only change the fees affected by the CofC because that is generally what you’re relying on to determine compliance with the tolerance rules and it could cause issues if you pull in revise number not related to the CofC and have to go back through old LE to find the correct disclosure for tolerance purposes. This is a bit different scenario, but I would be concerned about employing different processes as that could be confusing to staff having to keep up with it.19(e)(3)(iv)-
2. Actual increase. A creditor may determine good faith under § 1026.19(e)(3)(i) and (ii) based on the increased charges reflected on revised disclosures only to the extent that the reason for revision, as identified in § 1026.19(e)(3)(iv)(A) through (F), actually increased the particular charge. For example, if a consumer requests a rate lock extension, then the revised disclosures on which a creditor relies for purposes of determining good faith under § 1026.19(e)(3)(i) may reflect a new rate lock extension fee, but the fee may be no more than the rate lock extension fee charged by the creditor in its usual course of business, and the creditor may not rely on changes to other charges unrelated to the rate lock extension for purposes of determining good faith under § 1026.19(e)(3)(i) and (ii).I think you’d need to determine what you’re contractually obligated to do. If you’re contractually obligated to apply it when received then you’d need to do that unless your customer(s) agree to amendmend/modify the contract (written/signed by the customer). I’d recommend getting legal counsel involved.
There’s also a information that is required to be disclosed in transfer disclosures that you may need to consider (1026.39(d)(5)).
286.2-020 Required disclosure of services provided by Kentucky Homeownership
Protection Center.
(1) “Kentucky Homeownership Protection Center” means the center established in KRS
198A.400.
(2) At the time of closing and together with the final signed loan documents, if the
Kentucky Homeownership Protection Center is operational as provided in KRS
198A.400, a mortgagee shall provide to the homeowner any brochure, pamphlet, or
other brief document prepared or approved by the Kentucky Housing Corporation
that describes the services provided by the Kentucky Homeownership Protection
Center.
Effective: April 24, 2008
History: Created 2008 Ky. Acts ch. 175, sec. 2, effective April 24, 2008
I think it was intended for this to be consumer transactions, but since homeowner isn’t defined and there isn’t an exemption that I’m aware of for commercial transactions, I think the safe and “easy to remember” approach would be to give it on any residential mortgage transaction. You might contact the Ky Dept. of FI or Kentucky Homeownership Protection Center to get more clarification.
Here’s another q&a on this topic: https://mycomplianceresource.com/forums/topic/kentucky-homeownership-protection-center-notice/
