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Tstrait,
I’ve asked Jack to answer your question. You should hear from him soon.
Thanks for your patience.From the information you’ve provided, it sounds like a purchase with home improvement which would be HMDA reportable. It is a short-term loan, not temporary financing.
From page D-8 of “A Guide to HMDA Reporting: Getting it Right”: Purpose—multiple-purpose loan. If a loan is a home purchase loan as well as a home improvement loan, or a refinancing, an institution reports the loan as a home purchase loan. If a loan is a home improvement loan as well as a refinancing, an institution reports the loan as a home improvement loan.
Although this specific scenario isn’t mentioned in the statute or the proposed regulation, I believe it would be prudent to send the borrowers the notice if the detached structure exemption will be utilized. Here’s a link to an article Jack posted on detached structures: https://mycomplianceresource.com/affordability-act-controversy-on-detached-structures/. We hope to have more clarification when the agencies’ finalize their amendments to the flood regulations.
I’m not aware of regulatory guidance that requires a stand-alone risk assessment for UDAAP. With that said, I do believe a UDAAP risk assessment is expected by examiners, shows your institution takes UDAAP seriously and finally, it is important for comprehensively evaluating UDAAP risk institution-wide. UDAAP should also be incorporated into other risk assessments as necessary.
1. I don’t believe this would violate the compensation rules. You need to ensure you aren’t providing incentive for lender to collect the appraisal fee before they provided the early disclosures and the borrower has indicated their intent to proceed with the transaction and have clear policies and procedures reflecting this.
2. I think this would be fine as long as you use measures that are not based on terms of the loan or proxies for terms and are considered permissible methods of compensation (see Reg Z Commentary, Paragraph 36(d)(1)-2(i) ). Also look at the examples of bonuses based on terms versus performance benchmarks listed under Paragraph 36(d)(1)-1(ii).
Jack – What are your thoughts?
There may be some instances where you are not required to redisclose and wait the 3 business days to close.
This statement from the Fed’s Consumer Compliance Outlook article sums it up pretty well: An overstated APR that corresponds directly with an overstated finance charge is within tolerance and redisclosure is not required. However, not every overstatement of an APR is caused by an overstated finance charge. If there is no finance charge overstatement and the disclosed APR exceeds the 1/8 of a percent tolerance (1/4 of a percent for irregular transactions), or if the disclosed APR exceeds the APR corresponding to an overstated finance charge, redisclosure with a three-business-day waiting period is required.
Here’s the link to the full article which provides more detail on specifically when redisclosure is required:
https://consumercomplianceoutlook.org/2011/first-quarter/mortgage-disclosure-improvement-act/At first glance this may seem fine, because you aren’t selling the tickets nor are you permitting them to be sold or advertised on bank property. But the regulations state:
Banks may not:
(1) deal in lottery tickets;
(2) deal in bets used as a means or substitute for participation in a lottery;
(3) announce, advertise, or publicize the existence of any lottery; [1]
(4) announce, advertise, or publicize the existence or identity of any participant or winner, as such, in a lottery.
Deal is defined as:
(1) The term “deal in” includes making, taking, buying, selling, redeeming, or collecting.It could be deemed that you are dealing in tickets by paying to have them made. In addition, having your name stamped on the ticket could be seen as paying for advertising via ticket sales. I suggest finding another way to help with the fundraiser. Here are a couple of interpretative letters that might give you insight on what examiners consider permissible (e.g. a general donation to the event or donating an item):
https://www.occ.gov/static/interpretations-and-precedents/jan01/int900.pdf
See page 2: https://www.occ.gov/static/interpretations-and-precedents/jan02/int923.pdf
FDIC Regulation: https://www.fdic.gov/regulations/laws/rules/1000-2200.html
3Since these are loans you have already contracted for, it sounds like the dealer may be acting on your behalf and if so the disclosures would need to be provided since they are offering and/or soliciting an insurance product to a consumer. See excerpts from the regulation, below, for the general purpose of the rule, to determine if the dealership is acting on behalf of the bank and if it is what “you” must disclose.
According to the Consumer Protection in Sale of Insurance rule :
This part establishes consumer protections in connection with retail sales practices, solicitations, advertising, or offers of any insurance product or annuity to a consumer by:
(a) Any bank; or
(b) Any other person that is engaged in such activities at an office of the bank or on behalf of the bank.j)(1) You means:
(i) A bank; or
(ii) Any other person only when the person sells, solicits, advertises, or offers an insurance product or annuity to a consumer at an office of the bank or on behalf of a bank.
(2) For purposes of this definition, activities on behalf of a bank include activities where a person, whether at an office of the bank or at another location sells, solicits, advertises, or offers an insurance product or annuity and at least one of the following applies:
(i) The person represents to a consumer that the sale, solicitation, advertisement, or offer of any insurance product or annuity is by or on behalf of the bank;
(ii) The bank refers a consumer to a seller of insurance products or annuities and the bank has a contractual arrangement to receive commissions or fees derived from a sale of an insurance product or annuity resulting from that referral; or
(iii) Documents evidencing the sale, solicitation, advertising, or offer of an insurance product or annuity identify or refer to the bank.Here’s the link to the FDIC’s regulation: https://www.fdic.gov/regulations/laws/rules/2000-6300.html#fdic2000part343.10
You may force-place hazard insurance at your discretion but you can’t charge the borrower unless you have a reasonable basis to believe that the borrower did not comply with the contract’s requirement to maintain hazard insurance. If you don’t have the information from the examples you cited above and you “act with reasonable diligence” to determine the status of the borrower’s hazard insurance (e.g. deliver the force-place notification requirements per Reg X) you may charge the borrower for the force-placed insurance. If there is a period of overlapping coverage you are required to reimburse the borrower. I’ve included a couple of citations from Reg X below.
Comment 37(b)(1) “…If a servicer receives no such information, the servicer may satisfy the reasonable basis to believe standard if the servicer acts with reasonable diligence to ascertain a borrower’s hazard insurance status and does not receive from the borrower, or otherwise have evidence of insurance coverage as provided in § 1024.37(c)(1)(iii). A servicer that complies with the notification requirements set forth in § 1024.37(c)(1)(i) and (ii) has acted with reasonable diligence.”
and
Comment 37(g)(2)states:
Section 1024.37(g)(2) requires a servicer to refund to a borrower all force-placed insurance premium charges and related fees paid by the borrower for any period of overlapping insurance coverage and remove from the borrower’s account all force-placed insurance charges and related fees for such period. A period of overlapping insurance coverage means the period of time during which the force-placed insurance purchased by a servicer and the hazard insurance purchased by a borrower were in effect at the same time.
1) Yes, the HPML appraisal QM exemption includes small creditor portfolio QMs under 1026.43(e)(5) as well as any other qualified mortgages under § 1026.43(e) as well as
§ 1026.43(f).2) The requirements in paragraphs 1026.35(c)(3) through (6) (which includes all the requirements you mentioned) do not apply to a loan that meets the HPML appraisal exemption criteria. Keep in mind the Reg B appraisal/valuation delivery requirements may still apply.
If you are a HMDA reporting bank and it is a HMDA reportable transaction then you should obtain monitoring information. If not, you are not permitted to collect it under Reg B since the application does not relate to a principal dwelling.
If the customer has purchased insurance I agree that the second notice would be unnecessary and confusing. I believe you should wait until the 45 day period has expired before charging for any force-placed premiums that were incurred during the 45 day period. Something to consider is that lapse is undefined so there is some debate on when lapse actually occurs. Some deem it at expiration of the policy and some at the expiration of the grace period. The key is if there was overlap in coverage you need to reimburse. Check to see if the borrower was within a grace period when the policy was renewed. If they were, you might consider taking the conservative approach (at least until there is a more decisive answer from regulators on how to handle this) and cancel the policy and reimburse for the amount during the grace period.
This is from the Flood Q&A, p. 35927 from 2009 that gives some discussion on the lapse of a SFIP. But again there is no clear definition from the regulators.
Coverage under FEMA’s SFIP
continues in effect for 30 days from the
date that the SFIP lapses. An SFIP
specifically provides that, if the insurer
decides to cancel or not renew a policy,
it will continue in effect for the benefit
of only the mortgagee for 30 days after
the insurer notifies the mortgagee of the
cancellation or nonrenewal. No
coverage will be provided for a borrower
under the SFIP during this 30-day
period. If a lender monitors a mortgage
loan with respect to the need for flood
insurance coverage, the lender can time
the 45-day period to start with the lapse
of insurance coverage. Assuming
notification is made immediately upon
policy cancellation or nonrenewal,
coverage will continue in place for the
lender/mortgagee’s benefit for 30 days of
the 45-day notice period.Reg Z states:
15(f) Exempt Transactions1. Residential mortgage transaction. Although residential mortgage transactions would seldom be made on bona fide open-end credit plans (under which repeated transactions must be reasonably contemplated), an advance on an open-end plan could be for a downpayment for the purchase of a dwelling that would then secure the remainder of the line. In such a case, only the particular advance for the downpayment would be exempt from the rescission right.
You could advance the funds for purchase immediately as they wouldn’t be subject to RoR, but all other advances would subject to RofR, so one option is to get a right of rescission for all future advances at closing and wait until the rescission period has expired before advancing any additional funds.
I agree with your thought process that the more recent payment would be more helpful to the consumer, but based on the examples in the Regulation I agree with your vendor and think you should start from the top.
A home improvement loan is: (a) any dwelling-secured loan to be used,
at least in part, for repairing, rehabilitat ing, remodeling, or improving a dwell ing (or the real property on which the dwelling is located); or (b) any loan not secured by a lien on a dwelling to be used, at least in part, for one or more of those purposes that is classified as a home improvement loan by the institution and is used, in whole or in part, for repairing, rehabilitating, remodeling, or improving a dwelling (or the real property on which the dwelling is located.)(A) above deals with loans secured by a dwelliA home improvement loan is: (a) any dwelling-secured loan to be used,
at least in part, for repairing, rehabilitat ing, remodeling, or improving a dwell ing (or the real property on which the dwelling is located); or (b) any loan not secured by a lien on a dwelling to be used, at least in part, for one or more of those purposes that is classified as a home improvement loan by the institution and is used, in whole or in part, for repairing, rehabilitating, remodeling, or improving a dwelling (or the real property on which the dwelling is located).(A) above pertains to dwelling secured loans while (b) pertains to non dwelling secured loans.
