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I don’t think the duplex would preclude you from using the detached structure exemption since it is a residential structure used for personal, family, household purposes. Is the barn used for an agricultural purpose? If so, that would disqualify it from the exemption. Also consider the bank may want/need to insure the barn to protect the collateral or the customer may choose to insure it to protect their property.
The notice would be required.
“Notice requirement. When an FDIC-supervised institution makes, increases, extends, or renews a loan secured by a building or a mobile home located or to be located in a special flood hazard area, the FDIC-supervised institution shall mail or deliver a written notice to the borrower and to the servicer in all cases whether or not flood insurance is available under the Act for the collateral securing the loan.”The NFIP residential policy will cover 1-4 family dwellings and that is what would be used for this property. I’m not aware of any clear guidance on this so I’ll offer my thoughts which I suggest you confirm with FEMA… It seems that if this is a single property with two units one policy would be acceptable. However, if these are considered two separate pieces of property then I think two policies would likely be required. It needs to be clear that both units are covered by flood insurance – FEMA should be able to advise.
When determinig how much insurance is required and looking at the insurable value part of the equation, if you look at the NFIP dwelling policy it states that replacement cost value applies to single family dwellings that meet certain requirements; RCV would not apply to anything other than a single family dwelling. So if the units a are insured separately, RCV would not be available on the non-owner occupied unit and if insured as a combined unit it would not qualify as a single family dwelling and RCV would not be available.
Again, since it isn’t clearly stated anywhere that I’m aware of, I’d talk with FEMA to confirm how they insure these types of buildings.
I’ll ask Jack to weigh in with any additional information he might have.
As long as it isn’t a next day item you could place both a case by case and large deposit hold. The large deposit would apply to amounts over $5,525 and the case by case could apply to the first $5,525 if it is not a next day item. As with any other case by case hold you’d need to make $225 availabe the next day business day.
I do not think so since the LLC is a separate entity from the consumer. However, if you’re concerned it wouldn’t violate Reg CC to give quicker access to the funds.
Yes, I think flood insurance would be required if the loan is closed before demolition.
As for the building being constructed this FRB Consumer Compliance Outlook article is a good source: https://consumercomplianceoutlook.org/2015/third-fourth-quarter/flood-insurance-compliance-requirements/#:~:text=Construction%20Loans&text=If%20a%20loan%20is%20secured,a%20building%20or%20mobile%20home.
The Interagency Flood Q&As offer two compliance options for a lender making a loan secured by a building to be constructed. A lender may require the borrower to acquire a flood insurance policy at the time of origination. Alternatively, a lender may allow a borrower to defer the purchase of flood insurance until either 1) a foundation slab has been poured or an elevation certificate has been issued or 2) the building is walled and roofed, provided the building to be constructed will have its lowest floor below the BFE.53 But before the lender disburses funds for construction (except for pouring the slab or preliminary site work), it must require the borrower to have flood insurance in place.
A lender that elects to allow the borrower to defer the purchase of flood insurance until after origination must have adequate internal controls in place to detect whether either of the above two mandatory purchase triggers has occurred. When either of these triggering conditions occurs, the lender must require the borrower to purchase flood insurance or, if necessary, prepare to force place the insurance.
The new proposed flood FAQs address construction loans beginning on p. 25: https://www.occ.gov/news-issuances/federal-register/2020/nr-ia-2020-84a.pdf. Pay particular attention to question 5 & 6 that have had notable proposed updates.An application is sufficient authorization for pulling the credit report, however, some lenders may have additional authorization procedures in place. Your process for complying with the intent to apply for joint credit under Reg B should be sufficient documentation of an application by both applicants to pull a credit report on both applicants.
I hope this answers your question – if not, please let us know.
Thanks!
Is this a loan that is set up for monthly payments but the customer wants to make three instead or is the loan being set up for 3 annual payments? If it is the former, you may need to do a modification. You will need to visit your loan policy to ensure you aren’t in violation of that policy.
Some things to consider under Reg Z are the periodic statement requirements in 1026.41 that requires you to send statements in accordance with the payment due dates set up on the loan. Also, if there is an escrow account (could have both RESPA and HPML implications) you’d need to consider how you’re going to collect those monthly payments.
Under the ATR rules it looks at the consumers ability to make the monthly payment and comment 43(c)(2)(i)-4 states:
4. Seasonal or irregular income. A creditor reasonably may determine that a consumer can make periodic loan payments even if the consumer’s income, such as self-employment income, is seasonal or irregular. For example, assume a consumer receives seasonal income from the sale of crops or from agricultural employment. Each year, the consumer’s income arrives during only a few months. If the creditor determines that the consumer’s annual income divided equally across 12 months is sufficient for the consumer to make monthly loan payments, the creditor reasonably may determine that the consumer can repay the loan, even though the consumer may not receive income during certain months.And
43(c)(5)(i)-3 states:
Monthly, fully amortizing payments. Section 1026.43(c)(5)(i) does not prescribe the terms or loan features that a creditor may choose to offer or extend to a consumer, but establishes the calculation method a creditor must use to determine the consumer’s repayment ability for a covered transaction. For example, the terms of the loan agreement may require that the consumer repay the loan in quarterly or bi-weekly scheduled payments, but for purposes of the repayment ability determination, the creditor must convert these scheduled payments to monthly payments in accordance with § 1026.43(c)(5)(i)(B). Similarly, the loan agreement may not require the consumer to make fully amortizing payments, but for purposes of the repayment ability determination under § 1026.43(c)(5)(i), the creditor must convert any non-amortizing payments to fully amortizing payments.If you have a question about a specific Reg Z requirement or if I’ve misunderstood the situtation please reply letting me know.
See p. 40463, “Amount 6”, of the proposed revisions to the flood faqs.https://www.govinfo.gov/content/pkg/FR-2020-07-06/pdf/2020-14015.pdf
Amount 6. Is flood insurance required
for each building when the real estate
security contains more than one
building located in an SFHA in a
participating community? If so, how
much coverage is required?
Yes. The lender must determine the
amount of insurance required on each
building and add these individual
amounts together.82 The total amount of
required flood insurance is the lesser of:
• The outstanding principal balance
of the loan(s); or
• The maximum amount of insurance
available under the NFIP, which is the
lesser of:
Æ The maximum limit available for
the type of structures; or
Æ The ‘‘insurable value’’ of the
structures.
The amount of total required flood
insurance can be allocated among the
secured buildings in varying amounts,
but all buildings in an SFHA must be
covered in accordance with the
statutory requirement.
Example: Lender makes a loan in the
principal amount of $150,000 secured
by five nonresidential buildings, only
three of which are located in SFHAs
within participating communities.
• Outstanding loan principal is
$150,000.
• Maximum amount of insurance
available under the NFIP.
Æ Maximum limit available for the
type of structure is $500,000 per
building for nonresidential buildings (or
$1.5 million total); or
Æ Insurable value ($100,000 for each
nonresidential building for which
insurance is required, or $300,000 total).
Amount of insurance required for the
three buildings is $150,000. This
amount of required flood insurance
could be allocated among the three
buildings in varying amounts, so long as
each is covered in accordance with the
statutory requirement.As you currently have the flood insurance, it sounds like you have met the minimum coverage amount, but it isn’t allocated among both buildings as it should be. You have discretion in how the insurance is allocated among the buildings and your proposed allocation seems to satisfy the requirement. Considering the deductible, and factoring it into the required amount, is prudent for both you and the borrower.
As for the detached structure exemption, even if the residential property is a rental you should be able to use the detached structure exemption if the structure is detached from the primary residential structure and it isn’t used a residence (https://www.fdic.gov/regulations/laws/rules/2000-6100.html#fdic2000part339.3). The preamble to the final ruledetached structure rule included the following statement:
Although the Agencies decline to
adopt the FDPA’s definition of
‘‘residential improved real estate’’ for
‘‘residential property,’’ the Agencies
agree with commenters that ‘‘residential
property’’ should be interpreted as
broadly as ‘‘residential improved real
estate’’ as set forth in the Interagency
Questions and Answers Regarding
Flood Insurance (Q&As). Commenters in
particular referenced Q&A 51, which
indicates that ‘‘residential improved real
estate’’ does not distinguish whether a
building is single- or multi-family, or
owner- or renter-occupied, and includes
single-family dwellings, two- to fourfamily dwellings, multi-family
dwellings containing five or more
residential units, and mixed-use
buildings, so long as the building is
used primarily for residential
purposes.
FHFA issued a news release moving the adverse market refinance fee implementation date to December 1 rather than September 1.
“The Federal Housing Finance Agency (FHFA) today directed Fannie Mae and Freddie Mac (the Enterprises) to delay the implementation date of their Adverse Market Refinance Fee until December 1, 2020. The fee was previously scheduled to take effect September 1, 2020.”
https://www.fhfa.gov//Media/PublicAffairs/Pages/Adverse-Market-Refinance-Fee-Implementation-Now-December-1.aspxKentucky Revised Statutes:
Notice of Free Choice of Agent and Insurer – https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=17027 and here’s the form:https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=17027.I do not see a timing requirement nor a signature requirement. It makes sense to give this to the borrower before they purchase insurance. If it is your policy to have all disclosures signed, even when signatures are required by law/regulation, then it would make sense to have these signed as well. Where the law is silent develop your procedure, to best fit the intent of the law, and comply with that.
Disclosure with Respect to Title Insurance – Is this the form? http://insurance.ky.gov/ppc/Documents/titlemortgage071217.pdf. If so, I couldn’t find the specific requirement in the KRS. You might ask the title company or KDI for the citation. As with the other form, if there isn’t a specific timing requirement, go with the intent of the law on timing (customers need it before they make a decision) and your procedures for signatures.
msrelax12 – Seems like what you did was fine. The customer had the LE and gave their intent to proceed before you even ordered the appraisal. If I missed some details or didn’t understand correctly please let me know.
I think the exclusion from the ATR rules would apply to the entire ATR rule, including the QM rules. If you are selling to an investor you would want to confirm their criteria. I do not believe your loans would be automatically exempt from the HPML interior inspection requirement because you are a CDFI. However, you could find some relief under comment 1026.35(c)(2)(i)-2.
Yes, I tend to agree. Although differnt, a similar question that recently posted: https://mycomplianceresource.com/forums/topic/changed-circumstance-2/.
