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The DTI calculation for the ATR requirement in c(7) states you must consider current debt and in my opinion that means the current payment. However, if the loan is still in the introductory rate phase, I would take a more conservative approach and base the calculation on the rules for determining the payment calculation for the loan in question, which would be the greater of the fully indexed rate or the introductory rate.
I would apply the same methodology for loans made under the QM rule, basically treating it as a simultaneous loan.
Pcorder, I know exactly what you mean…better all the time.
This is a good question. I don’t think you should have two separate DTI calculations for one loan – one that is used for policy purposes and one that is used for complying with Reg Z. If the DTI calculation per Reg Z is over your policy DTI limit then I would send a request for a policy exception.
In my opinion, this isn’t a settlement charge and it’s not even a charge you’re aware will occur, therefore, you can’t and aren’t required to disclose it on the GFE/HUD. The purpose of the language in your note is so that your borrower is aware that this might occur and agrees to that term in the contract.
We’ll see if Jack weighs-in with his opinion…
Even if it is a separate plan, according to the commentary, you can provide it on one disclosure. See the language from the commentary below.
1026.40(a)(1)-4. Method of providing disclosures. A creditor may provide a single disclosure form for all of its home equity plans, as long as the disclosure describes all aspects of the plans. For example, if the creditor offers several payment options, all such options must be disclosed. (See, however, the commentary to §1026.40(d)(5)(iii) and (d)(12) (x) and (xi) for disclosure requirements relating to these provisions.) If any aspects of a plan are linked together, the creditor must disclose clearly the relationship of the terms to each other. For example, if the consumer can only obtain a particular payment option in conjunction with a certain variable-rate feature, this fact must be disclosed. A creditor has the option of providing separate disclosure forms for multiple options or variations in features. For example, a creditor that offers different payment options for the draw period may prepare separate disclosure forms for the two payment options. A creditor using this alternative, however, must include a statement on each disclosure form that the consumer should ask about the creditor’s other home equity programs. (This disclosure is required only for those programs available generally to the public. Thus, if the only other programs available are employee preferred-rate plans, for example, the creditor would not have to provide this statement.) A creditor that receives a request for information about other available programs must provide the additional disclosures as soon as reasonably possible.
PCorder,
I’m not sure if this answers your question. If not, please provide additional info and we’ll try to help further.Fully indexed rate means the interest rate calculated using the index or formula that will apply after recast (when your introductory period/rate will expire), as determined at the time of consummation, and the maximum margin that can apply at any time during the loan term.
Here is an example:
Intro rate = 5% for first 5 years
Index that will apply after recast (value of index at consummation) = 5%
Margin = 3%
Interest Rate Adjustment Cap = 2%
Lifetime Interest Rate Cap = 7.5%The fully indexed rate would be 8% (5% index + 3% margin). The fully indexed rate is higher than the introductory rate in this example, so you would use the fully indexed rate to calculate payments rather than the introductory rate. In my example there is a rate adjustment cap; if the rate adjustment cap would prevent the rate from changing to the fully indexed rate you can’t consider the adjustment cap when calculating the fully indexed rate (e.g. because of the 2% adjustment cap, the rate at recast would be limited to 7% but the calculated fully indexed rate is 8% – you can not limit the fully indexed rated calculation based on the rate adjustment cap). However, at your discretion, you can take a lifetime cap into consideration when determining the fully indexed rate. Based on this example, the lifetime interest rate cap of 7.5% is lower than the fully indexed rate of 8%, so you can use the 7.5% lifetime interest rate cap at your discretion.
The commentary gives this example:
Assume an adjustable-rate mortgage has an initial fixed rate of 5 percent for the first three years of the loan, after which the rate will adjust annually to a specified index plus a margin of 3 percent. The loan agreement provides for a 2 percent annual interest rate adjustment cap and a lifetime maximum interest rate of 7 percent. The index value in effect at consummation is 4.5 percent; under the generally applicable rule, the fully indexed rate is 7.5 percent (4.5 percent plus 3 percent). Nevertheless, the creditor may choose to use the lifetime maximum interest rate of 7 percent as the fully indexed rate, rather than 7.5 percent, for purposes of § 1026.43(b)(3). Furthermore, if the creditor chooses to use the lifetime maximum interest rate and the loan agreement provides a range for the maximum interest rate, then the creditor complies by using the highest rate in that range as the maximum interest rate for purposes of § 1026.43(b)(3).No, the waiver must generally be received no later than 3 business days prior to consummation. If there were clerical errors on an appraisal/valuation already delivered then a waiver can be taken after that 3 day timeframe, but this should be very infrequent and the appraisal would still be required to be delivered at consummation. See the excerpts below. Remember if you have an HPML the Reg Z HPML appraisal rules do not allow for a waiver.
12 CFR 1002.14: …An applicant may waive the timing requirement in this paragraph (a)(1) and agree to receive any copy at or before consummation or account opening, except where otherwise prohibited by law. Any such waiver must be obtained at least three business days prior to consummation or account opening, unless the waiver pertains solely to the applicant’s receipt of a copy of an appraisal or other written valuation that contains only clerical changes from a previous version of the appraisal or other written valuation provided to the applicant three or more business days prior to consummation or account opening. If the applicant provides a waiver and the transaction is not consummated or the account is not opened, the creditor must provide these copies no later than 30 days after the creditor determines consummation will not occur or the account will not be opened.
Commentary: 1002.14(a)(1)-6 Waiver.
Section 1002.14(a)(1) permits the applicant to waive the timing requirement if the creditor provides the copies at or before consummation or account opening, except where otherwise prohibited by law. Except where otherwise prohibited by law, an applicant’s waiver is effective under § 1002.14(a)(1) in either of the following two situations:i. if, no later than three business days prior to consummation or account opening, the applicant provides the creditor an affirmative oral or written statement waiving the timing requirement under this rule; or
ii. if, within three business days of consummation or account opening, the applicant provides the creditor an affirmative oral or written statement waiving the timing requirement under this rule and the waiver pertains solely to the applicant’s receipt of a copy of an appraisal or other written valuation that contains only clerical changes from a previous version of the appraisal or other written valuation provided to the applicant three or more business days prior to consummation or account opening. For purpose of this second type of waiver, revisions will only be considered to be clerical in nature if they have no impact on the estimated value, and have no impact on the calculation or methodology used to derive the estimate. In addition, under § 1002.14(a)(1) the applicant still must receive the copy of the revision at or prior to consummation or account opening.
The flood requirements rules apply to any designated flood loan regardless of purpose, so yes you would need to follow the force-placement requirements.
I see mbarnes’ point – in most of these situations it would be common for the borrower to purchase a rental property for investment purposes and, therefore, be exempt from the ATR rules. But in your case it sounds like the parent is simply purchasing the home for the son which would still be a consumer loan. I believe it would qualify for the temporary/short term loan exemption; here is why:
1) the preamble makes a definitive point that the examples given (i.e. construction, bridge) are illustrative and that the exemption may apply to any temporary loan that meets the requirements.
2) the scope in this section references the definition of dwelling in 1026.2(a)(19) which does not state it must be primary and neither does the temporary exemption.In my opinion, it seems to me this was said in passing without a credit decision being made as part of your process rather than saying “you’re conditionally approved based on the appraisal.” If that is true then I would consider this withdrawn for both regulations and no adverse action is needed.
Here’s a link to the E-SIGN Act: https://www.gpo.gov/fdsys/pkg/PLAW-106publ229/pdf/PLAW-106publ229.pdf. Take a look at 101(c). Generally, you need to provide notice of rights and certain information prior to consent, provide information on hard/software prior to consent, and document consent to obtain the documents in an electronic format and demonstrate that the consumer can receive/obtain the documents in the format you will use. If you are complying with these requirements and you then provide the documents via the form they have consented to and demonstrated they can access you are deemed to have provided the disclosures and complied with the requirements. If the applicant chooses not to open the documents that is their decision, the same as if they were mailed and they never opened their mail.
The preamble to the ATR/QM rules state that the mortgage related obligation definition under the ATR rules are substantially similar to the requirements in 1026.34(a)(4)(i). The commentary to 1026.24(a)(4)(i) states “expected” property taxes as a mortgage related obligation. Using the expected taxes seems to be in line with the requirement to determine the consumer’s reasonable ability to repay.
An appraisal seems to be a reasonable means of determining an estimate.
You will need to give the notice of right to receive a copy of appraisals even if you don’t order a new appraisal or valuation. If you are using an existing appraisal the Reg B Commentary 1002.14(a)(1)-2 states:
Renewals. Section 1002.14(a)(1) applies when an applicant requests the renewal of an existing extension of credit and the creditor develops a new appraisal or other written valuation. Section 1002.14(a)(1) does not apply to the extent a creditor uses the appraisals and other written valuations that were previously developed in connection with the prior extension of credit to evaluate the renewal request.If your validation/review of the appraisal is not a determination on the value of the property – it doesn’t state a value or opinion of the value – then it would not constitute a valuation and would not be considered a new valuation or appraisal.
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This sounds reasonable as long as your bank/the appraiser follows the requirements for evaluations in the interagency guidelines.
1024.17(i)(2)(4)(iii): Short year statement upon loan payoff. If a borrower pays off a federally related mortgage loan during the escrow account computation year, the servicer shall submit a short year statement to the borrower within 60 days after receiving the payoff funds.
You should check with your processor (if your contact isn’t providing the help you need talk to someone else) to see what needs to be done to in order to complete the short year statement.
