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Yes, you will still need to escrow if it is an HPML.
1026.35(b) states: Except as provided in paragraph (b)(2) of this section, a creditor may not extend a higher-priced mortgage loan secured by a first lien on a consumer’s principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer’s default or other credit loss.
1026.2(a)(19) give the general definition of dwelling for Reg Z: Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
Jack’s Compliance Resource offers many products including policy and procedure updates, Director/Senior Manager Updates, Training Manuals, Flowcharts, Checklists and more. To access Jack’s Compliance Resource products visit our marketplace by clicking here:
Jack’s Compliance Resource MarketplaceSee the commentary below, as well as a discussion of these comments linked here beginning on page 86: https://files.consumerfinance.gov/f/201309_cfpb_titlexiv_updates.pdf. It sounds like you process will be acceptable, but I think you should review your letter/process as well as this information and you’ll have your answer.
41(f) Prohibition on foreclosure referral.
1. Prohibited activities. Section 1024.41(f) prohibits a servicer from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process under certain circumstances. Whether a document is considered the first notice or filing is determined on the basis of foreclosure procedure under the applicable State law.
i. Where foreclosure procedure requires a court action or proceeding, a document is considered the first notice or filing if it is the earliest document required to be filed with a court or other judicial body to commence the action or proceeding (e.g., a complaint, petition, order to docket, or notice of hearing).
ii. Where foreclosure procedure does not require an action or court proceeding, such as under a power of sale, a document is considered the first notice or filing if it is the earliest document required to be recorded or published to initiate the foreclosure process.
iii. Where foreclosure procedure does not require any court filing or proceeding, and also does not require any document to be recorded or published, a document is considered the first notice or filing if it is the earliest document that establishes, sets, or schedules a date for the foreclosure sale.
iv. A document provided to the borrower but not initially required to be filed, recorded, or published is not considered the first notice or filing on the sole basis that the document must later be included as an attachment accompanying another document that is required to be filed, recorded, or published to carry out a foreclosure.Jack’s Compliance Resource offers many products including policy and procedure updates, Director/Senior Manager Updates, Training Manuals, Flowcharts, Checklists and more. To access Jack’s Compliance Resource products visit our marketplace by clicking here:
Jack’s Compliance Resource MarketplaceI don’t believe most overdraft protection products require an application – most do require certain qualifications be met and a way to opt in and out – but it would depend what your process will consist of. There are multiple agency documents on overdraft products available online.
In a separate conversation you mentioned that these two loans are cross collateralized. If that is the case, I would say that you would be required to have content coverage since the buildings where the contents are held is securing technically collateral for the loan as well. In this situation, I would prefer to calculate them separately in order to ensure you have adequate insurance for the contents as well as the buildings.
Jack do you have any other thoughts?
It is our understanding that you should begin your 45 day notification if you are aware that your borrower doesn’t have enough flood insurance coverage based upon the new coverage limits. See Jack’s blog on this topic:
https://mycomplianceresource.com/flood-insurance-changes-to-maximum-coverage-limits/.1) I agree.
2) Flood insurance wouldn’t technically be required but would be in the best interest of the bank and the borrower to obtain. (See this FDIC Q&A, #3: https://www.fdic.gov/news/conferences/NY/2012-12-03-qa.pdf )
Also, it might be helpful to review the interagency flood Q&A’s, #38-#40 linked here:https://www.fema.gov/media-library-data/20130726-1742-25045-4927/interagency_q_a.pdf.
If you don’t require credit life insurance then it wouldn’t be considered a finance charge nor would it be included in the points and fees calculation since it wasn’t payable at or before consummation. 1026.32(b)(1)(iv) states: In connection with a closed-end credit transaction, points and fees means the following fees or charges that are known at or before consummation: Premiums or other charges payable at or before consummation for any credit life, credit disability, credit unemployment, or credit property insurance, or any other life, accident, health, or loss-of-income insurance for which the creditor is a beneficiary, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract.
You would still need to give the “Consumer Protection in Sale of Insurance” disclosures: 1) the insurance disclosure (“not, not, not, may”) would be given orally and in writing before the completion of the sale; and 2) the credit disclosure (“we may not condition an extension of credit on…”) should be given orally and in writing at the time of application for credit in which an insurance product was solicited, offered or sold (I’m assuming you have already given that disclosure at application). Also remember the prohibition on financing certain credit insurance in connection with a loan secured by a dwelling (1026.36).
Here’s a link to the NFIP deductible tables effective June 1, 2014: https://www.nfipiservice.com/Stakeholder/FEMA2/Attachment%20D%20Deductible%20Tables.pdf. It also includes a table detailing the minimum deductibles. I believe many banks have a policy on the maximum deductible they will allow.
If, after reviewing the link, you have specific questions let me know and I’ll try to help answer them.
I don’t believe you are required to, but I don’t see a problem with contacting the insurance companies if you choose to do so. Also, you should be prepared to start the 45 day notification process for your borrowers that are underinsured as of the effective of June 1, 2014.
There are differing opinions on this topic. I think your auditors approach is the safe approach. Just to add if you are only issuing a prequalification based information the customer provides and you note that along with a statement that approval would be subject to underwriting, etc., is a credit report really needed for you to do pre-qualification? Here is a link to a page on the CFPB’s website that briefly explains the difference between pre-quals and pre-approvals (I think you’ll see an indication of what their thinking might be): https://www.consumerfinance.gov/askcfpb/127/whats-the-difference-between-being-prequalified-and-preapproved-for-a-mortgage.html.
“once funds are drawn, even if paid back those funds cannot be drawn again.”
This is closed end credit and the periodic statement rules in 1026.41 would apply. The CFPB’s Small Entity Compliance Guide has a table that clearly breaks down exemptions. You can find it here: https://files.consumerfinance.gov/f/201401_cfpb_small-entity-compliance-guide_tila-respa.pdf
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Jack’s Compliance Resource offers policy and procedure updates, risk assessments, training manuals, Director/Senior Management Updates, checklists, flowcharts and much more. To access our Marketplace click here: https://mycomplianceresource.com/compliance-marketplace/.I’ll take a shot at 1 & 2:
1) This provision was originally set to become effective 7/6/14 but was delayed until 1/1/16 by the Affordability Act.
2) Page 30 is the inter-agency proposed rule which isn’t effective yet. I think we’ll have to wait to see the final regulation to know for sure whether you will be required to escrow for commercial purpose loans, but I’m guessing that exception makes it to the final rule.
Jack, can you answer 3 & 4?
The part of the regulation you quoted (215.4(b)) would apply to extensions of credit to an insider (and their related interests) of your bank or your affiliates and doesn’t specifically set a limit on the amount of credit you can extend (that is done in the next couple of paragraphs – 215.4(c) and 215.4(d) – but it does state that there are certain thresholds that would require prior approval.
You first need to closely review the definitions of “related interest” and “control” to determine if this loan is being made to a related interest of your EVP If it is then you should ensure that you comply with the prior approval requirements in 215.4(b) that you mentioned as well as the individual lending limit in 215.4(c) (the total amount you are allowed to lend to a single insider and his/her related interests) and your aggregate lending limit in 215.4(d) (the total amount your bank is allowed to lend to all insiders and related interests combined). And keep in mind that there are limits on extensions of credit made to executive officers. You can find that in 215.5.
I assume you’re talking about periodic statements for closed-end credit secured by a dwelling and the rules in 1026.41. If that is the case, this seems reasonable. As long as the statement is delivered or placed in the mail no later than 4 days after your courtesy/grace period ends you are in compliance.
