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Bankoftn, this is a really good question.
Even though your compensation plan is based the total volume, I am concerned that because your compensation varies by the dollar amount it could be considered basing the compensation on a term of the transaction. For example, even though you are not technically paying varied rates for each transaction, in the end this policy provides incentive for the loan officer to increase the amount of each loan because he/she is indirectly compensated based on loan amount. The portion of the commentary referenced above states that it is acceptable to pay a loan originator based on a percentage of the amount of credit extended as long as the percentage is fixed and doesn’t vary with the amount of credit extended – it doesn’t say only for individual transactions. And although the example given involves a single transaction, I don’t think it was intended to be exclusive. If you look at Paragraph 36(d)(1)-2.iA, this is where it states compensation based on total volume is acceptable, but it also references 36(d)(1)-9, the paragraph you quoted above. In the plan you described the compensation does vary with the amount of credit extended so I would recommend a fixed percentage.
We’ll see if Jack has any additional thoughts.
These minimum standard requirements for dwelling secured loans (that have been labeled ability-to-repay rules) apply to any consumer credit transaction secured by a dwelling with the exception of HELOCs, loans secured by time-shares; and reverse mortgages, temporary or bridge loans of 12 months or less, a construction phase 12 months or less of a construction-to-perm loan and a few other types of loans made under certain programs/guidelines are exempt from most of the requirements (with the exception of the rules pertaining to prepayment penalties and evasion). Take a look at 1026.43 to get a full list of what is covered/excluded from these requirements. Here’s a link to the regulation: https://www.ecfr.gov/cgi-bin/text-idx?SID=d8d364c1194eba14930c06affd001d5f&node=12:9.0.1.1.1.5.1.13&rgn=div8
For any covered loan you need to comply with the general ability-to-repay rule or one of the QM rules. You can choose which to comply with on a case by case basis.
Jack’s Compliance Resource offers many products including policy and procedure updates, Director/Senior Manager Updates, Training Manuals, Flowcharts, Checklists and more. To see our Reg Z products click here:
Reg Z MarketplaceHave you tried contacting the merchant to determine if they have a record of the customer paying in cash?
The compensation is based on the LO’s total loan volume (and will be fixed – not changing based on loan terms of the transaction) and does not appear to be a proxy for a term, so I don’t see a problem with this type of arrangement.
I’ll ask Jack to chime-in if he sees a problem.
You collect GMI on the applicant/borrower. In your case, the LLC is the applicant and can’t provide GMI, so you input NA. A guarantor is not an applicant, so you should not collect GMI. I would train and move on.
We generally believe that VSI will qualify as credit property insurance. Jack has told me, and you may have heard him say as well, that if the policy provides in part, coverage that protects the consumer’s interest in the property, then that portion of the policy is hazard insurance. Credit property insures the creditor’s interest in the property. This latter statement comes from 1026.32(b)(1)(iv) – 2.
The flood regulation states a bank shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan.
I agree with the information you cited above – if you don’t have a security interest in the building, flood insurance isn’t required.
I think you’re generally correct in using RCV – most of your consumer loans are probably owner-occupied, primary dwellings. The point #9, referenced in your question, is making is that the NFIP won’t pay RCV on non-owner occupied policies, so a borrower shouldn’t pay for coverage they won’t receive in the event of a loss to their property.
Look at page POL-20: https://www.fema.gov/media-library-data/b761010a7205eb9ac425d6142d2d275d/15_policy_508_oct2013.pdf
Look at page 4: https://www.fema.gov/media-library-data/20130726-1742-25045-5644/interagency_q_as.pdf(and see footnotes 4-6)
Yes, you’re correct. You would use the same formula to determine the amount of flood insurance required as you would with a single loan but take into account the outstanding balance of all loans.
The lesser of:
The outstanding principal balance;
The value of the property minus the land/ RCV;
The maximum available through the NFIPFlood insurance is required on contents when the building the contents are in is also taken as collateral. If you know the building housing your collateral is in a flood zone wouldn’t you want your collateral insured?
I know some banks have done it the way your bank has done in the past and it has never been questioned. First consider, the closing fee should be included in the 1101 total. If a third party (other than the title company) performs the closing it should also be listed in line 1102 outside the column. Some banks utilize the lump sum finance charge exception (see commentary to Reg Z 1026.4(c)(7)) in order to exclude the closing/settlement fee from the FC. If the closing fee is itemized as a separate charge (e.g. on a bill or the HUD, etc.) then the lump sum exemption wouldn’t apply and it would be a FC – but if it is paid to a third party as stated above it is required to be listed on 1102 outside the column. I’m assuming you’re forcing/manually inputting the closing fee on line 1110? If that is the case, your forms platform probably isn’t recognizing what type of fee it is (closing/settlement) and that is why it is not requiring it to be a FC.
Take a look at the RESPA FAQs p. 53 and 54, numbers 13. https://portal.hud.gov/hudportal/documents/huddoc?id=resparulefaqs422010.pdf
13) Q: If the title agent conducts the settlement, should the charge for conducting the settlement be included in Line 1101 of the HUD-1, with the itemized charge listed outside the column on Line 1102?
A: Yes, the charge for conducting the settlement must be included in the total on Line 1101. If the charge is paid to a third party, the charge must be itemized outside of the columns on Line 1102.
(The consensus seems to be that HUD’s intention here is that a third party is separate from the title company.)
Here’s an ABA document that might also help. Look at page 62. https://www.aba.com/aba/documents/abaworks/ABAWorksonRESPA.pdfFrom RESPA’s FAQs April 2010, p. 49, #8) Q: If the loan originator performs loan origination services typically performed by a third-party for the appraisal, credit report and/or flood certificate, are the charges for these services listed in Lines 804 thru 807 or are the charges included in the loan originator‘s charge in Line 801 on the HUD-1?
A: Charges for the appraisal, credit report and/or flood certificate performed by the loan originator in a transaction must be included in the loan originator‘s charge listed in Line 801 on the HUD-1.Reg Z says that you need to consider the premium. IMO that means the current premium, but if you know a rate will be increasing I don’t see a problem with taking a more conservative approach and using that increase as long as it is applied consistently.
On the surface I see the same fair lending risk as with not doing HPMLs at all. It would be best if your policy addresses this and if/how rates will be adjusted. You should also increase your fair lending monitoring of this area to ensure there isn’t any disparate impact. See the Q&A below from a similar question:
Question: We currently offer HPML’s but may be considering not offering them due to the regulatory requirements and the additional appraisal requirement for flips. If we decide to eliminate offering HPML’s do we need to set our rates low enough to avoid having an HPML or can we deny the loan because we do not offer that product? Will we be scrutinized by the Regulators for not offering HPML’s?
Can you provide some guidance that we should consider or think about in making this decision?
ANSWER: In regards to not offering HPMLs. If you start denying loans because they are HPMLs it could create disparate impact issues if the majority of denials are a protected class. Or if for some reason you do make a loan that is an HPML but deny others this could create fair lending issues as well. Some banks avoid HPMLs by lowering their rates or adjusting their rates down. If you do try to avoid the HPML threshold triggers, the simplest and least risky way would be to look at your overall pricing and lower it to avoid the HPML triggers. Some banks also adjust rates if they trigger HPML. I wouldn’t recommend this as it could also create fair lending issues if you adjust some rates down more than others and therefore, this approach would have more compliance risk. If you choose to go this route then you would want to clearly state your policy is not to make HPMLs and detail how rates are to be adjusted on loans that trigger HPML status (e.g.: first lien = APOR + 1.49 % or subordinate lien = APOR + 3.49%). This would help minimize fair lending concerns by ensuring that two loans on the same day would receive the same rate to avoid the trigger rather than allowing individual loan officers the discretion of how much to lower the rate.
If the co-signer is a consumer as defined in Reg Z (also see commentary) and this is their principal dwelling you will need to escrow for that property as well. Also, regardless if the co-signer meets the general definition of consumer, he/she is a consumer under the Right of Rescission rules if he/she is pledging his/her principal dwelling as collateral.
