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Just to clarify:
My response above is the safe approach, but not the only one. If you are relying on the AAN exception ensure that the Notice to Home Loan Applicant is provided to applicants when applicable. Also, when relying on the AAN exception keep in mind, the credit score disclosure exception notice is required to be given as soon as reasonably practicable or no later than consummation or first transaction for open end credit. If you deny the loan before you would normally provide the exception notice I think the adverse action would be fine. If you deny it 25 days after you pull the credit report, you probably should’ve complied with the credit score exception notice (I’m assuming you give it as soon as reasonably practicable which, in my example above, would be before the AAN) and then still give the AAN when the application is denied.These are two good resources:
https://www.philadelphiafed.org/bank-resources/publications/consumer-compliance-outlook/2013/second-quarter/adverse-action-notice-requirements-under-ecoa-fcra.cfmJack did discuss this in one of our earlier session this year. There isn’t clear guidance on what to do in this situation. Without having an amount drawn at or before consummation, it seems you have to assume the full amount may be drawn and base your calculation on that. If you do base the payment on the amount drawn at or before consummation you need to consider if you are comfortable with that calculation – how would this affect your underwriting if the borrower accessed the full line?
It isn’t spelled out in the KRS, but I believe it is intended for those who could possibly lose their home. The KRS states that the mortgagee must give the document(s) approved by the Kentucky Homeowner Protection Center to the homeowner, while the KHPC website says to give it to residential borrowers. Since the notice required has a place for the address we assume it needs to be included. In this case there is an additional homeowner other than the borrower whose home is being used as collateral. Although it isn’t clearly stated, I believe the best practice would be to give it to both in this circumstance.
You remember correctly. If you use the exceptions to the risk based pricing requirement, an exception notice must be provided to all consumers (individuals who request credit), regardless if the loan is consummated. 1022.74(d)(1)(i), (e)(1)(i) and (f)(1)(i) is where you’ll find language that states:
(1) In general. A person is not required to provide a risk-based pricing notice to a consumer under §1022.72(a) or (c) if:
(i) The consumer requests from the person an extension of credit…and
(ii) The person provides to each consumer described in paragraph (d)(1)(i) of this section a notice
There are three model exception forms (H-3, H-4, H-5). You’ll need to use the one that best suits the credit request.
The first sentence you referenced addresses when the new insurance limits become effective, while the second is referring to what a creditor must do. My understanding is that the new maximum coverage limits will be available for “Other Residential” properties for new business, renewals or change endorsements on 6-1-14. In other words, the new insurance limits will be available for “other residential” property as of 6-1-14.
We hope to have additional guidance or updated inter-agency flood regulations that addresses exactly what is required of creditors, but in the meantime creditors should be looking at their list of “other residential” properties in a flood zone to determine if additional flood coverage is needed based on the flood insurance calculation (shown below) and considering the new maximum coverage limits. When further guidance is provided creditors will be prepared to begin the force-place process if necessary. Jack’s blog gives a good example of this.
Flood Insurance Calculation:
The amount of insurance must be at least equal to the lesser of :
1) the outstanding principal balance of the designated loan;
2) the maximum limit of coverage available for the particular type of property under the Act; or
3) the overall value of the property securing the designated loan minus the value of the land on which the property is located. (Replacement Cost Value)Blog Referenced: https://mycomplianceresource.com/jacks-blog/
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For information on Jack’s Compliance Resource products please visit our Marketplace by clicking here: https://mycomplianceresource.com/compliance-marketplace/KRS 286.2-020 states that the disclosure must be given to the homeowner, while the Kentucky Homeowner Protection Center website says to give a copy to the borrower. I would follow the KRS and provide it to the homeowner and since I believe the intent of law is to inform borrower (who in most cases is the homeowner), I would provide a copy to the borrower as well. If you happen to over-disclose there is no harm done.
Here are links to the KRS and KHPC website:
https://www.lrc.ky.gov/statutes/chapter.aspx?id=38624
https://www.kfi.ky.gov/industry/Pages/khpc.aspxIn my opinion, if the property securing the loan meets that definition of a dwelling in 1002.14(b)(2), even though it may also be used for business purposes, the ECOA valuation rules will apply.
I believe you are referring to the general QM rule in 1026.43(e)(2) which states you must take into account the monthly payment for mortgage related obligations based upon the highest payment in the first five years from the date the first regular periodic payment is due.
The total DTI at consummation, determined in accordance with Appendix Q, must not exceed 43%. Appendix Q states that debts of less than 10 months must be included if the debt will affect the consumer’s ability to repay – if it doesn’t affect their ability to repay and will be paid off in less than 10 months after consummation we can infer that it may be excluded. See below:
Appendix Q, Consumer Liabilities: Recurring Obligations: Debts lasting less than ten months must be included if the amount of the debt affects the consumer’s ability to pay the mortgage during the months immediately after loan closing, especially if the consumer will have limited or no cash assets after loan closing.
Note: Monthly payments on revolving or open-ended accounts, regardless of the balance, are counted as a liability for qualifying purposes even if the account appears likely to be paid off within 10 months or less.
If the building is located in a flood zone, flood insurance is required.
You could have the parcel of land excluded from the mortgage but if you had to foreclose how marketable would that land be with the parcel excluded if it sits in the middle of your collateral – this is something you need to consider. Not that I’m recommending this, but I’ve seen borrowers tear down outbuildings/barns that have minimal value in order to avoid paying for flood insurance.
If you are asking if this loan would be HMDA reportable, I agree, it would not since the purpose is not home purchase, home improvement or refinancing.
If the lessee doesn’t have an ownership interest in the building the policy shouldn’t be in the name of the lessee. I suggest reading/finding out more about the lease to determine if the lessee does have an ownership interest in the building.
The lessee can have insurance on the contents.
From your information, I believe the business is your applicant and the appraisal disclosure would go to it. The appraisal disclosure isn’t required to be signed but you need to have procedures in place that document your process for providing it.
If a valuation or appraisal is developed for reasons other than in connection with an application for credit 1002.14 would not apply.
The regulation states: 1002.14(a) Providing appraisals and other valuations. (1) In general. A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling.
The preamble to the final rule has a discussion on this specific topic. You can find it here, pages 23-28: https://files.consumerfinance.gov/f/201301_cfpb_final-rule_ecoa-appraisals-preamble.pdf
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