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Fair Lending would very much be a concern. You would need to do a risk assessment and implement appropriate monitoring and control procedures to manage the risk. Here’s a link to a CFPB Bulletin on indirect lending: https://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-to-hold-auto-lenders-accountable-for-illegal-discriminatory-markup/. It would also be a good idea to check with your attorney to determine if there are any state laws you need to consider pertaining to this type of arrangement.
Regarding fees, follow the disclosure requirement in 1026.18. If you’re referring to the FC – if the dealer charges the fee to cash customers and loan customers alike it wouldn’t be included in the FC.
Answer by Jack Holzknecht:
If there is more than one person with responsibility for the loan, you should list the person with primary responsibility. That person can change over time. For example, at the time of application Amy may have primary responsibility, so she is listed on the application. By the time of origination Robin may have primary responsibility, so Robin is listed on the note.
You do not need to go back and add a demand clauses to existing loans. This would be for extensions of credit after they became an EO.
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 inforamtion 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.
Maybe others will weigh in on how they accomplish this:)
I agree, there isn’t anything in the Reg X force-placed insurance requirements that dictate how you should determine coverage amount like there is in the flood rules. I recommend looking at your loan contract and policy to determine what you are permitted to do. Also, on a second lien, you should ensure you are added to those policies and then follow your loan contract and policy for your coverage amount on junior liens.
Beginning on page 75 of the preamble to the Servicing Rules, 1024.37 and coverage amount are discussed. Here’s the link: https://files.consumerfinance.gov/f/201301_cfpb_final-rule_servicing-respa-preamble.pdf
If the first payment at the adjusted level is due within the first 210 days after consummation, the disclosures shall be provided at consummation.
Because the HELOC has a fixed rate doesn’t disqualify it from being an open-end line of credit and doesn’t automatically indicate that the bank is evading the ATR/QM rules. There are banks that have offered fixed rate HELOCs well in advance of this rule. 1026.43 says that a creditor making a loan secured by the consumer’s dwelling that doesn’t have the characteristics of open-end credit, as as defined in 1026.2(a)(20), can not structure a loan as an open-end line of credit in order to evade the ATR/QM rules. So if it isn’t really open end as described below then you can’t call it open-end in order to evade the 1026.43 rules.
1026.20(a)(2) states:
(20) Open-end credit means consumer credit extended by a creditor under a plan in which:
(i) The creditor reasonably contemplates repeated transactions;
(ii) The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and
(iii) The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.
My understanding of your first question was that it was a construction permanent loan. But if it is temporary financing (i.e. construction loan only) RESPA wouldn’t apply and the RESPA force-place rules wouldn’t apply. Look at 1024.5(b) for the definition of temporary financing: https://www.bankersonline.com/regs/12-1024/12-1024-005.html.
If your loan contract requires this insurance and it isn’t maintained, you have basis for force-placing. And since this insurance isn’t exempt under the 1024.37 force-placement rules, in my opnion, it would be covered.
1024.37(a)(2) Types of insurance not considered force-placed insurance. The following insurance does not constitute “force-placed insurance” under this section:
(i) Hazard insurance required by the Flood Disaster Protection Act of 1973.
(ii) Hazard insurance obtained by a borrower but renewed by the borrower’s servicer as described in § 1024.17(k)(1), (2), or (5).
(iii) Hazard insurance obtained by a borrower but renewed by the borrower’s servicer at its discretion, if the borrower agrees.
(b) Basis for charging borrower for force-placed insurance. A servicer may not assess on a borrower a premium charge or fee related to force-placed insurance unless the servicer has a reasonable basis to believe that the borrower has failed to comply with the mortgage loan contract’s requirement to maintain hazard insurance.
I agree with your interpretation – paying delinquent taxes would be considered new money.
From the commentary:
Charges not considered new advances “would include §1026.4(c)(7) charges (such as attorneys fees and title examination and insurance fees, if bona fide and reasonable in amount), as well as insurance premiums and other charges that are not finance charges. (Finance charges on the new transaction—points, for example—would not be considered in determining whether there is a new advance of money in a refinancing since finance charges are not part of the amount financed.)”The following is from the preamble to the Reg B Valuation rules:
Footnote 32 states: Similarly, questions about the rule’s coverage of temporary loans, such as bridge or construction loans, and renewals of credit, relate to the overall scope of Regulation B. The final rule is not intended to address whether these loans are subject to ECOA in the first place. If a temporary loan or a renewal is subject to ECOA, and a an appraisal or other written valuation is developed for that loan, then the applicant has a right to receive a copy under the final rule. This approach is consistent with existing comment 14(a)(1)-2 concerning the application of § 1002.14 to renewals, which is maintained in the final rule.Here’s a link to the preamble: https://files.consumerfinance.gov/f/201301_cfpb_final-rule_ecoa-appraisals-preamble.pdf
Whether or not a loan is covered by RESPA does not determine if the ATR/QM rules apply to the loan. You’ll look to the scope of 1026.43 to determine what transactions are covered. Typically a a consumer purpose, dwelling secured loan is covered unless one of the exemptions apply (Some exemptions include: HELOCs, loans secured by time share, reverse mortgage, temporary/bridge loans, construction phase of 12mths or less of constr./perm, and others you can find here: https://www.ecfr.gov/cgi-bin/text-idx?SID=c9cc74255c39fcc4f7169558a682f32d&node=12:9.0.1.1.1.5.1.13&rgn=div8).
You’ll look to the scope of 1026.43 to determine what transactions are covered. But, yes, typically a dwelling secured loan is covered unless one of the exemptions apply (Some exemptions include: HELOCs, loans secured by time share, reverse mortgage, temporary/bridge loans, construction phase of 12mths or less of constr./perm, and others you can find here: https://www.ecfr.gov/cgi-bin/text-idx?SID=c9cc74255c39fcc4f7169558a682f32d&node=12:9.0.1.1.1.5.1.13&rgn=div8).
If you have a loan secured by a principal dwelling that exceeds the APOR by 2.10% and you have qualified it under the Small Creditor QM option then it would not be HPCT since it does not meet/exceed the 3.5% threshold; so you would receive the QM Safe Harbor. However, since it is a closed end, principal dwelling secured transaction that does exceed the 1.5% HPML threshold for 1st lien transactions then it would be an HPML and you would need to comply with the HPML requirements including the escrow and appraisal rules unless one of the exemptions to those specific rules applies. (You can find the HPML rules and exemption here: https://www.ecfr.gov/cgi-bin/text-idx?SID=c9cc74255c39fcc4f7169558a682f32d&node=12:9.0.1.1.1.5.1.5&rgn=div8)
If the consumer can’t repay the loan it shouldn’t be made.
1026.43(c) Repayment ability. (1) General requirement. A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.
If you can’t qualify the loan, I recommend following your adverse action procedures. If they reapply with a co-applicant you may be able to qualify the loan under either ATR or one of the QM rules.
