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From my reading of the regulation/Appendix Q, you’re going to need to consider the balloon payment similar to how you would consider simultaneous loans under the general ATR rules.
The NMLS ID disclosure requirements in 1026.36(g) do not apply to HELOCs so the NMLS # isn’t required to be disclosed on the application, note and security instrument. You would still need to follow the SAFE Act disclosure requirements:
(b) A registered mortgage loan originator shall provide his or her unique identifier to a consumer:
(1) Upon request;
(2) Before acting as a mortgage loan originator; and
(3) Through the originator’s initial written communication with a consumer, if any, whether on paper or electronically.
The flip rules apply to higher priced mortgages where the seller purchased the property:
90 days or less prior to the current sale and the sale price exceeds the seller’s purchase price by more than 10%; or
91 to 180 days prior to the current sale and the sale price exceeds the seller’s purchase price by more than 20 percent.And a higher-priced mortgage loan means a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an APOR that exceeds the interest rate by 1.5, 2.5 or 3.5%, respectively.
Each bank’s policies are written differently. I recommend including the changes in the policy where they are the best fit at your bank (at most banks this would probably be the Loan Policy, but it might be different at your institution) and reference it in the other policy. So for example, you would incorporate the specific updates into your Loan Policy and make reference to complying with “applicable lending regulations as outlined in the the Loan Policy” or incorporate it into your Compliance Policy and in your Loan Policy state that you will “comply with applicable regulations as detailed in the Compliance Policy.”
1 & 2: Review 1026.22(a)(4) carefully before you try to understand (a)(5); this explains that for a mortgage loan, even if the APR is outside the 1/8% or 1/4% tolerance, respectively, it can still be considered accurate if the rate resulted from the finance charge and that finance charge is considered accurate.
Here’s an example of this from the commentary:
22(a)(4) Mortgage Loans1. Example. If a creditor improperly omits a $75 fee from the finance charge on a regular transaction, the understated finance charge is considered accurate under §1026.18(d)(1), and the annual percentage rate corresponding to that understated finance charge also is considered accurate even if it falls outside the tolerance of 1/8 of 1 percentage point provided under §1026.22(a)(2). Because a $75 error was made, an annual percentage rate corresponding to a $100 understatement of the finance charge would not be considered accurate.
3: Then when you look at 1026.22(a)(5) it states that if you have a mortgage loan with an APR that is inaccurate due to a finance charge being calculated incorrectly, if that finance charge is considered accurate then the APR can also be considered accurate if it is within the range corresponding to the finance charge discrepancy and the accurate APR.Here’s an example from the commentary:
22(a)(5) Additional Tolerance for Mortgage Loans1. Example. This paragraph contains an additional tolerance for a disclosed annual percentage rate that is incorrect but is closer to the actual annual percentage rate than the rate that would be considered accurate under the tolerance in §1026.22(a)(4). To illustrate: in an irregular transaction subject to a 1/4 of 1 percentage point tolerance, if the actual annual percentage rate is 9.00 percent and a $75 omission from the finance charge corresponds to a rate of 8.50 percent that is considered accurate under §1026.22(a)(4), a disclosed APR of 8.65 percent is within the tolerance in §1026.22(a)(5). In this example of an understated finance charge, a disclosed annual percentage rate below 8.50 or above 9.25 percent will not be considered accurate.
I believe most banks charge the same fee for NSFs and overdrafts. With that being said, IMO, if you had an automated program that customer could opt in/out of I wouldn’t see as much concern as I do with the ad hoc program since the customer would be agreeing to/authorizing the payment of overdrafts and the assessment of a higher fee. And even though you will be disclosing the change in fee, this type of program may encourage managers to approve overdrafts to increase fee income when perhaps customers may not quite meet your guidelines, which could be a UDAAP problem.
1024.41(f) will apply to you. There is nothing stated in regulation that allows the borrower to waive the 120 day rule. It would be a good idea to consult with your attorney on other options – deed in lieu of foreclosure might be a possibility.
Apparently, the alleged murder of the Olympic Rings operator was a hoax. I saw that too and thought “well, that sounds about right,” but then someone told me to check it out on snopes. But I completely believed it and wasn’t surprised that something like that would happen there.
My son has decided he wants to be a hockey player.:) That and football are my biggest fears – but seeing that the nearest ice rink is an hour away I should be okay. Now… how to avoid football.:)
IMO, pre-qualifications won’t change much. They are not a guarantee of a loan, rather an preliminary indication of what someone might qualify for if they meet the underwriting criteria. Just to be sure we are talking about the same thing, check out this info pertaining to pre-qual vs pre-approvals on the CFPBs website: https://www.consumerfinance.gov/askcfpb/127/whats-the-difference-between-being-prequalified-and-preapproved-for-a-mortgage.html
It will depend…not the easy answer you were probably hoping for. Your HPMLs need to comply with the ability to repay requirements of 1026.43, so if you do that then yes you can have an HPML with a balloon.
Under the ATR section you need to determine if a loan is an HPCT (Higher Priced Covered Transaction). This will affect either the payment calculation if you plan to use the general ATR or it will affect your safe harbor status if you are making a QM. A higher-priced covered transaction means a covered transaction with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, other than a qualified mortgage under paragraph (e)(5), (e)(6), or (f) of this section; by 3.5 or more percentage points for a first-lien covered transaction that is a qualified mortgage under paragraph (e)(5), (e)(6), or (f) of this section; or by 3.5 or more percentage points for a subordinate-lien covered transaction. In some cases a loan may be both an HPML (principal dwelling secured) and a HPCT (dwelling secured) but not always so be sure to apply the tests independent of one another.
There are three balloon loan options under the ATR rules.
1)Balloon under general ATR – 1026.43(c):
You must calculate the payment using:
(a) The maximum payment scheduled during the first five years after the date on which the first regular periodic payment will be due (typically the 61st payment) for a loan that is not a higher-priced covered transaction; or
(b) The maximum payment in the payment schedule, including any balloon payment, for a higher-priced covered transaction;2)Temporary Balloon QM – 126.43(e)(6):
This QM applies to covered transactions consummated on or before 1-10-16 with 500 or fewer originations and assets of less than $2 billion.*(Applies to Temporary Balloon QM and Balloon QM):
You must determine that the consumer will be able to make the scheduled periodic payments (including mortgage-related obligations) other than the balloon payment. Unlike the calculation of balloon loan monthly payments for determining ATR the Balloon-Payment QM calculation excludes the balloon payment even if the loan is a higher-priced loan.Among other things, the balloon loan must provide for:
a)scheduled payments that are substantially equal, calculated using an amortization period that doesn’t exceed 30 years;
b)The loan must have a term of five years or longer; and
c)a loan term of five years of longerA QM that is higher-priced covered transaction (see definition above) will have a presumption of compliance rather than a safe harbor.
3)Balloon QM – 1026.43(f):
As a creditor you must also meet the rural underserved requirements (more than 50% of originations in counties designated as rural or underserved) as well as having 500 or fewer origination and assets of less than $2 billion.See *Temporary Balloon QM above for payment requirements.
Jack Holzknecht’s Response:
Foreclosure is a state law process. If under the law of your state the Demand Letter is the first notice, then it cannot be sent until the consumer is 120 days past due.
If the borrower makes a legal payment (in U.S. Dollars and meets any other requirement you may impose) the bank must accept the payment and credit the payment as of the date of receipt, unless other payment conditions have been established.
It is hard to image this scenario becoming common. Apparently the consumer has the ability to make a monthly payment, but chooses to remain delinquent thereby destroying his or her credit history and paying continuing late charges.
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Yes, you are now determining ability to repay in compliance with the 1026.43 requirements rather than the 1026.35(e) requirements since they have expired.
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Reg Z MarketplaceI have not seen an exemption to providing the notice under either regulation.
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