For private flood insurance, is the bank required to accept a policy written by an insurance company not licensed with the state in which the property is located?
For residential properties, no. For nonresidential commercial properties, possibly if the insurance company meets the requirements of the second option.
The Biggert-Waters Act requires banks to accept private flood insurance if the policy meets the elements in the definition, which includes that the insurance provider be "licensed, admitted, or otherwise approved to engage in the business of insurance in the State or jurisdiction in which the insured building is located, by the insurance regulator of that State or jurisdiction." Nonresidential commercial properties, however, may provide coverage by an insurance company that is "recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction where the property to be insured is located." This second option for nonresidential commercial properties applies to "policies of difference in conditions, multiple peril, all risk, or other blanket coverage."
What additional requirements do we have after issuing an LE if the applicant never responds?
There are not additional requirements for Regulation Z after you issue the LE if the applicant never indicates an intention to proceed with the loan. However, Regulation B (ECOA) requirements are not met simply by issuing an LE. Regulation B requires the lender to respond to the applicant within 30 days of receiving the application or taking adverse action on an incomplete application. If the application is incomplete, the lender must either notify the applicant that the application is incomplete within 30 days of receiving the application or provide an adverse action notice within 30 days of taking the adverse action on the incomplete application. If the application is complete, the lender must communicate to the applicant within 30 days that the loan was approved (this can be express or implied), was denied (adverse action notice), or make a counteroffer. If a counteroffer is made, the lender must notify the applicant of action taken within 90 days of making the counteroffer if the applicant does not expressly accept or use the counteroffer.
Do risk-based pricing notices have to be provided to applicants who are denied?
No—if an application is denied and an adverse action notice is provided, a risk-based pricing notice or exception notice is not required. See Regulation V, section 1022.74(b):
(b) Adverse action notice. A person is not required to provide a risk-based pricing notice to the consumer under §1022.72(a), (c), or (d) if the person provides an adverse action notice to the consumer under section 615(a) of the FCRA.
Section 1022.72(a) of the regulation specifies when the bank generally must provide a risk-based pricing notice to a consumer applying for credit, which is subject to the exceptions set out in section 1022.74.7.
On a business loan application, do we need to make a decision or send out a denial within 30 days to be in compliance with regulations?
In regards to the timeline on making a credit decision, it depends on the size of the business. If the business had less than 1m in gross revenues, then you would need to follow the time constraints in (a)(1)--30 days and 90 days. If over the gross revenues were over 1m, then you would only need to notify the applicant in a "reasonable" time.
Additionally for businesses with gross revenues of over 1m, the statement of reasons for adverse action is required only if the business applicant makes a written request within 60 days of notification of the creditor. This is also in contrast with the consumer applicant where a statement of reasons must be given with the notification of adverse action.
Finally, many banks have chosen to follow the consumer applicant guidelines for the sake of uniformity. This is absolutely acceptable.
For reference, see 12 CFR § 1002.9(a)(3):
(3) NOTIFICATION TO BUSINESS CREDIT APPLICANTS.
(i) With regard to a business that had gross revenues of $1 million or less in its preceding fiscal year (other than an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit), a creditor shall comply with paragraphs (a)(1) and (2) of this section, except that:
(A) The statement of the action taken may be given orally or in writing, when adverse action is taken;
(B) Disclosure of an applicant's right to a statement of reasons may be given at the time of application, instead of when adverse action is taken, provided the disclosure contains the information required by paragraph (a)(2)(ii) of this section and the ECOA notice specified in paragraph (b)(1) of this section;
(C) For an application made entirely by telephone, a creditor satisfies the requirements of paragraph (a)(3)(i) of this section by an oral statement of the action taken and of the applicant's right to a statement of reasons for adverse action.
(ii) With regard to a business that had gross revenues in excess of $1 million in its preceding fiscal year or an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit, a creditor shall:
(A) Notify the applicant, within a reasonable time, orally or in writing, of the action taken;
(B) Provide a written statement of the reasons for adverse action and the ECOA notice specified in paragraph (b)(1) of this section if the applicant makes a written request for the reasons within 60 days of the creditor’s notification.
For flood insurance purposes, how should we determine the proper value of flood insurance when the insurer is unwilling to provide us with a replacement cost value (RCV)?
FDIC, in the Flood Disaster Protection section of the Compliance Examination Manual provides:
‘In calculating the amount of insurance to require, the lender and borrower (either by themselves or in consultation with the flood insurance provider or other appropriate professional) may choose from a variety of approaches or methods to establish the insurable value. They may use an appraisal based on a cost-value (not market-value) approach, a construction-cost calculation, the insurable value used in a hazard insurance policy (recognizing that the insurable value for flood insurance purposes may differ from the coverage provided by the hazard insurance and that adjustments may be necessary; for example, most hazard policies do not cover foundations), or any other reasonable approach, so long as it can be supported.’
p. V-6.18, Q/A #9: https://www.fdic.gov/regulations/compliance/manual/5/v-6.1.pdf”
Who is eligible for a NOW account?
Generally, the following are eligible for a NOW account: individuals, sole proprietors, an individual or sole proprietor with a DBA (not other entities with DBAs), accounts holding funds where the entire beneficial interest is held by an individual (e.g. pensions, escrow, etc.), non-profit organizations (with some exceptions), governmental units including federal and state divisions, and funds held by a fiduciary if the beneficiary is otherwise eligible for a NOW account.
However; that being said, do not forget that it is permissible to have interest bearing commercial accounts, just do not classify them as NOW accounts.
As a RDFI (receiving depository financial institution) for ACH purposes, how long do we have to return an ACH to the ODFI (originating depository financial institution) after the transaction?
Generally, NACHA rules permit returns on consumer transactions for 60 calendar days and returns on business transactions for 2 business days. The RDFI must have a written statement of unauthorized debit complying with NACHA guidelines to use the extended return period for consumer transactions. Some variations based on SEC type may apply. See NACHA Rules Sections 3.8 and 3.13.
There is a consumer construction loan to build a couple’s new primary residence and the bank is taking their current condo as an abundance of caution. Would this invoke the right of rescission since the condo is being taken as an abundance of caution?
Yes, it does. There is no special rule about abundance of caution and there is a special rule that indicates that rescission would apply when taking both old and new principal residences as security:
Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, any loan subject to Regulation Z and secured by the equity in the consumer's current principal dwelling (for example, a bridge loan) is subject to the right of rescission regardless of the purpose of that loan. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by A is subject to the right of rescission. A loan secured by both A and B is, likewise, rescindable.
Comment 4 to 1026.23(a)(1)
We have an interim construction loan that is ready for permanent financing. It was to be sold to the secondary market but now it does not qualify. The bank is willing to do in house financing. Can the bank do a renewal/modification of the note since it is now ready for amortization and if so, does that require all new TRID disclosures?
This question can be answered by the language of the construction note currently in place. If the language of the note allows for a modification to permanent financing by keeping the same note in place, then that is acceptable. Whether new disclosures are required depends on whether the transaction is considered a “refinancing” under § 1026.20(a): https://www.consumerfinance.gov/eregulations/1026-20/2016-14782_20160627#1026-20
Generally, if keeping the same note in place before its maturity, and not adding any new money or variable features, then no new TRID disclosures for the permanent phase would be required, as it is technically the same extension of credit. If this is not the case, then new TRID disclosures should be provided for the permanent phase.
We are doing a land loan that will have a house built in the next year on it. The loan we originate will just be secured by land. The proceeds to build the home in the future will be from another loan. Should pull a Flood Determination?
If the bank is just originating a loan that will only be secured by land, then it is not required to pull a flood determination. The bank would need to pull a flood determination when it’s time to do the other loan that will be secured by the home. At that time you would treat it like a construction loan in regards to flood.
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