We escrow for taxes and insurance. This is not an HPML loan nor is flood insurance required in this situation. The taxes, with respect to this loan, are subject to a continual homestead credit that exceeds the tax charge. So, year after year, the amount via escrow that is owed is $0.00. The bank would like to collect a small amount as a cushion in case the taxes increase over the established credit. We don’t necessarily anticipate the taxes to increase, though. Can we do this?
12 CFR 1024.17(c)(ii): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1024/17/#c-1-ii - (1) A lender or servicer (hereafter servicer) shall not require a borrower to deposit into any escrow account, created in connection with a federally related mortgage loan, more than the following amounts:
(ii) Charges during the life of the escrow account. Throughout the life of an escrow account, the servicer may charge the borrower a monthly sum equal to one-twelfth (1/12) of the total annual escrow payments which the servicer reasonably anticipates paying from the account. In addition, the servicer may add an amount to maintain a cushion no greater than one-sixth (1/6) of the estimated total annual payments from the account.
We are selling one of our branches next month. The branch only has one HMDA loan to date. Do we need to report that loan on the HMDA LAR? The bank that is purchasing the branch is not a HMDA-reporting bank.
Assuming that purchasing this branch will not cause the acquiring back to become a HMDA-reporting bank, then yes, in this instance you'd report any HMDA reportable loans that originated prior to the sale in April. Any reporting after the sale by the acquiring bank is optional for the remainder of the year.
CFPB HMDA Guide, p. 121 https://files.consumerfinance.gov/f/documents/bcfp_hmda_small-entity-compliance-guide-final_2018-10.pdf
When an institution that is not subject to Regulation C acquires a Branch Office of an institution that is subject to Regulation C but that acquisition does not result in the acquiring institution becoming subject to Regulation C, data collection is required for transactions of the acquired Branch Office that take place prior to the acquisition. Data collection by the acquired Branch Office is optional for transactions taking place in the remainder of the calendar year of the acquisition.
On a business loan where we have personal guarantees, do we have to check MLA on the guarantees, since they are acting as individuals?
No, because a business loan is not a covered transaction under the MLA.
The MLA applies to "consumer credit" offered to covered borrowers, as those terms are defined in the MLA.
Regarding the applicability of the MLA to guarantors, the Act is not clear as to whether it does apply or does not apply to guarantors. Conservatively, the bank would treat guarantors as if they fall under the scope of the MLA because they are to some extent "obligated on the consumer credit transaction..."
12 CFR § 232.3(g)(1) ("Covered borrower means a consumer who, at the time the consumer becomes obligated on a consumer credit transaction or establishes an account for consumer credit, is a covered member (as defined in paragraph (g)(2) of this section) or a dependent (as defined in paragraph (g)(3) of this section) of a covered member."
12 CFR § 232.3(f)(1) ("Consumer credit means credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is: ...")
Does the bank have to comply with the appraisal independence requirements even if an appraisal is not required?
While not an explicit requirement if the appraisal itself is not required, we advise that the bank should ensure independence in the appraisal ordering process even if the appraisal was not required by the appraisal regulations. Note that the bank should also follow the same independence requirements for evaluations as well. The independence requirements can be found in the Interagency Appraisal and Evaluation Guidelines here: https://www.fdic.gov/regulations/laws/rules/5000-4800.html
We request a tri-merge credit report for each applicant. Our credit decision is relies on the single lowest middle score applicant(s). Can you give guidance on how credit scores would be reported for two or more applicants? Do we report the one score relied on for all applicants, or report the score relied for one applicant and then the other as not applicable?
The bank would report the credit score that it relied upon in making the decision. From what you described, it sounds like it would be the lowest middle score in this instance. The score would be reported for the applicant or co-applicant and not applicable for the one whose credit score was not used (since it wasn't relied upon in making the credit decision).
To illustrate, assume a transaction involves one applicant and one co-applicant and that the financial institution obtains or creates two credit scores for the applicant and two credit scores for the co-applicant. Assume further that the financial institution relies on a single credit score that is the lowest, highest, most recent, or average of all of the credit scores obtained or created to make the credit decision for the transaction. The financial institution complies with § 1003.4(a)(15) by reporting that credit score and information about the scoring model used for the applicant and reporting that the requirement is not applicable for the first co-applicant or, at the financial institution's discretion, by reporting the data for the first co-applicant and reporting that the requirement is not applicable for the applicant.
Comment 3, 1003.4(a)(15), https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/Interp-4/#4-a-15-Interp-3
We have a commercial customer with a line of credit that they use for working capital. They may also use the line for any other type of business-related expense. So, the commercial borrower used this original line to purchase a rental property. Now, we are paying down the line of credit with the property that was purchased as security. The original line won’t be fully paid down. Is this HMDA-reportable?
No – this is not HMDA-reportable. This is because a commercial-purpose loan is only reportable as a home purchase loan, home improvement loan, or refinance. This situation only possibly implicates “refinance” for HMDA purposes (since there’s no indication that this is a home purchase or home improvement loan). However, this type of transaction does not constitute a “refinance” under HMDA because the new loan is only paying down the existing line of credit, rather than fully satisfying and replacing the line.
(10) A closed-end mortgage loan or open-end line of credit that is or will be made primarily for a business or commercial purpose, unless the closed-end mortgage loan or open-end line of credit is a home improvement loan under § 1003.2(i), a home purchase loan under § 1003.2(j), or a refinancing under § 1003.2(p);
12 CFR 1003.3(c)(10): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/3/#c-10:
1. Loan or line of credit secured by a lien on unimproved land. Section 1003.3(c)(2) provides that a closed-end mortgage loan or an open-end line of credit secured by a lien on unimproved land is an excluded transaction.
(p) Refinancing means a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower.
12 CFR 1003.2(p): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/2/#p
We have a question on a loan that is a refinance of a purchase of a second home and is adding funds to pay off personal credit cards. Should be report the HOEPA Status as "Code 3 - NA"?
Assuming the loan is just secured by the second home and is not also secured by the principal dwelling, then yes, it should be reported as "Code 3 - NA" like you said. The reason for this is that HOEPA only applies to:
...a high-cost mortgage, which is any consumer credit transaction that is secured by the consumer's principal dwelling...
So the HOEPA rules do not apply to this particular loan and, thus, it would be reported as not applicable for HMDA purposes.
For HMDA purposes, would a construction-to-permanent loan be considered a refinance under the Loan Purpose?
It would actually be considered a home purchase loan under HMDA regardless of whether it is a combined construction to permanent loan or the permanent financing that replaces the temporary construction financing. If it is a construction-only loan to be replaced by permanent financing later, it will be excluded as temporary financing under 1003.3(c)(3).
3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3) Comment 3, 1003.2(j), https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/Interp-2/#2-j-Interp-3
I have a HMDA question about construction loans. Our construction loans are 360 months plus 9 months interest. They are construction to perm. The first 9 months are interest only and then the 10th month includes principal &interest. Would we report this on HMDA as an interest-only loan?
If the loan is a single transaction--a construction-to-perm loan (one closing)--our interpretation is that you would report it as having an interest-only feature. If this was two transactions, a construction-to-perm loan with two closings, then you would only report on the perm portion of the loan.
The requirements of this part do not apply to: Temporary Financing...
12 CFR § 1003.3(c)(3) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/3/#c-3
A loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.
Commentary to 12 CFR § 1003.3(c)(3)-1 https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/3/#3-c-3-Interp-1
Whether the contractual terms include or would have included any of the following: (ii) Interest-only payments as defined in Regulation Z, 12 CFR 1026.18(s)(7)(iv);
12 CFR § 1003.4(a)(27) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/4/#a-27
The term ‘interest-only’ means that, under the terms of the legal obligation, one or more of the periodic payments may be applied solely to accrued interest and not to loan principal; an ‘interest-only loan’ is a loan that permits interest-only payments.
12 CFR § 1026.18(s)(7)(iv) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1026/18/#s-7-iv
Do loans made to executive officers have to be preapproved by the board?
No, unless the general requirement to get preapproval applies (which generally includes extensions over $500,000), the loan must be reported to the board but does not require preapproval. This is because the general prohibitions on insiders (§215.4), including the preapproval provision, and the more specific executive officer provisions (§ 215.5) are related, yet distinct.
What this means is that the executive officer may very well need to gain preapproval from the board, but not automatically just because she or he is an executive officer. This being said, the executive officer will need to report the extension to the board in all cases.
(b) Prior approval. (1) No member bank may extend credit (which term includes granting a line of credit) to any insider of the bank or insider of its affiliates in an amount that, when aggregated with the amount of all other extensions of credit to that person and to all related interests of that person, exceeds the higher of $25,000 or 5 percent of the member bank's unimpaired capital and unimpaired surplus, unless: (i) The extension of credit has been approved in advance by a majority of the entire board of directors of that bank; and (ii) The interested party has abstained from participating directly or indirectly in the voting.
12 CFR § 215.4(b)(1): https://www.ecfr.gov/cgi-bin/text-idx?SID=e05fffd3223a689ff17a3e90755f0aa2&mc=true&node=se12.2.215_14&rgn=div8
(d) Any extension of credit by a member bank to any of its executive officers shall be:
(1) Promptly reported to the member bank's board of directors;
12 CFR § 215.5(d)(1): https://www.ecfr.gov/cgi-bin/text-idx?SID=e05fffd3223a689ff17a3e90755f0aa2&mc=true&node=se12.2.215_15&rgn=div8
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