How will construction only loans where the borrower intends to sell the home upon completion be reported for HMDA under the new rule starting next year?
There has been some debate on this, and the rule as written isn't very clear on how you should report, or whether you should report at all. However, the CFPB just issued a proposed rule that addresses this question: loans for the initial construction of a home that will be sold upon completion will be considered temporary loans, and therefore not reportable.
However, the proposed rule also makes clear that "flip" transactions WILL be reportable as a purchase. Those are transactions in which a borrower purchase an existing home, renovates it, then sells it after completing the renovation.
Note that this is a proposed rule, so watch for the final rule to be published in the next few months.
On a small dollar real estate loan, is it acceptable to just use the tax assessed value in lieu of an appraisal or evaluation?
Unfortunately, no, you can’t just use the TAV without further analysis. While it can be used as part of the evaluation, the value assigned by the county can’t be the only data source you rely on. The interagency guidelines provide:
Tax Assessment Valuations (TAVs)
An institution may not rely solely on the data provided by local tax authorities to develop an evaluation unless the resulting evaluation is consistent with safe and sound banking practices and these Guidelines. (See the Evaluation Development and Evaluation Content sections.) Since analytical methods such as TAVs generally need additional support to meet these Guidelines, institutions should develop policies and procedures that specify the level and extent of supplemental information that should be obtained to develop an evaluation. Such policies and procedures also should require the use of an alternate valuation method when such information does not support the transaction.
An institution may use a TAV in developing an evaluation when it can demonstrate that a valid correlation exists between the tax assessment data and the market value. In using a TAV to develop an evaluation, an institution should:
Determine and document how the tax jurisdiction calculates the TAV and how frequently property revaluations occur.
Perform an analysis to determine the relationship between the TAV and the property market values for properties within a tax jurisdiction.
Test and document how closely TAVs correlate to market value based on contemporaneous sales at the time of assessment and revalidate whether the correlation remains stable as of the effective date of the evaluation.
In regards to Regulation E and unauthorized disputes, can the bank have a policy to require police reports as part of their unauthorized resolution procedures?
The bank must always start an investigation once a complaint has been received (written or oral) from the customer. While a bank is allowed to require "written confirmation" of error from a consumer as part of the error resolution process within ten business days of an oral notice, Regulation E does not permit a bank to require documentation such as notarized affidavits, statements or copies of police reports. Additionally, the bank cannot require a customer to come to the branch to notarize any statements.
We are not listing paid outside of closing (POC) fees when we have a change of circumstance on Loan Estimates (LEs). If the borrower pays for a fee (e.g. appraisal fee) during the loan process, then the loan has a change of circumstance. Can the fee paid by the borrower upfront be listed as a borrower-paid fee on the revised Circumstance LE?
We do not recommend listing POC fees on a changed circumstance as a borrower-paid fee. The LE is simply intended to be a good faith estimate of all the charges the borrower will owe throughout the course of the loan transaction, and it does not have a spot for POC amounts. Any charges paid prior to closing will simply be reflected on page 2 of the Closing Disclosure as Paid by Borrower Before Closing. For any revised LEs that are issued, the disclosed appraisal cost should simply be either what is owed by the customer, or was owed by the customer prior to them paying it, and the LE should not reflect any payments they may have already made. The Closing Disclosure will take care of that.
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