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
If we collect personal income from a Guarantor of a Small Business Loan, should we include this loan on our CRA Report and indicate it as a small business loans with gross revenue of less than $1 million if the personal income is under that threshold?
No--the guarantor's personal income should not factor into whether the loan qualifies as a small business loan. The guarantor's income does not affect the gross revenues of the business.
SECTION __.42(a)(4) – 1: When indicating whether a small business borrower had gross annual revenues of $1 million or less, upon what revenues should an institution rely?
A1. Generally, an institution should rely on the revenues that it considered in making its credit decision. For example, in the case of affiliated businesses, such as a parent corporation and its subsidiary, if the institution considered the revenues of the entity’s parent or a subsidiary corporation of the parent as well, then the institution would aggregate the revenues of both corporations to determine whether the revenues are $1 million or less. Alternatively, if the institution considered the revenues of only the entity to which the loan is actually extended, the institution should rely solely upon whether gross annual revenues are above or below $1 million for that entity. However, if the institution considered and relied on revenues or income of a cosigner or guarantor that is not an affiliate of the borrower, such as a sole proprietor, the institution should not adjust the borrower’s revenues for reporting purposes.
Our bank is acquiring another bank, and once the acquisition is complete, we are going to change our name to the acquired’s name. The only thing changing from a servicing perspective is the name and address of the bank. Based on this information, are we still required to send out a Notice of Servicing Transfer? Also, should the other institution be sending out a Notice of Servicing Transfer as well?
Yes, the notice would generally be required of both the transferee and transferor servicer as set out here:
(i) In general. Except as provided in paragraphs (b)(3)(ii) and (iii) of this section, the transferor servicer shall provide the notice of transfer to the borrower not less than 15 days before the effective date of the transfer of the servicing of the mortgage loan. The transferee servicer shall provide the notice of transfer to the borrower not more than 15 days after the effective date of the transfer. The transferor and transferee servicers may provide a single notice, in which case the notice shall be provided not less than 15 days before the effective date of the transfer of the servicing of the mortgage loan.
Although a single notice on behalf of both could be provided, it is best practice and would be required of your institution anyway since it is the one acquiring and changing names. It also would not be exempt, unfortunately, since the payee name and address are changing:
(2) Certain transfers excluded.
(i) The following transfers are not assignments, sales, or transfers of mortgage loan servicing for purposes of this section if there is no change in the payee, address to which payment must be delivered, account number, or amount of payment due:
(A) A transfer between affiliates;
(B) A transfer that results from mergers or acquisitions of servicers or subservicers;
(C) A transfer that occurs between master servicers without changing the subservicer;
We have some confusion in regards to using a Closing Disclosure to reset the tolerance on a “0” tolerance item (origination charge) if there is a bona fide Change in Circumstance. On November 8, 2018, the customer requests an increase in the loan amount to $115,000, which is approved since the appraisal would allow for additional funds. The initial Closing Disclosure had not been delivered before this requested Change in Circumstance. The processor prepares an initial Closing Disclosure using a loan amount of $115,000 and shows the increased origination charge and a closing date of November 19, 2018. This was given to the borrower in person. My question is, since there was adequate time before the closing date of November 19, 2018, should we have not issued a new Loan Estimate on November 8, 2018 showing the increased loan amount and origination charge since the CD did not have to go out on November 8, 2018?
Under the recent "black hole" amendments, the bank would be allowed to "reset" these on the CD rather than the LE. Note, however, that it still has to be given within three business days of the changed circumstance and that may or may not have been the case from what you described above, as set out here:
…The creditor must provide the consumer with the Closing Disclosure reflecting the revised estimate at or before consummation and within three business days of receiving information sufficient to establish that the changed circumstance or other triggering event has occurred. …
We have a customer that is leaving for boot camp for the Air Force. Am I correct in stating that boot camp is not active duty?
Boot camp is included in active duty. "Military Service" is defined under SCRA as period of active duty status. For members of the regular Armed Forces, active duty begins the day they leave civilian life; for them, active duty is not synonymous with deployment. For a member of a reserve component, the protections the SCRA offers begin when a member of the Reserves or National Guard receives mobilization orders. It is initiated upon receipt of mobilization orders in order to give the soldier time to put his or her affairs in order.
There may be several active duty periods during a member of the Reserves or National Guard’s career, including the initial active duty for training ("boot camp") and subsequent call-ups for service, whether or not the Servicemember volunteered for active duty is immaterial. Finally, military service also includes any period during which a Servicemember is absent from duty because of sickness, wounds, leave or other lawful causes.
Our Lending to Servicemembers Policy has great information regarding both the SCRA and MLA: https://www.compliancealliance.com/find-a-tool/tool/lending-to-service-members-policy
The term “active duty” means full-time duty in the active military service of the United States. Such term includes full-time training duty, annual training duty, and attendance, while in the active military service, at a school designated as a service school by law or by the Secretary of the military department concerned. 10 USC 101(d)(1) http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title32-section101&num=0&edition=prelim
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