We have a situation where a commercial borrower is purchasing two commercial properties that are in a flood zone. His insurance agent stated that he cannot purchase flood insurance on the properties in question until he owns the properties. We are doing the loan to purchase the properties. The borrower states that there is not a policy in place for the seller. I know we cannot close a loan without flood insurance in place. Can we force place in the borrower's name until he is able to get a policy?
Because this specific issue of whether a bank may originate a loan with force-placed insurance is not directly addressed within the guidance, there are two competing arguments. The first argument is that the requirement (§ 339.3(a)) to have flood insurance in place does not specifically prohibit a force-placed policy at origination. Further, the Interagency FAQs do not speak to nor, importantly, prohibit force-place insurance at origination. However, the more conservative practice would be to not force place for origination. This is because the force place provisions (§ 339.7) specifically mention, "during the term of the loan." It does not at all mention originating a loan with force place: "(a) Notice and purchase of coverage. If an FDIC-supervised institution, or a servicer acting on its behalf, determines at any time during the term of a designated loan ..." Further, the Interagency FAQs specifically mention being available only during the term of the loan (as opposed to at origination). Finally, the FAQs mention that a bank may, indeed, force place on behalf of the borrower, but only if certain prerequisites are met. One of these prerequisites being: "The lender determines at any time during the life of the loan that the property securing the loan is located in an SFHA;" Again, you will notice that "during the life of the loan" is mentioned. Many examiners have also reportedly taken a conservative approach in interpreting this. All this being said - it is up to the bank to make a policy decision in this instance, as - again - there is just a lack of guidance.
(a) Notice and purchase of coverage. If an FDIC-supervised institution, or a servicer acting on its behalf, determines at any time during the term of a designated loan, that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under §339.3, then the FDIC-supervised institution or its servicer shall notify the borrower that the borrower should obtain flood insurance, at the borrower's expense, in an amount at least equal to the amount required under §339.3, for the remaining term of the loan.
12 CFR 339.7(a): https://www.ecfr.gov/cgi-bin/text-idx?SID=8034fe349081bc75554cef97eb543a7f&mc=true&node=se12.5.339_17&rgn=div8
58. Can a servicer force place on behalf of a Lender? Answer: Yes. Assuming the statutory prerequisites for force placement are met, and subject to the servicing contract between the lender and the servicer, the Act clearly authorizes servicers to force place flood insurance on behalf of the lender, following the procedures set forth in the Regulation.
Fed. Reg., Interagency Questions and Answers Regarding Flood Insurance, #58: https://www.federalregister.gov/d/E9-17129/p-433
Is there a regulatory requirement to charge a 7-day early withdrawal penalty on a certificate of deposit (CD)?
In the first week after a CD is created, there must be an early withdrawal penalty of at least seven days' simple interest on amounts withdrawn within the first six days after deposit In Reg. D. And Reg. DD provides that if the bank will charge an early termination penalty, the bank must disclose that in the TISA disclosure. If a withdrawal is permitted without penalty, the account would no longer be classified as a certificate of deposit for Reg D purposes and could be classified as a savings or interest bearing transaction account.
The commentary for § 1030.4(b)(6)(ii) provides two examples of early withdrawals penalties: “$10.00” or “seven days' interest plus accrued but uncredited interest.”
Time deposit means:
(i) A deposit that the depositor does not have a right and is not permitted to make withdrawals from within six days after the date of deposit unless the deposit is subject to an early withdrawal penalty of at least seven days' simple interest on amounts withdrawn within the first six days after deposit.”
Early withdrawal penalties. A statement that a penalty will or may be imposed for early withdrawal, how it is calculated, and the conditions for its assessment.
Examples of early withdrawal penalties are:
i. Monetary penalties, such as “$10.00” or “seven days' interest plus accrued but uncredited interest.”
Comment 2 to 1030.4(b)(6)(ii): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1030/4/#4-b-6-ii-Interp-2-i
We have a property that is partially in a flood zone. The house on the property is not in a flood zone, but the barn on the property is in a flood zone. Do we have to require flood insurance for the barn? This is an agricultural loan, but the barn is not used for agricultural production or as a residence. The barn may be used to store a bush hog or a mower, but otherwise it is used primarily for household purposes.
No--as long as the property is residential, then it doesn’t appear that you would need to require flood insurance as the barn looks to fall under the detached structure exemption to the purchase requirement.
The flood insurance purchase requirement does not apply to the following…loan situations: Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. A structure that is part of a residential property is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes. It is detached from the primary residential structure if it is not joined by any structural connection to that structure. Whether a structure serves as a residence is based on the institution’s good faith determination that the structure is intended for residential use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities, but not necessarily all three.
FDIC Flood Manual, "Exceptions to the Purchase Requirement" p. 6.3 https://www.fdic.gov/regulations/compliance/manual/5/v-6.1.pdf
Residential improved real estate means real estate upon which a home or other residential building is located or to be located.
12 CFR § 339.2 https://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&SID=fdf70e757aacce7b4c813e5b2528621b&mc=true&n=pt12.5.339&r=PART&ty=HTML#se12.5.339_12
If someone inherits a house and has plans to demolish it and build another house, what is the HMDA purpose?
There is no bright-line rule in the regulations or guidance that delineates when a loan like this crosses the line between “Home Improvement” and “Home Purchase.” Many banks consider a loan to cross into new construction when the old home is being completely torn down, including the foundation. At that point, if the lender is going to be doing the construction-permanent financing on the new house, the loan would generally be considered a “Home Purchase” transaction. This is just an example, however, and the bank’s own internal policy needs to make this delineation so that it can consistently evaluate this kind of loan any time it comes up in the bank.
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.
Comment 3 to 1003.2(j): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/2/#2-j-Interp-3
Home improvement loan means a closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which the dwelling is located.
If we need to temporarily shut down one of our branches to treat for dangerous mold, do we need to give any kind of notice to our regulator?
At the federal level, there’s a specific exemption for temporary closings that are not in the bank’s control (for example, due to natural disaster), and this dangerous mold will likely be considered not in the bank’s control and, thus, subject to the exception:
Section 42 also does not apply when a branch ceases operation but is not closed by an institution. Thus, the law does not apply to:
• A temporary interruption of service caused by an event beyond the institution's control (e.g., a natural catastrophe), if the insured depository institution plans to restore branching services at the site in a timely manner; ..
Interagency Policy Statement: https://www.fdic.gov/regulations/laws/rules/5000-3830.html
Even if this is the case, though, providing notice would certainly be good customer service, and our director, who is a former examiner, would consider it a best practice.
I have a quick question related to Regulation D and reserve requirements. If we offer commercial escrow services to hold funds for two or more parties, are these funds held in escrow generally subject to Reg. D?
Yes, escrow funds are specifically included in the definition of "deposits" for purposes of Regulation D: §204.2 Definitions.
For purposes of this part, the following definitions apply unless otherwise specified:
(a)(1) Deposit means:
(ii) Money received or held by a depository institution, or the credit given for money or its equivalent received or held by the depository institution in the usual course of business for a special or specific purpose, regardless of the legal relationships established thereby, including escrow funds, funds held as security for securities loaned by the depository institution, funds deposited as advance payment on subscriptions to United States government securities, and funds held to meet its acceptances;
12 CFR § 204.2(a)(1)(ii) https://www.ecfr.gov/cgi-bin/text-idx?SID=8ddd88a51a067ba79f787e95219009c7&mc=true&node=se12.2.204_12&rgn=div8
For examination purposes, should we be logging all changes to our website or just the ones related to compliance?
Since the bank's website is generally considered an advertisement and sometimes contains disclosures required by federal regulations, the bank would want to be sure to retain records of the webpages for any applicable retention periods. How long the pages should be kept would generally depend on the regulation that the content of the page falls under. For example, if the page contained an advertisement for deposit accounts, then the bank would want to retain a copy of that webpage for 2 years under Regulation DD.
The bank may also find our Record Retention Schedule helpful here:
We have two commercial lines of credit that originated in 2016 but were increased by $200,000 each in 2019. We did not have new disclosures signed, and we simply executed a loan modification for the loan amount increase to both files. Should these increases be reported on the small business LAR for this year or is this just for originations?
Yes, the bank should report in this case because increases are treated as new originations for CRA purposes, as set out in the Guide here:
A3. Institutions must collect and report data on lines of credit in the same way that they provide data on loan originations. Lines of credit are considered originated at the time the line is approved or increased; and an increase is considered a new origination. Generally, the full amount of the credit line is the amount that is considered originated.
Page 12 at https://www.ffiec.gov/cra/pdf/2013_CRA_Guide.pdf
I have spent the afternoon looking for a simple “definition” of what a distressed and underserved community is. I have found bits and pieces, and I have found the updated lists for 2018, but we are undergoing some policy updates, and would like to align our definition with what the FRB and FFIEC define them as, but I am at a loss to find something. Can you help, or point me in the right direction?
Distressed or underserved communities are designated by the FRB, FDIC, and OCC, based on rates of poverty, unemployment, population loss, population size, density, and dispersion. The bank would need to use the lists for determining if a loan is being made in a distressed or underserved community.
The distressed lists: https://www.ffiec.gov/cra/distressed.htm
And the CRA:
(iii) Distressed or underserved nonmetropolitan middle-income geographies designated by the Board of Governors of the Federal Reserve System, FDIC, and Office of the Comptroller of the Currency, based on--
(A) Rates of poverty, unemployment, and population loss; or
(B) Population size, density, and dispersion. Activities revitalize and stabilize geographies designated based on population size, density, and dispersion if they help to meet essential community needs, including needs of low- and moderate-income individuals.
By what day do we have to file the continuing activity SAR? Is it Day 90 or Day 120?
The guidance provides that "Financial institutions with SAR requirements may file SARs for continuing activity after a 90 day review with the filing deadline being 120 days after the date of the previously related SAR filing. Financial institutions may also file SARs on continuing activity earlier than the 120 day deadline if the institution believes the activity warrants earlier review by law enforcement." https://www.fincen.gov/sites/default/files/shared/sar_tti_21.pdf (p. 53).
So the review period itself is 90 days, but the filing deadline is 120 days from the last one filed, to include the additional 30 days allowed for filing. It does also say that the bank has the option of filing earlier than the 120 days if it believes that law enforcement should review earlier.
Financial institutions with SAR requirements may file SARs for continuing activity after a 90-day review with the filing deadline being 120 days after the date of the previously related SAR filing. So, for filings where a subject has been identified, the timeline is as follows:
Identification of suspicious activity and subject: Day 0.
Deadline for initial SAR filing: Day 30.
End of 90 day review: Day 120.
Deadline for continuing activity SAR with subject information: Day 150 (120 days from the date of the initial filing on Day 30).
If the activity continues, this time frame will result in three SARs filed over a 12-month period.
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