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
Our current practice on residential balloon mortgages is to extend the maturity date prior to the balloon period if the customer requests it prior to the balloon and the borrower meets certain conditions. This is completed with a change in terms document leaving the current amortization period the same. The examiners have reviewed the process and are ok with this. We have a customer that has approached the bank and would like to extend the maturity but would like to shorten the amortization. She currently has 13 years left, but wants the bank to shorten it to 12. I guess my concern is, do we now have to treat it as a new request because it is a change that is increasing the monthly burden, not decreasing it.
So the rules on whether a "modification" would be considered a "refinancing" for Reg. Z purposes can be found in 1026.20 here: https://www.consumerfinance.gov/eregulations/1026-20/2016-14782_20160627#1026-20
Generally speaking, if there's satisfaction and replacement, or if the bank changes the rate based on a new variable rate feature, it will be considered a refinance which would require new disclosures. And although the rule doesn't specifically say this, we also interpret that it's best practice to provide new disclosures for any increase in credit, or if the prior obligation has already matured. So if any of these are occurring, that's when a new set of disclosures should be provided--but from what you describe, it doesn't sound like any of these are happening here.
With the lapse in funding for the NFIP, is it true that no new policies can be written?
On December 28, 2018 FEMA announced that it will resume the sale of new insurance policies and the renewal of expiring policies.
This press release rescinds initial guidance that was issued on December 26, 2018 to suspend sales operations as a result of the current lapse in annual appropriations. The National Flood insurance Program has been reauthorized by congress until May 31, 2019.
The guidance is located here: https://www.fema.gov/news-release/2018/12/28/fema-resumes-selling-flood-insurance-policies-during-appropriations-lapse
If the Bank identifies a bookkeeping error or a posting error prior to a commercial customer notifying the Bank, does the Bank still need to fill out the Error Resolution form and/or follow the procedures set out in Reg. E for errors? We know that we need to correct the error, of course.
Technically the bank does not need to comply with the procedures set forth in section 1005.11 of Reg. E. This is for multiple reasons, though. The first and foremost reason being that the scope of Reg. E coverage is limited to consumer accounts, as the definition of “account” is narrowed to include only consumer-type accounts. Thus, when a bank encounters an error in respect to a commercial customer, the bank is not bound by Reg. E. The second reason being that errors discovered by the Bank, itself, are expressly carved out of the error resolution procedures of Reg. E. So, even if the error was in regards to a consumer account, for section 1005.11 procedures to kick in, the customer would need to notify the Bank of the error.
(b)(1) “Account” means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.
12 CFR § 1005.2(b)(1): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1005/2/#b
5. Discovery of error by institution. The error resolution procedures of this section apply when a notice of error is received from the consumer, and not when the financial institution itself discovers and corrects an error.
12 CFR § 1005.11(b)(1)-5: https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1005/Interp-11/#11-b-1-Interp
However; check your disclosures to ensure the bank has not given error resolution rights to commercial customers. If it is disclosed, we must follow our contract with the customer.
Would the bank be violating Reg. O if it offered a higher Money Market rate for just shareholders?
There is not a direct prohibition in Reg. O, since it primarily governs credit and not deposit accounts, like money market accounts. However, many banks have it in their internal policy to not give preferential interest rates to shareholders on deposit accounts either, to follow the spirit and intent of Reg O. Also, remember preferential treatment will oftentimes bring extra scrutiny.
I have a loan officer who issued a loan estimate that predates the application date by 1 day. While I don’t believe this to be best practice, I’m not certain whether it’s also a violation of regulation. Can someone please confirm?
Assuming the required six pieces of information had not been received, then at least conservatively, yes, this could be considered a violation. The timeline to provide an LE starts running from the time the application is received, which is based on when the bank received the sixth piece of required information. So an LE issued before the application wouldn't have followed the rules of being provided within 3 days after the application, and likely would not have included all of the required information.
(A) The creditor shall deliver or place in the mail the disclosures required under paragraph (e)(1)(i) of this section not later than the third business day after the creditor receives the consumer's application, as defined in § 1026.2(a)(3).
Why do we have to have two copies signed at closing for the notice of right to rescind?
The regulation requires that two copies of the notice of right to rescind be delivered to each consumer entitled to rescind, but there’s not a regulatory requirement that the copies be signed. The signature requirement may come from bank policy to document that the consumers received the notices, but the signatures aren’t required by Reg. Z.
(1) Notice of right to rescind. In a transaction subject to rescission, a creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind (one copy to each if the notice is delivered in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act).
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