I'm not sure how to handle deferred student loan payments. I have a borrower that is working as a teacher and stated that her student loans would be paid for by the state. Does Appendix Q state that I can in essence ignore these debts?
The bank can exclude them if they can show written evidence that they are not due until after 12 months from closing. Otherwise, they would need to be included, unfortunately, as set out here:
1. Projected Obligations
a. Debt payments, such as a student loan or balloon-payment note scheduled to begin or come due within 12 months of the mortgage loan closing, must be included by the creditor as anticipated monthly obligations during the underwriting analysis.
b. Debt payments do not have to be classified as projected obligations if the consumer provides written evidence that the debt will be deferred to a period outside the 12-month timeframe.
For SCRA purposes, if a customer we know has been called into service comes into the bank to lower their rate, does the bank have to require proof of military service?
No - there is not an actual requirement to collect or file proof of military status as license to reduce the rate under the SCRA. However, the bank may have internal procedures mandating personnel to do so, and this is quite common in the industry. In addition, ensure that if the bank does have a policy related to this, that it is applied consistently for fair lending purposes.
We have a commercial loan transaction where the borrower is purchasing a commercial building and repurposing it into 18 residential condos. Is this loan HMDA reportable?
Unfortunately, the regulation does not specifically address the situation of a non-residential building is being converted to a dwelling after consummation. While there is an argument that this is not a "dwelling" at consummation, in grey areas, we'd generally interpret that it's more conservative to report than not. So the bank may choose to report this to be on the safe side, but whichever way it chooses, it should document its reasoning and apply it consistently to any similar situations that may come up in the future.
If a consumer is disputing a POS transaction and it is not fraud (i.e. merchandise never received, service canceled, and company debited account or any other reason than a fraud transaction), are we required under Reg. E to give provisional credit while we complete our investigation?
As the customer has asserted that an error took place, you are required to conduct an investigation. Subject to certain limitations, if the investigation takes more than 10 days, you have to issue a provisional credit to the customer’s account. If your investigation reveals that the customer authorized the transaction in the amount transferred, then it would not be a Reg. E error. At that point, you need to provide a written explanation of the results of your investigation and debit any provisional credit.
The term “error” means:
(i) An unauthorized electronic fund transfer;
(ii) An incorrect electronic fund transfer to or from the consumer's account;
(iii) The omission of an electronic fund transfer from a periodic statement;
(iv) A computational or bookkeeping error made by the financial institution relating to an electronic fund transfer;
(v) The consumer's receipt of an incorrect amount of money from an electronic terminal;
(vi) An electronic fund transfer not identified in accordance with § 1005.9 or § 1005.10(a); or
vii) The consumer's request for documentation required by § 1005.9 or § 1005.10(a) or for additional information or clarification concerning an electronic fund transfer, including a request the consumer makes to determine whether an error exists under paragraphs (a)(1)(i) through (vi) of this section.
§ 1005.11(a): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1005/11/#a
In addition to following the procedures specified in paragraph (c) of this section, the financial institution shall follow the procedures set forth in this paragraph (d) if it determines that no error occurred or that an error occurred in a manner or amount different from that described by the consumer:
(1) Written explanation. The institution's report of the results of its investigation shall include a written explanation of the institution's findings and shall note the consumer's right to request the documents that the institution relied on in making its determination. Upon request, the institution shall promptly provide copies of the documents.
(2) Debiting provisional credit. Upon debiting a provisionally credited amount, the financial institution shall:
(i) Notify the consumer of the date and amount of the debiting;
(ii) Notify the consumer that the institution will honor checks, drafts, or similar instruments payable to third parties and preauthorized transfers from the consumer's account (without charge to the consumer as a result of an overdraft) for five business days after the notification. The institution shall honor items as specified in the notice, but need honor only items that it would have paid if the provisionally credited funds had not been debited.
§ 1005.11(d): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1005/11/#d
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
Compliance Alliance offers a comprehensive suite of compliance management solutions.
To learn how to put them to work for your bank, call (888) 353-3933 or email email@example.com.