Topic: Equal Credit Opportunity Act (ECOA)
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We received an application for a 30-year mortgage from an applicant who is 90 years old. If we had to foreclose after the borrower’s death, the collateral’s value would cover the loan amount and the foreclosure costs. A compliance examiner told us that because the applicant has passed the national life expectancy, we should counteroffer with modified loan terms, even though the loan is adequately secured.
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We believe that the compliance examiner is mistaken; denying a loan application or offering less favorable terms based on an applicant’s age likely would violate Regulation B. The general rule under Regulation B is that a creditor may not treat one applicant less favorably than other applicants on the basis of age. There is an…
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Our loan document system does not produce an appraisal notice for home equity lines of credit (HELOCs). Is that correct?
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Regulation B requires lenders to provide a notice of appraisal rights for credit applications secured by a first lien on a dwelling. The appraisal notice is not required for HELOCs secured by a second or junior lien. However, if a HELOC will be secured by a first lien on a dwelling (for example, when the…
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We have several closed employee loan files. What is the record retention period for these? Is it the same as for other loan files, or is the retention period longer for employee loan files?
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Loans to employees are not subject to longer record retention periods than loans to other customers, although Regulation O imposes certain additional recordkeeping requirements for loans to employees who are considered “insiders” of your financial institution. The statute of limitations for written contracts in Illinois is ten years. Consequently, the most conservative practice would be…
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Can we provide realtors with coupons to hand out in relation to our home loans (e.g., a coupon offering a free appraisal or a waived loan origination charge)? We know there may be some fair lending risks because the realtors can select who will receive the coupons, but could we alleviate that risk by making the coupons available in our lobby? In addition to fair lending issues, are there any RESPA Section 8 concerns?
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We recommend instituting safeguards addressing possible fair lending and UDAAP concerns, but we do not believe this practice would violate the RESPA prohibition of kickbacks for referrals of mortgage services. The coupon program you described does raise some fair lending concerns, particularly because disseminating the coupons has the potential to have a “disparate impact” on…
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Our external auditors told us that we must ask all consumer and mortgage loan applicants from a community property state whether they have a prenuptial agreement. Is that required?
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We are unaware of any requirement to inquire about a potential borrower’s prenuptial or premarital agreements in a community property state. Still, we can see how this information could be helpful, as prenuptial or premarital agreements may contain information needed to underwrite a loan. For example, a prenuptial agreement could clarify the ownership of property…
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Occasionally we have consumer (non-real estate) loan applicants who report having zero housing expenses — for example, because a significant other pays the rent. Can we add a hypothetical housing expense in our debt-to-income (DTI) calculation for these applicants?
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While we do not believe this practice is expressly prohibited or otherwise per se unlawful, it would entail some risk for the bank, and we recommend proceeding with caution if you use this approach. Adding hypothetical housing expenses to a loan applicant’s DTI calculation has the potential to create a disparate impact on (or to…
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If our bank does not want to renew a closed-end residential real estate loan, can we notify the borrower after the loan matures? Or do we have to provide notice at some point before maturity?
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Unless your loan agreement creates a renewal notice obligation, we are not aware of any requirement to notify a borrower of your intent to not renew a loan, either before or after the loan’s maturity. However, we do note that Regulation B requires a lender to send an adverse action notice within 30 days after…
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Our trust department is planning to offer loans for post-secondary education funded by trust accounts. Is our bank now considered a servicing agent for these loans? If so, what regulations apply? What disclosures are required?
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These loans likely will be considered private education loans governed by Regulation Z. The term “private education loan” includes extensions of credit made for postsecondary education expenses made to consumers — and Regulation Z defines consumer credit to include credit extended to trusts for personal, family or household purposes. There are exclusions from the definition…
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Is there a record retention requirement for deposit account denials? When any potential customer asks to open a deposit account, we use an account screening service to determine whether to open the account. If we deny an account based on that screening, we provide the customer with our adverse action notification on the spot. Do we have to retain that notice? If so, for how long?
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We are not aware of any record retention requirement for deposit account denials. However, you may wish to follow the same record retention requirements in Regulation B regarding adverse action notices for credit applications. Under Regulation B, adverse action notices regarding credit applications must be retained for 25 months for consumers and 12 months for…
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Which disclosures are required for a loan to purchase a commercial rental property that has one business building and one house on it? The borrower will rent the house out to a third party.
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Since this is a commercial loan, the disclosure requirements under both Regulation Z and Regulation X will not apply provided that the loan is “primarily for a business, commercial or agricultural purpose.” However, even in the context of a commercial loan, as in this case, to the extent that the mortgage covering the dwelling is…