Topic: Equal Credit Opportunity Act (ECOA)
-
We closed on a mortgage loan refinancing on July 1, and the borrower asked us to lower the interest rate on July 5. We refused, and the borrower is threatening to rescind the transaction on the last day of the right of rescission period — July 6. If the borrower reapplies for the refinancing after rescinding, can we reject the customer’s application?
—
by
Yes, we believe that you may reject the customer’s application, which will require you to provide an appropriate adverse action notice. Regulation B does not prohibit a creditor from rejecting an applicant due to the applicant’s previous exercise of the right of rescission. Regulation B permits creditors to consider “any information obtained” in connection with…
-
If we are underwriting a loan for renewal, and assuming that we are performing an ability-to-repay analysis, we collect the past two years’ tax returns. However, two of our borrowers have different income in 2016 than they did in past years’ one borrower is no longer employed and will be relying on social security income, and another borrower has a new job with higher income. In both cases, should we consider the current year’s income as part of the ability-to-repay and underwriting analysis? If so, in the future, do we have to consider the current year’s income for every ability-to-repay analysis?
—
by
Yes, in both cases you should consider the current year’s income as part of the ability-to-repay and underwriting analysis. Creditors generally are required to make reasonable and good faith determinations of consumers' ability to repay a loan based on eight factors, including current income and employment status. So long as a creditor considers those factors,…
-
A customer applied for a home loan, but has been unable to find a property that he wants to purchase. We know Regulation B requires us to send a notice of incompleteness within 30 days, but when is the application considered incomplete? Also, what constitutes a “reasonable period of time” for him to provide the missing information?
—
by
In our view, your customer’s application was incomplete when initially submitted. Under Regulation B, an “application” is an oral or written request for an extension of credit, while a “completed application” is “an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications…
-
A mortgage loan applicant has not signed the intent to proceed document that we provided with the early loan disclosures. Our policy and procedures state that we will not order an appraisal or obtain other documentation until we receive the signed intent to proceed. How should we proceed? Should we provide an adverse action notice?
—
by
Regulation B requires you to provide either a notice of incompleteness or an adverse action notice (a “denial for incompleteness”). Because the applicant has not provided a signed intent to proceed, which is required by your policy and procedures, we believe that you should treat the application as incomplete for Regulation B purposes (a different…
-
Can you give me the list of disclosures I would need to perform a mortgage loan renewal for a closed-end balloon loan? Can we charge the customer for an appraisal? We are not advancing new money to the borrower.
—
by
We are not aware of any laws or regulations that require you to provide specific disclosures when renewing a mortgage loan (versus refinancing a mortgage loan, which would require new TILA and RESPA disclosures). We do recommend consulting with your bank counsel when creating the loan renewal agreement and any other legal documents. In addition,…
-
We have a loan portfolio for performing and re-performing loans, including loans secured by first position liens on 1-4 dwelling units. When we utilize loan workout options for these loans (such as loan modification, short sale, and deed-in-lieu), are we required to send an appraisal notice and copies of appraisals under the Equal Credit Opportunity Act (ECOA) and Regulation B?
—
by
The answer depends on the type of workout option, but we think that certain loan modifications are subject to Regulation B — while a short sale and deed-in-lieu are not. Regulation B’s appraisal notice requirements apply whenever you receive an application for an extension of credit secured by a first lien on a dwelling. Therefore,…
-
When we renew a commercial loan, we perform an analysis to determine whether we can reuse the existing appraisal or evaluation (versus developing a new appraisal or evaluation) under the Interagency Appraisal and Evaluation Guidelines. Does that analysis trigger the Equal Credit Opportunity Act (ECOA) appraisal notice requirements? Do we need to send a copy of our analysis to the customer?
—
by
The ECOA’s appraisal notice requirement is triggered when your bank receives the application for a credit renewal, not by your bank’s analysis as to whether an appraisal or evaluation is still valid. The ECOA requires a bank to notify an applicant for credit secured by a first lien on a dwelling of their right to…
-
We are purchasing a portfolio of indirect auto loans from another bank, which permitted discretionary dealer markups for the loans’ interest rates. What due diligence do you recommend from a fair lending perspective? Could we be held liable for fair lending issues from the purchased loans? Should we perform statistical analysis on the loans before purchasing?
—
by
We believe it would be prudent to perform a statistical analysis as part of your institution’s decision to purchase the auto loan portfolio to help assess the potential legal and reputational risks involved. Purchased auto loans could pose fair lending risks to your institution, even though your institution did not originate the loans. The Equal…
-
Can we make a mortgage loan secured by property in Illinois to a nonresident alien couple who are Illinois residents?
—
by
Lending to a non-U.S. citizen is a business decision that depends on the amount of risk your institution is willing to accept. Here, we think the risks are relatively low, because the borrowers and, more importantly, the collateral securing the mortgage loan are located in Illinois. We note that in considering the customer’s ability to…