Topic: Mortgage Loans
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We are a HMDA reporter but have not reported open lines of credit in the past, and we are exempt from reporting in 2018 (we do not meet the 500 loan threshold for open-end lines of credit). Under Regulation B, can we collect government monitoring information (GMI) for open-end home purchase loans and refinances?
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Yes, Regulation B permits (and actually requires) lenders to collect an applicant’s GMI — ethnicity, race, sex, age, and marital status — open-end home purchase loans or refinancings, provided that they are to be secured by the applicant’s principal residence. In general, Regulation B prohibits lenders from collecting certain personal information from applicants, including ethnicity,…
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We were recently told that the Customer Due Diligence (CDD) rule requires us to obtain beneficial ownership certification when a legal entity customer’s certificate of deposit or loan is renewed, even when there is no change to account. Is that true? Is there any chance that this requirement may be challenged in the future?
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Yes, until FinCEN issues clarifying guidance on this point, CD and loan renewals should be considered “new accounts” under the CDD rule for the purpose of obtaining beneficial ownership certifications. The CDD rule’s identification and certification requirements regarding beneficial ownership apply each time a “new account” is opened for a legal entity (unless the customer…
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At a recent seminar, we were told that we were required to escrow for flood insurance starting January 1, 2016. As a “small lender” under the FDIC flood insurance rules, aren’t we exempt from that requirement? Before 2012, we never had a policy of regularly requiring escrow for any charges. However, now we require escrow for taxes and insurance for higher-priced mortgage loans (HPMLs). Do we lose our “small lender” exemption if we escrow for taxes and insurance for HPMLs, even if we are well under the asset threshold? Also, is an investment purpose loan secured by a 1-4 family residence exempt from escrow requirements?
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No, if your bank began escrowing for taxes and insurance after 2012, your bank will not lose its “small lender” exemption from the general requirement to escrow flood insurance premiums for residential mortgage loans that are made, increased, extended or renewed on or after January 1, 2016. A small lender is exempt from the flood…
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We understand that Fannie Mae and Freddie Mac have redesigned their Uniform Residential Loan Application (URLA). Is their revised URLA available for use yet?
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The revised Uniform Residential Loan Application (URLA) has been published, but banks may not begin using the revised ULRA until July 2019. The government sponsored enterprises will require the use of the revised ULRA for all new loan applications in February 2020. For resources related to our guidance, please see: Uniform Residential Loan Application (URLA)…
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We made a loan secured by rental property to an individual. The rental property did not have any outstanding liens when we made the loan. The loan purpose was to purchase another rental property. We issued a Loan Estimate and Closing Disclosure for the loan, even though Regulation Z did not apply due to the loan’s business purpose. On review, I saw that the Loan Estimate listed the loan purpose as “Home Equity Loan,” but the Closing Disclosure listed the loan purpose of “Refinance.” What was the correct loan purpose?
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We recommend placing a memorandum in the loan file to document that the Loan Estimate and Closing Disclosure were issued in error, as the loan was made for a business purpose and was not subject to the CFPB’s loan disclosure rules. The memorandum should also note that these loan documents misstated the loan purpose as…
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How should we disclose fees that do not appear on our note or a separate fee schedule, such as a flat fee for payments made by phone? If a customer service representative informs a customer about the pay-by-phone fee, does that satisfy any disclosure requirements?
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We do not recommend charging fees that are not disclosed in your loan agreement or in another document that is incorporated by reference, such as a fee schedule or “rules and regulations.” A verbal disclosure of a fee not previously disclosed would not suffice. If you are contemplating a new fee, such as a pay-by-phone…
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When we renew a HELOC, we charge certain renewal-related loan fees that we classify as finance charges. What is the appropriate way to disclose these renewal-related loan fees on a periodic statement? If we treat the renewal as a new loan and issue a new “first” statement, our software would permit us to include the renewal-related fees as “start up” charges that we could add to the finance charge. However, if we treat the renewal as a continuation of the existing HELOC and issue a regular periodic statement, our software does not permit us to include the renewal-related loan fees as part of the finance charge. Our HELOC renewals typically involve extending the maturity date and adjusting the interest rate. We use Regulation Z’s “home secured” format for our periodic statements.
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We do not have enough information to determine exactly how to classify your “renewal-related” loan fees. However, if you include the fees as part of the finance charge, Regulation Z’s “home-secured” periodic statement rules require the fees to be itemized and identified on a periodic statement, regardless of whether it is the first periodic statement…
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Under the new Mortgage Servicing Rules that took effect October 19, 2017, we are required to make “good faith efforts” to establish live contact with a delinquent borrower no later than the 36th day of delinquency and again no later than 36 days after each payment due date. Does this mean that we must continue to make phone calls until a foreclosure sale is confirmed? Our bank does not qualify as a small servicer.
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No, in general we do not believe that a loan servicer’s responsibility to make good faith efforts to establish live contact always requires phone calls to be made up to the date of the final foreclosure sale. A servicer’s obligation to make live contact varies from case to case. (While not applicable here, we also…
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Can we accept flood insurance from a private insurer? If so, are there requirements the insurer must meet?
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Yes, we believe that you may — but are not required to — accept private flood insurance. The Biggert-Waters Flood Insurance Reform Act of 2012 (Act) included a provision directing the federal banking agencies to promulgate a rule to require regulated lending institutions to accept private flood insurance. This provision will only become effective when…
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Currently, our loan originators receive the same flat commission for traditional closed-end mortgage loans as for closed-end home equity loans. Our traditional mortgage loans typically have 15 – 30 year terms, with higher closing costs and lower rates, and our home equity loans typically have shorter terms, at lower loan amounts, with no closing costs but higher interest rates. Can we reduce the commission for the home equity loans, since they often are not as profitable as traditional mortgage loans (due to the lower loan amounts and closing costs)?
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We do not recommend varying the compensation paid to loan originators based on the type of loan originated, due to Regulation Z’s prohibition on compensating a loan originator “based on a term of a transaction” or “a factor that is a proxy for a term of a transaction.” We believe that lowering the loan originator…