Topic: Truth in Lending Act (TILA)
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Is a final inspection fee included in the APR calculation? Our understanding is that if the final inspection is completed after closing, the fee should be included in the APR calculation. For example, we made a loan to fund an improvement, and we performed a final inspection after the closing to confirm that the value with the improvement was consistent with our “as improved” appraisal.
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Yes, a fee for an inspection that is conducted after the loan closing should be included in the finance charge and annual percentage rate (APR) calculation. Regulation Z excludes from the finance charge calculation “fees for inspections . . . if the service is performed prior to closing” for real estate and residential mortgage transactions.…
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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 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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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…
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A mortgage loan customer chose an unaffiliated title company from our service provider list. The title company provided a quote for its title services as well as its fee for conducting the loan closing, and we disclosed both charges on our Loan Estimate. But we recently learned of two changes: the bank will be conducting the loan closing in-house, eliminating the closing fee, but the title company underestimated its quote for the title services due to a clerical error. Can we charge the borrower the correct, higher fee? And when calculating our 10% good faith tolerance levels, can we account for the closing fee that has been dropped?
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Yes, you may charge the borrower the correct amount for the title insurance policy — even if it is higher than what you disclosed in your LE — provided that the increase does not cause the total closing costs to exceed the 10% good faith tolerance level for required services that the borrower shopped for.…
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When a borrower has been delinquent for at least ninety days, we used to send a letter demanding the entire amount past due, with a lockout preventing payments from processing. Under the latest mortgage servicing amendments that went into effect in October of 2017, can we still send out this letter and refuse to credit loan payments? Will we be able to file a foreclosure action after 120 days of delinquency? We are a small servicer.
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Yes, we believe that your bank may send demand letters and refuse to credit monthly loan payments on a delinquent closed-end consumer mortgage loan, provided that you already have accelerated the loan because of the delinquency. The general rule under Regulation Z for closed-end consumer mortgage loans is that servicers must credit periodic payments covering…
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We compensate our loan originators based on loan volume. We are considering hiring a loan originator who would act as a team lead who would manage other loan originators. To incentivize this employee to mentor and encourage those team members, we would like to compensate the team lead for the production of the team members. Can we compensate a loan originator for loans originated by other employees?
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Yes, we believe that your bank may compensate loan originators based their team members’ loan volume (in addition to their own loan volume). Regulation Z prohibits loan originator compensation that is based on the terms of the transactions that they originate. But this prohibition does not apply to compensation based on an individual loan originator’s…