Topic: Truth in Lending Act (TILA)
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Does a Closing Disclosure (CD) ever expire? We issued a CD, but the closing now has been delayed for 60 days. We plan to issue revised CDs if there are any changed circumstances, but we want to confirm that whatever we issue will not expire.
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Closing Disclosures do not have an expiration date. Regulation Z establishes a minimum but not a maximum number of days before closing that a CD generally must be provided. However, a CD must be accurate, so any changes that occur before closing — including a new closing date — must be disclosed on a revised…
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We are a small servicer, but we voluntarily provide periodic statements to mortgage borrowers, as required for large servicers. When the CFPB’s amendments to the servicing rules go into effect in April of 2018, would we incur any implied liability for sending the modified periodic notices for borrowers in bankruptcies? Could we instead discontinue sending periodic notices altogether to customers who have filed for bankruptcy and have not reaffirmed the debt?
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No, we do not believe that you would incur any liability for sending the modified periodic statements for consumers in bankruptcy under the CFPB’s amended mortgage servicing rules. The CFPB designed its modified periodic statements to comply with the Bankruptcy Code’s prohibition against contacting borrowers who have filed for bankruptcy and are subject to the…
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Can we modify a commercial loan after maturity without entering into a new mortgage and issuing a new note?
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Yes, you may modify a matured commercial loan without issuing a new note or mortgage, provided that you enter into a modification agreement rather than by refinancing the loan. To determine whether a subsequent loan transaction constitutes a modification, which can be affected through a modification agreement, or a refinancing, which generally requires a new…
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Am I correct that if a mortgage loan obligation is being satisfied and replaced, BUT falls into one of the following five categories, it is not a refinance and would not require new disclosures under Regulation Z? The five categories are: (1) A renewal of an obligation with a single payment of principal and interest or with periodic interest payments and a final payment of principal with no change in the original terms, (2) an APR reduction with a corresponding change in the payment schedule, (3) an agreement involving a court proceeding, (4) changes in credit terms arising from the consumer’s default or delinquency (except rate increases or new amounts financed), and (5) the renewal of optional insurance purchased by the consumer and added to an existing transaction, if required disclosures were provided for the initial purchase of the insurance.
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Yes, your understanding is correct. The five transaction categories that you provided are all exceptions from the general definition of a refinancing. The general rule in Regulation Z is that a new obligation satisfying and replacing the original obligation is a refinancing requiring new disclosures. But if a transaction fits into one of the five…
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We service student loans made by trusts for which our trust department serves as trustee. If the student borrowers meet certain conditions, such as finding employment in their field of study, then the loan is forgiven (it becomes a “scholarship”). If not, the student must pay back the loan to the trust. The loan terms are longer than a year, and they are unsecured. Is our bank considered a servicing agent for these loans? If so, what regulations apply? What disclosures are required?
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Do any of the trusts make more than twenty-five unsecured loans in a calendar year? If not, all of their student loans likely are exempt from Regulation Z. Regulation Z exempts creditors that make fewer than twenty-five unsecured loans annually, and its Official Interpretations treat these trusts as “separate entities” when counting their loans. But…
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We make fewer than fifty closed-end, first-lien residential mortgage loans per year, which we keep in our portfolio, and we have under $2 billion in assets. Can we make “small creditor” qualified mortgages (QMs)? Also, are QMs required to have a loan-to-value (LTV) ratio under 80%? Our previous compliance officer said this was a requirement.
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Since your bank has less than $2 billion in assets, and it originates and sells less than 2,000 residential mortgages in each previous calendar year, the bank meets the definition of a “small creditor” under Regulation Z. Generally, QMs are subject to a number of requirements, including a maximum 43% debt-to-income (DTI) ratio. However, as…
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Should we include an e-recording fee in the finance charge and APR calculations?
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E-recording fees are excluded from the finance charge and APR calculations, provided that they are itemized and disclosed and are paid directly to the county recorder (not paid to or through a third party). For resources related to our guidance, please see: Regulation Z, 12 CFR 1026.4(e) (“If itemized and disclosed, the following charges may…
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On our consumer real estate loans, we charge a “Processing fee” that is actually a fee charged to us by the purchaser of the loan. The purchaser charges us a processing fee, which we pass on to the borrower. In addition to this “processing fee,” we would like to charge a “document preparation fee” to cover our internal costs to prepare the real estate documents associated with the loan. Is there any reason we cannot charge both fees? Would they both be part of the finance charge?
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We are not aware of any prohibition against charging both the “processing fee” and “document preparation fee” that you have described, provided that both fees are accurately disclosed to the borrower. Regarding the finance charge calculation, under Regulation Z, charges imposed on a creditor by another person for purchasing a consumer's obligation are included in…
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Are appraisals required for transactions under $250,000? I understand that an appraisal on such a transaction may be required for safety and soundness reasons, but is an appraisal required under any appraisal regulations?
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Interagency Appraisal Regulations and Guidance The Appraisal Regulations permit the use of evaluations in lieu of appraisals for transactions under $250,000, but sometimes such transactions nonetheless require an appraisal for safety and soundness reasons. (We reference the FDIC’s appraisal regulations below, as the FDIC is your bank’s primary federal regulator.) While we cannot predict whether…
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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…