Topic: Truth in Lending Act (TILA)
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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…
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We currently charge a document preparation fee for our qualified mortgages and consider this our loan fee. The fee is the greater of .75% of the loan amount or $600. Our auditor told us we should classify this as an origination fee instead. If we classify this as an origination fee, can we charge a $600 flat fee for loans under $80,000?
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Whether you can charge a flat $600 origination fee on a qualified mortgage under $80,000 will depend on the underlying loan amount and the total amount of other points and fees that you are imposing on the loan. Regulation Z limits the points and fees that may be assessed for a qualified mortgage based on…
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The Visa Account Updater (VAU) program took effect October 1, 2016. Our core operating system obtained an extension to implement the VAU on March 31, 2017. Once the VAU program takes effect, all customers will automatically be enrolled. Are we required to inform our customers that they can opt out of the VAU program? Our core operating system provider said we are. Our Visa account representative said Visa has not established any rules on how issuers must inform their cardholders of the opt-out option, and that decisions about notifications are left up to issuers.
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In our view, it would be prudent to notify customers of their right to opt out of the new VAU program, although notification may not be expressly required. Neither Regulation E nor Regulation Z, nor any other law or rule we are aware of, expressly requires you to notify customers of the addition of the…
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When we provide consumers with an overdraft line of credit, our LaserPro disclosure form contains CFPB contact information. Do we have to include CFPB contact information if we provide an overdraft line of credit to a business?
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No, we are not aware of any requirement to include CFPB contact information in disclosures for a business overdraft line of credit. Regulation Z requires lenders to include links to the CFPB’s website in various open-end and closed-end consumer loan disclosures. Similarly, the CFPB’s Prepaid Final Rule, which takes effect October 1, 2017, requires financial…
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A borrower requested a loan secured by vacant land to pay for the nursing home expenses of an elderly parent. The loan is not a refinance because there is no existing loan, and it is not a home equity loan because there is no home on the property. What should we list as the loan’s purpose on the Loan Estimate?
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We believe that you should list the loan’s purpose as a home equity loan. Closed-end “consumer purpose” loans secured by vacant land are subject to the TILA-RESPA integrated disclosure requirements of Regulation Z, including the requirement to provide a loan estimate. Loan estimates must identify the loan’s purpose as either “purchase,” “refinance,” “construction,” or “home…
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A borrower requested two separate loans secured by a first and a second mortgage to finance the purchase of his primary residence. Are both loans considered a “Purchase” transaction for the purpose of the Loan Estimate? Or would the second mortgage be considered a “Home Equity Loan”?
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In our view, you should list “purchase” as the purpose of both loans. Under Regulation Z’s Loan Estimate provisions, the term “home equity loan” should be used to describe only those loans that are not for a purchase, refinance or construction of the real estate securing the loan. In this case, both mortgages are for…
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We had an application for a mortgage loan from an applicant whose income does not qualify under the qualified mortgage (QM) standards. His mother’s income would qualify by itself. Can we add the mother as a guarantor, even though she won’t be living in the home securing the loan?
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If the mother signs the loan as a guarantor, you would not be able to consider her income for purposes of a QM or ability-to-repay analysis. Under Regulation Z, a guarantor is not a “consumer,” and consequently her income and assets would not enter the QM or ability-to-repay analysis. If the mother instead signs the…
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Are we required to escrow for property taxes and insurance for our higher-priced mortgage loans? We qualify as a small creditor serving a rural or underserved area. However, we have started escrowing for flood insurance premiums under the new flood insurance escrow requirements that went into effect on January 1, 2016. Does that disqualify us from small creditor status?
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Yes, we have confirmed with the CFPB that escrowing flood insurance premiums will disqualify your institution from small creditor status. This is due to an apparent oversight in the interaction between the interagency flood insurance escrow rule and the higher-priced mortgage escrow rule. Under the CFPB’s higher-priced mortgage escrow rule, small creditors must meet four…
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Our bank offers a three-year, interest only home equity line of credit (HELOC) with a balloon feature, and a ten-year HELOC with a monthly payment of 1% of the balance and a balloon feature. Can we modify these loans to extend their maturity date another three or ten years and add an amortization schedule? Or would that be considered a refinancing? Does it matter if the modification occurs before or after maturity?
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We believe that you may modify the HELOCS in the way that you described before or after maturity without treating the changes as a “refinancing.” However, the language that you use in the loan modification documents will determine whether you achieve this result. The Seventh Circuit has considered a similar issue, albeit in the context…
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At what annual percentage rate is a first-lien loan on a principal dwelling considered high cost? And what are the 2017 total loan and statutory fee thresholds for high-cost loans?
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A loan is considered high-cost if the transaction’s annual percentage rate (APR) exceeds the Average Prime Offer Rate (APOR) for comparable transactions on that date by more than 6.5 percentage points for a first-lien dwelling secured transaction, unless the dwelling is personal property and the loan amount is less than $50,000. In such a case,…