Paragraph 36(g)(1) - Responsive and Adaptive Mobile Web …



Mandatory Compliance Training for Loan OriginatorsSession Three in the Quarterly SeriesTuesday, November 17, 201510:00-12:00 Central2015Susan Costonis, C.R.C.pliance Consulting & Training For Financial Institutions E-mail: susancostonis@ sThe material used in this text has been drawn from sources believed to be reliable. Every effort has been made to assure the accuracy of the material; however, the accuracy of this information is not guaranteed. The laws and regulatory guidance may be changed often so the user must verify whether or not the information remains current. The Mandatory Compliance Training for Loan Originators, Session Three manual is sold with the understanding that the publisher and the editor are not engaging in the practice of law or accounting. We are not responsible for the actions of your company's employees. The text is designed to address a variety of fair lending compliance issues. However, you will wish to consult with your compliance staff and/or attorney when you are not sure of an answer. Published by:Susan Costonis, C.R.C.MCompliance Training and Consulting for Financial InstitutionsE-mail: susancostonis@ 2aAll rights reserved. This material may not be reproduced in whole or in part in any form or by any means without written permission from the publisher.Printed in the United States of America.INSTRUCTORSusan Costonis is a compliance consultant and trainer. She also has an affiliation with gettechnical inc. as an associate trainer. Her 37 19050635year career in banking and training began with 20 years at First National Bank an affiliate Wells Fargo Bank, in Fort Collins, CO. Susan has been a bank compliance consultant or compliance officer in Louisiana since 1998. During her career, Susan has successfully managed compliance programs and exams for institutions supervised by the OCC, FDIC, and Federal Reserve. She is a Certified Regulatory Compliance Manager and completed the ABA Graduate Compliance School. Susan also graduated from the University of Akron with a B.S in Art Education and the Graduate Banking School of the University of Colorado.susancostonis@ (e-mail) TABLE OF CONTENTS TOC \o "1-3" \h \z \t "Chapter,1,Subchaptertitle,2" BIG PICTURE ON MORTGAGE LIFE CYCLE PAGEREF _Toc433102509 \h 7POSSIBLE LOAN DECISIONS PAGEREF _Toc433102510 \h 13FIL-27-2015 INTERAGENCY EXAM PROCEDURES FOR TRID PAGEREF _Toc433102511 \h 14FIL43-2015 INTEGRATED DISCLOSURE EXPECTATIONS PAGEREF _Toc433102512 \h 15TOLERANCES ON THE LOAN ESTIMATE PAGEREF _Toc433102513 \h 16REVISED LOAN ESTIMATES AND TOLERANCES PAGEREF _Toc433102514 \h 18WHICH REPSA RULES STILL APPLY? PAGEREF _Toc433102515 \h 19CHECKLISTS FOR APPROVED LOANS PAGEREF _Toc433102516 \h 20CHECKLIST FOR CONSUMER CLOSED END REAL PROPERTY 10 3 15 PAGEREF _Toc433102517 \h 25CFPB ANNOUNCES HMDA CHANGES FOR 2018 PAGEREF _Toc433102518 \h 28HMDA - PURPOSE AND COVERAGE PAGEREF _Toc433102519 \h 29HMDA FLOW CHART PAGEREF _Toc433102520 \h 30HMDA REPORTING BASICS PAGEREF _Toc433102521 \h 312015 REPORTING CRITERIA FOR DEPOSITORY INSTITUTIONS PAGEREF _Toc433102522 \h 32IMPORTANT HMDA DEFINITIONS PAGEREF _Toc433102523 \h 33GOVERNMENT MONITORING INFORMATION PAGEREF _Toc433102524 \h 37HMDA DATA EXCLUSIONS PAGEREF _Toc433102525 \h 39NAME AND NMLSR ID ON LOAN DOCUMENTS PAGEREF _Toc433102526 \h 40CHANGES WITH INTEGRATED DISCLOSURES PAGEREF _Toc433102527 \h 42REG Z CHEAT SHEET HIGH COST MORTGAGE LOANS PAGEREF _Toc433102528 \h 43REG Z CHEAT SHEET ESCROW REQUIREMENTS PAGEREF _Toc433102529 \h 45CHEAT SHEET MANDATORY HOMEOWNERSHIP COUNSELING PAGEREF _Toc433102530 \h 47REG B DISCLOSURES PAGEREF _Toc433102531 \h 49ADVERSE ACTION NOTICES PAGEREF _Toc433102532 \h 51COVERAGE OF FLOOD REGULATION PAGEREF _Toc433102533 \h 53WHAT IS INSURABLE? PAGEREF _Toc433102534 \h 55STANDARD FLOOD HAZARD DETERMINATION FORM PAGEREF _Toc433102535 \h 57FLOOD LAW CHANGES PAGEREF _Toc433102536 \h 59APPENDIX PAGEREF _Toc433102537 \h 62HMDA STEP BY STEP CONTROLS PAGEREF _Toc433102538 \h 63RIGHT OF RESCISSION BASICS PAGEREF _Toc433102539 \h 67RESCISSION REMINDERS PAGEREF _Toc433102540 \h 69REG B CHEAT SHEET APPRAISAL COPY RULES PAGEREF _Toc433102541 \h 71FIL-32-2015 LOANS IN AREAS OF SPECIAL FLOOD HAZARDS PAGEREF _Toc433102542 \h 77FIL-28-2014 FLOOD INSURANCE “OTHER RESIDENTIAL BUILDINGS” PAGEREF _Toc433102543 \h 78CALCULATING COVERAGE EXAMPLES PAGEREF _Toc433102544 \h 79ALTERNATE COVERAGE WORKSHEET PAGEREF _Toc433102545 \h 83“OLD” REAL ESTATE LOAN MATRIX PAGEREF _Toc433102546 \h 84TRID REAL ESTATE LOAN MATRIX PAGEREF _Toc433102547 \h 87SEMINAR OBJECTIVESWill you be able to prove compliance with this Regulation Z training requirement in 2015 for loan originators in the next compliance exam? Commentary to 1026.36(f)(3)(iii)Training. The periodic training required in §?1026.36(f)(3)(iii) must be sufficient in frequency, timing, duration, and content to ensure that the individual loan originator has the knowledge of State and Federal legal requirements that apply to the individual loan originator's loan origination activities.. Session THREE in the quarterly series will focus on the end of the “mortgage life cycle: and the requirements when the loan application has been approved, approved not accepted, denied, or withdrawn. How do you close an approved mortgage loan request? What documents are required? What appraisal copy rules must be followed prior to closing? What procedures must be followed for Regulation B, Z, RESPA, HMDA, and Flood? There are additional “post closing” requirements to correctly report the transactions on the HMDA LAR.WHAT YOU WILL LEARN:What disclosures are required for TILA (Regulation Z) and RESPA at closing? These rules must be followed for all loans “in the pipeline” with application dates prior to October 3rd.The INTEGRATED DISCLOSURES became effective on October 3rd. How are these procedures different from the “old” TILA/RESPA process?? Are you in compliance?What RESPA rules still apply?What are the special rules for closing an HPML and a High-Cost Mortgage?What rescission rules must be followed? ?When do they apply?What are the appropriate notifications for denied loans? How should approved, not accepted and withdrawn loan applications be documented??Review of the Closing Disclosure and common mistakes; tolerance reviews and reimbursement rulesHMDA reporting review ?Flood Determination Process and calculation examplesLearn how to prove the loan originators have sufficient knowledge for their job responsibilities.WHO SHOULD ATTEND?This informative session is designed for auditors, loan officers, loan assistants, and loan administration staff. This webinar is designed to satisfy the annual training requirements for loan originators and support staff..BIG PICTURE ON MORTGAGE LIFE CYCLE This information is listed as the “TIMETABLE” in the Real Estate MatrixTIMETABLEAT APPLICATION:Written Application (1)Request Government Monitoring (2)CHARM Booklet & ARM Disclosure (4*)HELOC Booklet & Disclosure (4**)*If the loan has a variable rate (and term greater than one year) provide a CHARM booklet and variable rate program disclosure with application.**If a HELOC, provide a program disclosure & brochure with application. Don’t request verification documentation or collect fees (other than credit report) until the loan estimate has been provided AND the applicant indicates an “intent to proceed”! 3 BUSINESS DAYS AFTER RECEIVING APPLICATIONRESPA Homeownership Counseling List (3)Servicing Disclosure Statement (1st Lien only) (3) – Now on the LOAN ESTIMATE for loans covered by TRID on/after October 3, 2015.“Home Loan Tool Kit” for TRID – closed-end purchase/construction only ; Settlement Cost Booklet – modified for reverse mortgages Loan Estimate (4)HPML (7) & ECOA (10) Appraisal NoticeBEFORE CLOSING (PRE-TRID)BEFORE CLOSING (TRID – Applications for covered loans on or after 10/3/15)Ability to REPAY (5)HCM Test (6)HCM Notice – 3 Business days Prior to Closing (6)HCM Counseling Certification (6)HPML Test (7)HPML (7) and ECOA (10 Appraisals – No later than 3 Business Days Prior to ClosingFlood Determination (9)Flood Notice – Zones A & V only – Approximately 10 days prior to closing (9)Ability to REPAY (5)Closing disclosure (5) must be “delivered” 3 business days prior to closingHCM Test (6)HCM Notice – 3 Business days Prior to Closing (6)HCM Counseling Certification (6)HPML Test (7)HPML (7) and ECOA (10 Appraisals – No later than 3 Business Days Prior to ClosingFlood Determination (9)Flood Notice – Zones A & V only – Approximately 10 days prior to closing (9)AT LOAN CLOSING (PRE-TRID)AT LOAN CLOSING (TRID – Applications for covered loans on or after 10/3/15)Settlement Statement (HUD 1/1-A (3)Final Truth in Lending Disclosure (5)Right of Rescission Notice (6)HPML Escrow Account (7)Flood Insurance in Place (9)Closing Disclosure/Final Truth in Lending Disclosure (5)Right of Rescission Notice (6)HPML Escrow Account (7)Flood Insurance in Place (9)4th BUSINESS DAY AFTER LOAN IS CLOSEDAdvance Loan ProceedsTIMING IS EVERYTHING Preliminary InformationFive IssuesAt application Five Issues As soon as possible Two Issues Within 3 business days after a traditional application Three Issues Within 3 business days after a RESPA application Four Issues Prior to closing Nine Issues Closing preparation Six Issues Waiting periods before closing Three Issues At closing Four Issues After closing One Issue PRELIMINARY INFORMATION:One of the most common loan applications is a consumer purpose, closed-end request that is secured by real estate and a dwelling. These requests were covered by RESPA and Truth in Lending disclosures until October 2, 2015. IMPORTANT TRID CHANGES became effective October 3, 2015.For TRID - New loan types are covered that include requests to finance closed-end real property FOR A CONSUMER PURPOSEThis application will trigger the need to document information or ask questions for FIVE issues. ISSUE #1 –If it is covered by TRID, what is the application date? (Typically the date the customer requests a loan, the request is not an application covered by TRID until you have these six pieces of information: (note, it is possible to “sequence” the collection of this information)Applicant’s nameApplicant’s social security numberProperty addressMonthly incomeEstimate of property valueLoan amount requestedApplication Date Documenting the application date is critical because this date drives the time clock for providing disclosures & accurate HMDA reporting Ability to Repay type Is this loan subject to normal ATR documentation or is it a Qualified Mortgage? Loan Type Is this a new loan or a refinance transaction? Lien Status Is this a first or second-lien loan Dwelling Type Is this the applicant’s principal dwelling, vacation home, or non-owner occupied dwelling? NOTE: at the time of application, provide ARM disclosures if applicableAT APPLICATION– Five IssuesWritten Application(with NAME and NMLS# of LO) Reg B required a written application for the purchase or refinance of purchase # of a principal dwelling. Reg Z requires the name and NMLS # of the bank & lender effective January 1, 2014 Intent to apply for joint credit Reg B requires documentation of the joint intent to apply at time of application; signatures or initials on a credit application may be used. Monitoring Data There are two types of requirements: HMDA banks (ethnicity, race & sex – reported; must also collect marital status & age) & non-HMDA banks (ethnicity, race, sex, marital status & age) CIP rules Verify the applicant name, DOB, Address & SSN Credit Insurance disclosures If the bank offers credit insurance, provide disclosure stating that the bank can’t condition approval based on the purchase of insurance APPLICATION LIFE CYCLE – Two IssuesAS SOON AS POSSIBLERisk-based pricing disclosures (credit score disclosures) Most community banks use the “exception” option to provide a Credit Score Notice; there is one for loans secured by residential real property and one that is not secured. Credit score disclosures This notice is required when a bank uses a credit score in connection with a residential real estate loan. Disclosure of Credit Score information andNotice to Home Loan ApplicantThe notices are often combined and prepared by a credit reporting agency. WITHIN 3 BUSINESS DAYS AFTER A TRADITIONAL APPLICATION; SEE NEXT SECTION FOR ADDITIONAL RESPA ISSUESWITHIN 3 BUSINESS DAYS AFTER A TRADITIONAL APPLICATIONTRID RULES Reg Z requires a Early TIL for a closed-end loan secured by the consumer’s dwelling (mobile home without land). It must be provided or mailed no later than the 3rd business day after application, unless the loan is denied or withdrawn in that 3 day period (General business day rule). Waiting periods: Loan can’t close until:7th business day after initial disclosure is mailed/delivered or3rd business day after corrected disclosure was received . HPML Copy of Appraisal Notice1026.35(c) Effective 1/18/14 - provide “Notice of Right to Receive Valuation” within 3 business days after application. Several exemptions apply (QM, bridge, initial construction, <$25k, MH, streamlined ref. ECOA Copy of Appraisal Notice1002.14 Effective 1/18/14 for first-lien - provide notice within 3 business days after application. Form C-9—Sample Disclosure of Right to Receive a Copy of AppraisalsWe may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close.You can pay for an additional appraisal for your own use at your own cost NOTE: IF THE APPLICATION IS BOTH A HPML AND FIRST MORTGAGE:USE THE ECOA NOTICE WORDING TO SATISFY BOTH RULES. FOR APPLICATIONS ON OR AFTER OCTOBER 3RD, 2015 THE APPRAISAL NOTICE APPEARS ON THE LOAN ESTIMATE. WITHIN 3 BUSINESS DAYS AFTER APPLICATION – TRID/RESPA ISSUESEarly DisclosuresLoan Estimate – 1026.19(e), including list of “Services You Can Shop For”, 1026.19(e)(10(vi)(C)RESPA Counseling List - 1024.20 Reg Z and X require these disclosures to be provided or mailed within 3 business day after application:Loan EstimateWritten List of providers (if borrower can shop for required 3rd party settlement service)Home Loan Toolkit (not required on subordinate liens & refinancings)List of HUD-approved homeownership counseling organizations CFPB Guidance An Interpretive Rule issued November 14, 2013 instructs banks to provide a list of the 10 organizations closest to the applicant’s location. To find this list, go to the CFPB’s website () and conduct a search for “homeownership counseling.” Simply enter the applicant’s zip code to obtain the appropriate list. MUST BE UPDATED EVERY 30 DAYS. Denied/Withdrawn & definition of business day If the application is denied or withdrawn within the three-business-day period, these early disclosures are not required. A general business day is a day on which the offices of the bank are open to the public for carrying on substantially all of the bank's business functions. PRIOR TO CLOSING– NINE IssuesAbility to Repay/QM options Flood Insurance Notice – (A &V Zones only, approximately 10 days prior to closing and adequate flood insurance in place.Appraisal or Valuation copy provided no later than 3 business days prior to closingSpecial HPML appraisal rules High-Cost Mortgage Rules (HOEPA), HCM TestCorrected Early Truth in Lending Disclosure HPML Escrow Account Homeownership Counseling – HCM Counseling CertificateClosing Disclosure for loans covered by TRID, delivered no later than 3 business days prior to closingPOSSIBLE LOAN DECISIONSApprovedGenerate Closing Disclosure & deliver 3 business days prior to closing; verify accuracy of APR.As required, provide rescission notices ( purchase loan is exempt)Calculate Flood Insurance and have proof of insurance at closing, Check for any additional requirements for High Cost Mortgages (Mandatory Counseling; special appraisals);Establish escrow account if required for a HPML Record HMDA information if the bank is a HMDA reporter; monitoring information should have been collected at time of application.Follow new Reg B appraisal copy rules and provide appraisal copy 3 business days prior to consummation.Determine the date rescission ends and control the release of proceeds; wait until the 4th business day after closingApproved, not acceptedFollow new Reg B appraisal copy rules and provide appraisal copy even though the loan is not closed IF an appraisal or valuation was used for the request.Record HMDA information if the bank is a HMDA reporter; monitoring information should have been collected at time of application. ACTION TAKEN CODE is 2. If an applicant rescinds the transaction after closing it may be reported as an origination or as approved but not accepted (see D-8 GUIDE)DeniedProvide Adverse Action notice within 30 days of completed application; include credit score information and related FCRA information as applicable.Follow new Reg B appraisal copy rules and provide appraisal copy even though the loan is not closedRecord HMDA information if the bank is a HMDA reporter; monitoring information should have been collected at time of application. ACTION TAKEN CODE is 3. If the loan was denied for incompleteness, use ACTION TAKEN CODE 5 if you sent a written notice of incompleteness and the applicant did not respond within the time specified in the notice.WithdrawnDocument how the application was withdrawn. Follow new Reg B appraisal copy rules and provide appraisal copy even though the loan is not closedRecord HMDA information if the bank is a HMDA reporter; monitoring information should have been collected at time of application. ACTION TAKEN CODE is 4, ONLY USE CODE 4 WHEN THE APPLICATION IS EXPRESSLY WITHDRAWN BY THE APPLICANT BEFORE A CREDIT DECISION IS MADE.FIL-27-2015 INTERAGENCY EXAM PROCEDURES FOR TRIDReleased June 30, 2015Summary:The FDIC has released revised interagency examination procedures for the new Truth in Lending Act (TILA) - Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure Rule (TRID Rule), as well as amendments to other provisions of TILA Regulation Z and RESPA Regulation X. The Consumer Financial Protection Bureau (CFPB) issued a proposal for a TRID Rule effective date of October 3, 2015. The examination procedures should be helpful to financial institutions seeking to better understand the areas on which the FDIC will focus as part of the examination process.Statement of Applicability to Institutions Under $1 Billion in Total Assets:?This Financial Institution Letter applies to all FDIC-supervised institutions.Highlights:FDIC examiners will use the updated interagency examination procedures to evaluate financial institutions' compliance with residential mortgage loan rules, including the following new or amended rules:TRID Rule?– replaces the requirements to provide the RESPA Good Faith Estimate and HUD-1 Settlement Statement and Truth in Lending disclosures for most closed-end mortgage loans with two documents: the Loan Estimate and the Closing Disclosure. (Effective Date October 3, 2015)Mortgage Servicing Rules?– provide an alternative definition of the term "small servicer" for certain nonprofit entities.Ability-to-Repay / Qualified Mortgage Rule?– amended to provide creditors or assignees meeting certain requirements a limited period of time in which to review a transaction and "cure" excess points and fees for purposes of maintaining QM status.The updated procedures also reflect the additional exemptions from the?Higher-Priced Mortgage Loans (HPML) Appraisal Rule, which were finalized prior to the January 2014 effective date, but after examination procedures were last issued.Additional resources on the new rules can be found on the CFPB's website at? Routing:Chief Executive OfficerCompliance OfficerChief Lending OfficerGeneral CounselFIL43-2015 INTEGRATED DISCLOSURE EXPECTATIONS This is the link to the FIL that was released October 2, 2015 FDIC is providing guidance on its initial supervisory expectations in connection with its examinations of financial institutions for compliance with the Truth in Lending Act (TILA) – Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure Rule (TRID Rule), which is effective October 3, 2015.Statement of Applicability to Institutions Under $1 Billion in Total Assets:?This Financial Institution Letter applies to all FDIC-supervised institutionsHighlights:If mortgage loans are part of the scope of an FDIC consumer compliance examination, examiners will use interagency examination procedures to evaluate financial institutions for compliance with the TRID Rule. These procedures are available in the FDIC's Compliance Examination Manual.During initial examinations for compliance with the TRID Rule, FDIC examiners will evaluate an institution's compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each supervised institution to achieve effective compliance.Examiners will expect supervised entities to make good faith efforts to comply with the TRID Rule's requirements in a timely manner. Specifically, examiners will consider the institution's implementation plan, including actions taken to update policies, procedures, and processes, its training of appropriate staff, and its handling of early technical problems or other implementation challenges.The FDIC's supervisory approach regarding the TRID Rule will be similar to the approach the FDIC took in initial examinations for compliance with the Ability-to-Repay/Qualified Mortgage rules that became effective in January, 2014.TOLERANCES ON THE LOAN ESTIMATETolerances on the Loan Estimate Creditors are responsible for ensuring the figures stated in the LE are made in good faith with the best information reasonably available at the time of disclosure. Generally, if the charge paid by or imposed on the consumer exceeds the amount disclosed on the LE, it is not in good faith. A creditor may charge the consumer more than the amount disclosed in the LE when: Certain variations between the amount disclosed and the amount charged are expressly permitted by the TRID rule; The amount charged falls within a tolerance threshold; or Changed circumstances permit a revised LE Estimate or a Closing Disclosure that permits the amount to be changed: An event beyond the control of the parties occurs;Information the creditor relied upon is inaccurate; orNew information specific to the consumer or transaction the creditor did not rely on is found. o Creditors may charge consumers more than the amount on the LE without any tolerance limitation for: Prepaid interest; Property insurance premiums; Amounts placed into an escrow, impound, reserve or similar account; Services required by the creditor if the creditor permits the consumer to shop and the consumer selects a third party service provider not on the creditor’s list of service providers; or Charges paid to third-party service providers for services not required by the creditor. o The creditor may charge the consumer more than the amount disclosed on the LE for any of the following, so long as the total sum of the charges added together does not exceed the sum of all such charges disclosed on the LE by more than 10 percent: Recording fees; or Charges for third-party services where: The charge is not paid to the creditor or their affiliate; and The consumer is permitted by the creditor to shop for the third-party service and the consumer selects a third-party service provider on the creditor’s written list of service providers. If a consumer chooses a provider not on the creditor’s list of providers, then the creditor is not limited in the amount that may be charged for the service o For all other charges, creditors are not permitted to charge consumers more than the amount disclosed on the LE under any circumstances other than changed circumstances that permit a revised LE. Zero tolerance charges include:Fees paid to the creditor, mortgage broker, or an affiliate of either;Fees paid to an unaffiliated third-party if the creditor did not permit the consumer to shop for a third-party service provider for a settlement service; or Transfer taxes.o If the amounts paid by the consumer at closing exceed the amounts disclosed on the LE beyond the tolerance threshold, the creditor must refund the excess to the consumer no later than 60 calendar days after consummation. For charges subject to zero tolerance, any amount charged beyond the amount disclosed on the LE must be refunded to the consumer. For charges subject to a 10 percent cumulative tolerance, to the extent the total sum of the charges added together exceeds the sum of all charges disclosed on the LE by more than 10 percent, the difference must be refunded. Limits on Fees A creditor or other person may not impose any fee on a consumer in connection with the application for a mortgage transaction until the consumer has received the LE and has indicated intent to proceed with the transaction. This includes limits on imposing: o Application fees; o Appraisal fees; o Underwriting fees; and o Any other fees. The exception to this exclusion is for reasonable fees for obtaining a consumer’s credit report. A consumer’s intent to proceed is shown when the consumer communicates, in any manner, they choose to proceed after the LE has been delivered, unless a manner of communication is required by the creditor. o The creditor must document the communication to satisfy record retention requirements. Other Estimates of Costs and Terms The new TRID rule does not prohibit a creditor or other person from providing a consumer with estimated terms or costs prior to the consumer receiving the LE. o However, if a written estimate is provided before the LE, it must clearly and conspicuously state at the top of the front of the first page, “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing the loan.”This statement must be in 12-point font size or larger; and There must be no headings, content, or format substantially similar to the LE or the Closing Disclosure. Example:REVISED LOAN ESTIMATES AND TOLERANCESThere are examples of the 10% tolerance in 1026.19(e)(3)(iv)(A) – 1.iiIf the creditor provided a $400 estimate of title fees that are in the 10% category. If an unreleased lien is discovered, the title company must do additional work for the release of the lien. However, it’s only 4% increase over the sum of all fees in the category that can’t increase by more than 10%A changed circumstance has happened (new information), but the sum of all costs in the 10% bucket hasn’t exceeded the 10% limitSection 1026.19(e)(3)(iv) doesn’t stop the creditor from issuing the revised disclosure, but if they are sent the actual title fees of $500 maybe not be compared to the revised title fees of $500; they must be compared to the original estimate of $400 because the changed circumstance did not cause the sum of all costs subject to the 10 percent tolerance category to increase by more than 10 percent.A financial institution is responsible for providing:Loan estimates that are accurate and based in “good faith”.Providing revised loan estimates based on “changed circumstances”Providing an accurate closing disclosure three business days prior to closingProviding corrected closing disclosures within the timing guidelinesReimbursement of amounts that exceeded the tolerance limits within the guidelines of Truth in Lending. (See 1026.19(f)(2)(v). There are calculation and timing requirements.The model form for tolerance violations is found in Reg Z, Appendix H-25(F), it states that the “increase exceeds legal limits”WHICH REPSA RULES STILL APPLY?There are types of loans that were previously covered by RESPA, as well as certain exemptions that have moved to coverage under Reg Z and TRID. However, reserve mortgage transactions are considered “federally related mortgage loans” and ARE covered by RESPA and provision of required HUD-1 statements.Fees are still restricted for charging fees for the production of the HUD-1 and HUD-1-A, or escrow account statements.There are still Section 8 Violation provisions for giving “anything of value” for the referral of settlement business. See 1024.14(a)The escrow provisions of RESPA still apply when establishing an escrow account; see 1024.17. A model form for the Initial Escrow Account Disclosure is in Appendix G-2 of RESPA. Annual Escrow Account samples are in Appendix I. The provision of list of Homeownership Counseling organizations are in 1024.20Numerous services provisions are found in Subpart C, from 1024.30-1024.41; they cover general disclosure requirements, mortgage servicing transfers, timely escrow payments, error resolution procedures, requests for information, force-placed insurance, general servicing policies, early intervention requirements for certain borrowers, continuity of contract, and loss mitigation procedures. While there are “small servicer” exemptions, they do NOT apply to the foreclosure notice process.CHECKLISTS FOR APPROVED LOANSThere are several helpful checklists for loan applications taken BEFORE 10/3/15 and available as a free download from this website:: The checklists for loans ON OR AFTER 10/3/15 are in the next section.The individual checklists are not provided in this supplement because of format issues. Go directly to the website to download HMDA Bank Loan Checklists (Version 1.1)You will find these checklists in WORD; they can be modified for your use:PURCHASE/CONSTRUCTION (Fixed Rate/HMDA)Refinance (Fixed Rate/HMDA, includes “refinanced” home equity loans)HOME IMPROVEMENT/HOME EQUITY (Fixed Rate/HMDA)PURCHASE/CONSTRUCTION (Adjustable Rate Mortgage/HMDA)Refinance (Adjustable Rate/HMDA, includes “refinanced” home equity loans) HOME IMPROVEMENT/HOME EQUITY (Adjustable Rate Mortgage/HMDA) HOME EQUITY LINE OF CREDIT (HMDA) AGRICULTURAL/COMMERCIAL REAL ESTATE LOAN (HMDA)A sample of #1 is on the next page as a pdf and can NOT be modifiedThere are also checklists for Non-HMDA Bank Loan Checklists (Version 1.1)You will find these checklists in WORD; they can be modified for your use:PURCHASE/CONSTRUCTION (Fixed Rate/Non-HMDA)Refinance (Fixed Rate/Non-HMDA, includes “refinanced” home equity loans)HOME IMPROVEMENT/HOME EQUITY (Fixed Rate/Non-HMDA)PURCHASE/CONSTRUCTION (Adjustable Rate Mortgage/ Non-HMDA)Refinance (Adjustable Rate/ Non-HMDA, includes “refinanced” home equity loans) HOME IMPROVEMENT/HOME EQUITY (Adjustable Rate Mortgage/ Non-HMDA) HOME EQUITY LINE OF CREDIT (Non-HMDA) AGRICULTURAL/COMMERCIAL REAL ESTATE LOAN (Non-HMDA)Special Notes: *If application is for construction/permanent financing: A Servicing Transfer Disclosure, Good Faith Estimate and Preliminary Truth in Lending disclosure, for both the construction phase and the permanent financing, must be provided within 3 business days of the initial application.** Cannot include verification documentationSee PRIOR TO CLOSING ON NEXT PAGENOTES: *** HPML escrow rules do not apply to construction loans, bridge loans or other temporary financing with a term of 12 months or less, HELOCs, or Reverse Mortgages. HPML appraisal requirements do not apply to construction loans, bridge loans with a term of 12 months or less (if in connection with the purchase of a primary dwelling); Qualified Mortgages; streamlined 1st lien refinancings meeting certain conditions; smaller dollar loans; loans secured by manufactured homes (until 7-18-15), mobile homes, boats, or trailers; or reverse mortgages. Certain flipped transactions require a second appraisalSee next pages for Closing & After ClosingSee Next Page After ClosingAfter ClosingALL NOTES: *If application is for construction/permanent financing: A Servicing Transfer Disclosure, Good Faith Estimate and Preliminary Truth in Lending disclosure, for both the construction phase and the permanent financing, must be provided within 3 business days of the initial application.** Cannot include verification documentation*** HPML escrow rules do not apply to construction loans, bridge loans or other temporary financing with a term of 12 months or less, HELOCs, or Reverse Mortgages. HPML appraisal requirements do not apply to construction loans, bridge loans with a term of 12 months or less (if in connection with the purchase of a primary dwelling); Qualified Mortgages; streamlined 1st lien refinancings meeting certain conditions; smaller dollar loans; loans secured by manufactured homes (until 7-18-15), mobile homes, boats, or trailers; or reverse mortgages. Certain flipped transactions require a second appraisal.CHECKLIST FOR CONSUMER CLOSED END REAL PROPERTY 10 3 15This is the link: \Go to Real Estate Checklists, version 2.1, applications taken on or after October 3, 2015CFPB ANNOUNCES HMDA CHANGES FOR 2018On October 15th, 2015 the CFPB released a final HMDA rule to update the reporting requirements of Regulation C. The Bureau also noted that it is working with other federal agencies to streamline the reporting process for financial institutions. The final rule changes what data financial institutions are required to provide in order to improve the quality of HMDA data in today’s housing market. The changes include:Improving market information?by reporting new information such as the property value, term of the loan, and the duration of any teaser or introductory interest rates.Monitoring fair lending compliance and access to credit?by reporting information about mortgage loan underwriting and pricing, such as an applicant’s debt-to-income ratio, the interest rate of the loan, and the discount points charged for the loan. The rule also requires that covered lenders report, with some exceptions, information about all applications and loans secured by dwellings, including reverse mortgages and open-end lines of credit. The rule also includes changes to make it easier for financial institutions to comply with the law by easing reporting requirements for some small banks and credit unions, and aligning reporting requirements with industry data standards. Regulators are working to modernize the HMDA data submission process to collect information more efficiently. The Bureau has completed a pilot of a new web-based tool to collect HMDA information. Industry stakeholders have tested the pilot and the feedback has been very positive. Implementing this technology can reduce manual and paper-based systems currently used by regulators and reporting financial institutions. The final rule does not include several of the data points proposed in 2014 by the Bureau (such as the "risk-adjusted, pre-discounted interest rate"), and does not adopt the proposal to require reporting of all dwelling-secured transactions made for commercial purposes.Most of the provisions of the final rule will take effect on January?1, 2018. Lenders will collect the new information in 2018 and then report this information by March?1, 2019. High-volume originators will file quarterly beginning in 2020.Executive Summary of the final rule: final rule (797 pages, PDF): resources to explain and facilitate implementation of the rule: - PURPOSE AND COVERAGEOverviewThe Home Mortgage Disclosure Act (HMDA) was enacted by Congress in 1975 and was implemented through the Federal Reserve Board’s Regulation C (12 CFR Part 203). The Consumer Financial Protection Bureau (CFPB) assumed authority over this regulation under Title X of the Dodd-Frank Financial Reform Act and has reissued it as 12 CFR Chapter X Part 1003 — Home Mortgage Disclosure (Regulation C). Section 1003.1Authority, purpose, and scopeSection 1003.2Definitions. Section 1003.3Exempt institutions. Section 1003.4Compilation of loan data. Section 1003.5Disclosure and reporting. HMDA applies to a variety of both depository and non depository institutions including banks, savings and loans, credit unions and mortgage companies. These institutions are required to report date relating to applications, preapprovals, originations and purchases of: home purchase loanshome improvement loans andrefinancingsThis data is reviewed in conjunction with The Equal Credit Opportunity Act (ECOA)/Regulation B, the Community Reinvestment ACT (CRA)/Regulation BB, and the Fair Housing Act by both regulators and the public.PurposeHMDA FLOW CHARTHMDA REPORTING BASICSWHO REPORTS HMDA DATA?Lenders who qualify based on asset size and location of a branch in a MSAWHEN IS IT REPORTED?By March 1st for the prior year activityHOW IS IT REPORTED?Sent electronically to the FFIEC or by paperWHAT IS REPORTED?Twenty six data fields for each covered application WHAT TYPES OF LOANS ARE REPORTED? Three types of applications – home purchase, home improvement, refinancingWHAT IS OPTIONAL?Reporting denial reason is optional, except for OCC Banks; certain pre-approval codes are optional; home equity line of credit reporting is optionalHMDA requires that the CFPB adjust this threshold yearly by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. HMDA and the CFPB’s Regulation C require most mortgage lenders located in metropolitan areas to collect, report, and disclose data about mortgage loan applications, originations, and purchases. The data cover home purchase loans, home improvement loans, and refinancings. Data reported include the type, purpose, and amount of the loan; the race, ethnicity, sex, and income of the loan applicant; the location of the property; and loan pricing information for some loans. HMDA data are used to help determine whether financial institutions are serving the housing needs of their communities and to assist in identifying possible discriminatory lending patterns. 2015 REPORTING CRITERIA FOR DEPOSITORY INSTITUTIONSUse information and data from the preceding December 31 date when determining whether you meet the reporting criteria. The following questions for a depository institution should be answered to determine if you should report CY 2015 HMDA data in 2016.Is the depository institution a bank, credit union, or savings association?Did the assets of the institution total more than $44 million on the preceding December 31? Did the institution have a home or branch office in a metropolitan statistical area or metropolitan division (MSA/MD) on the preceding December 31? In the preceding calendar year, did the institution originate at least one home purchase loan or refinancing of a home purchase loan secured by a first lien on a one-to-four-family dwelling? Is the institution federally insured or regulated; or was the mortgage loan insured; guaranteed, or supplemented by a federal agency; or was the loan intended for sale to the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC)?If a depository institution responds 'YES' to the above questions 1 through 4 and 'YES' to at least one question in 5, then HMDA applies to the institution's loan originations, purchases, and applications in the current calendar year. A negative response to any one of the first four questions or to all the questions in 5 would exempt the institution from filing HMDA.A negative response to any one of the first four questions or to all the questions in 5 would exempt the institution from filing HMDA. For depository institutions, a branch office is an office approved as a branch by a supervisory agency (except that a branch office of a credit union is any office where member accounts are established or loans are made, whether or not the office has been approved as a branch by a federal or state agency). A branch office does not include offices of affiliates or other third parties such as loan brokers, or other offices where loan applications are merely taken; nor does it include ATMs or other electronic terminals.*NOTE: The threshold was updated to $44 million announced by the CFPB on Dec 29, 2014 for the 2015 reporting year.IMPORTANT HMDA DEFINITIONSDWELLING A “dwelling” is a residential structure whether or not it is attached to real property located in the U.S., District of Columbia or Puerto Rico. A dwelling includes:not only a principal residence but also a vacation home and rental properties, individual condo units, mobile home or manufactured home and “camps”multifamily structures like apartment buildingsA dwelling DOES NOT include RV’s and campers or transitory residences like hotels and hospitals, dorms whose occupants have a principal residence elsewhere. A home purchase loan is a loan that is both secured by and made for the purpose of purchasing a dwelling. This includes a loan secured by one dwelling that is used to purchase another dwelling. Mixed-use propertyA dwelling-secured loan to purchase property that is primarily used for residential purposes is a home purchase loan. For example, an apartment building could include a convenience store but the primary property use is residential. Any reasonable standard can be used to determine primary use from square footage to income. This can be done on a case-by-case basis.Farm loansA loan to buy property that is primarily for agricultural purposes is not a home purchase loan, even if it includes a dwelling. Any reasonable standard can be used to determine primary use, like the RESPA exemption of 25 acres or more. This can be done on a case-by-case mercial and other loansA home purchase loan does not need to be made solely in the mortgage or consumer loan department. The purchase of an apartment building (that is secured by that or any other dwelling) is reported as a home purchase loan. Construction and permanent financingA home purchase loan includes a combined construction/permanent loan; it does not include a construction-only loan which is considered temporary financing. Second Mortgage down paymentIf an institution makes a first mortgage to a purchase and a second mortgage loan to the same purchases to finance all or part of the down payment, it reports each loan separately.HOME IMPROVEMENT LOANSFor HMDA reporting purposes, a home improvement loan is A loan secured by a lien on a dwelling that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is locatedA non-dwelling secured loan that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located and that is classified by the financial institution as a home improvement loan.Dwelling secured home improvement loansInstitutions must report under the home improvement loan category any loan OR application for loans secured by a lien on a dwelling if any portion of the loan proceeds would be used to repair, rehabilitate, remodel or improve a dwelling or the real property upon which it is located.Non-dwelling secured home improvement loansNon-dwelling secured loans and applications that are for the purpose, in whole or in part, of home improvement continue to be reported only if the institution classifies them as a home improvement loan. This could be done by computer coding, color coded files, or the call report. Improvements to real propertyHome improvement include not only improvements to the dwelling itself, but also improvements to the real property upon which the dwelling is located, for example installing a swimming pool, construction of a garage, or landscaping. Commercial and other loansA loan to improve an apartment building through the commercial department is a home improvement loan if it’s secured by a dwelling or if unsecured it is classified as a home improvement loan.Mixed-use propertyA dwelling secured loan to improve property that is for both residential and commercial use is considered home improvement only of the loan proceeds are used primarily to improve the residential portion of the property. Any reasonable standard can be used to determine primary use from square footage to income. This can be done on a case-by-case basis.Multiple-category loansA loan for purchase as well as home improvement or refinancing is reported as HOME PURCHASE. Purchase trumps ALL categories if a loan or application qualifies as a home improvement loans AS WELL AS refinancing, it must be reported as HOME IMPROVEMENT. Home improvement TRUMPS refinance. Remember H before R. REFINANCINGSA refinancing is a new obligation that satisfies and replaces an existing obligation. If the existing obligation is not satisfied and replaced, not only renewed, modified, extended, or consolidated, the transaction is not a refinancing for HMDA purposes.NOTE: If a new note is prepared and signed for a HMDA reportable renewal, it IS considered a refinancing for HMDA .Reportable refinancingsRefinancings are reported under HMDA only if both the existing obligation and the new obligation are secured by liens on dwellings. Lenders may rely on the applicant’s statement about whether or not the loan being refinanced is dwelling-secured.Refinancings are reported whether or not the institution was the original lender and whether or not the refinancing involves an increase in the loan principal. The purpose of the loan being refinanced is not relevant to determining if the loan qualifies as a refinance. Nor is the borrower’s intended use of any additional cash borrowed relevant to determining a refinancing (HOWEVER the borrower’s intended used of the funds could make the transaction a home improvement loan or a purchase loan). Refinancing FAQ’s from the FFIECRefinancing --- loan purpose. If an obligation satisfies and replaces another obligation, is the purpose of the replaced obligation relevant to whether the new obligation is a reportable "refinancing" under Regulation C?Answer: No. The new definition of a reportable refinancing looks only to whether (1) an obligation satisfies and replaces another obligation and (2) each obligation is secured by a dwelling. See 203.2(k)(2). Thus, for example, a satisfaction and replacement of a loan made for a business purpose is a reportable refinancing if both the new loan and the replaced loan are secured by a dwelling. Refinancing --- cash out for home improvement. How should a lender code a dwelling-secured loan when the borrower uses the funds both to pay off an existing dwelling-secured loan and to make improvements to a dwelling?Answer: A dwelling-secured loan that meets the definitions of both "home improvement loan" and "refinancing" should be coded as a "home improvement loan."See comment 203.2(g)-5. The lender must code the loan as a "home improvement loan" even if the lender does not classify it in the lender's own records as a "home improvement loan." See 203.2(g)(1).Refinancing --- line of credit. If a dwelling-secured line of credit satisfies and replaces another dwelling-secured obligation, is the line required to be reported as a "refinancing"?Answer: No. A dwelling-secured line of credit that satisfies and replaces another dwelling-secured obligation is not required to be reported as a "refinancing," regardless of whether the line is for consumer or business purposes.Refinancing --- satisfaction of lien. Is the satisfaction of a lien (mortgage) relevant to determining whether an obligation is a reportable refinancing?Answer: No, the satisfaction of a lien is neither necessary nor sufficient to create a reportable refinancing. The credit obligation must be satisfied and replaced; it is not relevant whether the lien is satisfied and replaced. See 203.2(k)(2)Excluded LoansDon’t report loans or applications for: Unimproved landTemporary financing, such as bridge or construction loansLoans originated or purchased BY the institution acting as a trusteeNOTE: Best practice is to limit temporary financing exclusion to temporary and bridge loans.Temporary Financing. When is a loan "temporary financing" such that it is exempt from reporting?Answer: The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h). (**********FIX?AND FLIP***************)GOVERNMENT MONITORING INFORMATIONIn an application for a HMDA reportable loan, an institution must collect the applicant’s ethnicity, race and sex as PART of the application process.This information is not required when the applicant is a legal entity, such as a corporation or partnership, rather than an individual. If the applicant is a sole proprietor YOU MUST STILL COLLECT THE MONITORING INFORMATION. This will mean you also report income of the sole proprietor if it was relied on to make the credit decision.Obtaining Government Monitoring InformationThe applicant must be informed that the federal government requests this information in order to monitor compliance with antidiscrimination laws. The applicant must be informed that if he or she does not provide the information when the application is taken in person, the lender is required to note the date based on visual observation or surname.Consumer loan requests to purchase a principal dwelling or refinance the purchase money should be taken on a FNMA 1003 application. Other requests (home improvement and non-purchase money refinance requests may be done on a consumer application along with a HMDA data collection form. The form is found in Appendix B of the Getting it Right Guide DOCUMENT HOW THE APPLICATION WAS TAKEN – IN PERSON, BY MAIL, BY PHONE, VIA THE INTERNET.Collection of partial information. When collecting government monitoring information (ethnicity, race, sex), must a lender permit an applicant to choose to fill in only one or two, rather than all three, of the fields?Answer: Yes. A lender must permit an applicant to choose to fill in only one or two of the three fields. For example, a Web-based application should not compel the applicant to choose between making selections in each of the three fields and declining to make any selections whatsoever. Unless the applicant clearly indicates the applicant declines to supply any information, the applicant must be given the opportunity to supply any part of the information the applicant chooses.Reporting of partial information. If an applicant chooses to make selections in one or two, but not all three, fields (ethnicity, race, sex), must the lender report the partial information?Answer: Yes. A lender must report whatever information the applicant supplies, whether partial or complete. For example, if, on an application submitted by mail, an applicant marks a box indicating the applicant does "not wish to furnish" government monitoring information but supplies some or all of the information, the lender must report the information supplied.Hispanic ethnicity. If an applicant self-identifies as "Hispanic or Latino" under the category of "Ethnicity," what options under "Race" are available?Answer: The applicant should be asked to identify a race or races from among the five choices available. If a lender is face-to-face with an applicant who (1) has self-identified as "Hispanic or Latino" (or whom the lender has identified as of that ethnicity because the applicant has declined to self-identify) and (2) has not identified a race, the lender must identify whatever race or races the lender believes apply, based on surname and visual observation. In those circumstances, the lender may not indicate "NA" in the race field. "NA" is used in the race field only if (1) the applicant is not a natural person, (2) the HMDA reporter has purchased, not originated, the loan, or (3) an application taken in 2003 reached final action in 2004 (see comment 203.4(a)(iv)(B)(3)). Obtaining the informationIn person application – always request the information by reading the form; if the applicant refuses to provide it make a visual observation and document accordinglyTelephone applications - always request the information by reading the form; if the applicant refuses to provide it document accordinglyMailed applications – the monitoring information should be included on the application. If it wasn’t on the application, send a form letter and monitoring information form. If YOU MEET THE APPLICANT PRIOR TO APPROVAL the information must be requested and the “in-person” requirements apply.ALWAYS DOCUMENT how the application was receivedHMDA DATA EXCLUSIONSThere are six exclusions for HMDA reporting in Regulation C. Financial institutions should NOT report the following:Loans originated or purchased by the financial institution acting in a fiduciary capacity (such as trusteeLoans on unimproved landTemporary financing (such as bridge or construction loans)*The purchase of an interest in a pool of loans (such as mortgage-participation certificates, mortgage-backed securities, or real estate mortgage investment conduits)The purchase solely of the right to service loansLoans acquired as part of a merger or acquisition, or as part of the acquisition of all of the assets and liabilities of a branch office as defined in Sec. 1003.2.*NOTE: Page 9 of the Guide makes a point that combined construction-permanent loans must be reported. There is NO definition of “temporary financing” in the Regulation. Also see the Commentary to Regulation C under definitions for Home Purchase loans 203.2(H)(3) in the “old” version and 1003.2 in the CFPB version regarding a farm loan; it is not a home purchase loan if it is for primarily agricultural purposes (this exception does not extend to home improvement or refinance applications).NAME AND NMLSR ID ON LOAN DOCUMENTSThis information is from Reg Z 1026.36(g) Name and NMLSR ID on loan documents. (1) For a consumer credit transaction secured by a dwelling, a loan originator organization must include on the loan documents described in paragraph (g)(2) of this section, whenever each such loan document is provided to a consumer or presented to a consumer for signature, as applicable: (i) Its name and NMLSR ID, if the NMLSR has provided it an NMLSR ID; and (ii) The name of the individual loan originator (as the name appears in the NMLSR) with primary responsibility for the origination and, if the NMLSR has provided such person an NMLSR ID, that NMLSR ID. (2) The loan documents that must include the names and NMLSR IDs pursuant to paragraph (g)(1) of this section are: (i) The credit application; (ii) [Reserved] (NOTE: - Changes with Integrated Disclosures)(iii) The note or loan contract; and (iv) The security instrument. (3) For purposes of this section, NMLSR ID means a number assigned by the Nationwide Mortgage Licensing System and Registry to facilitate electronic tracking and uniform identification of loan originators and public access to the employment history of, and the publicly adjudicated disciplinary and enforcement actions against, loan originators.Note: Additional requirements for providing a mortgage loan originator's NMLSR ID (unique identifier) can be found in Section 1007.105 of the CFPB's SAFE Act regulation (Regulation G).From the commentary:36(g) Name and NMLSR ID on Loan DocumentsParagraph 36(g)(1)1. NMLSR ID. Section 1026.36(g) requires a loan originator organization to include its name and NMLSR ID and the name and NMLSR ID of the individual loan originator on certain loan documents. As provided in §?1026.36(a)(1), the term "loan originator" includes creditors that engage in loan originator activities for purposes of this requirement. Thus, for example, if an individual loan originator employed by a bank originates a loan, the names and NMLSR IDs of the individual and the bank must be included on covered loan documents. The NMLSR ID is a number generally assigned by the NMLSR to individuals registered or licensed through NMLSR to provide loan origination services. For more information, see the SAFE Act sections 1503(3) and (12) and 1504 (12 U.S.C. 5102(3) and (12) and 5103), and its implementing regulations (12 CFR 1007.103(a) and 1008.103(a)(2)). A loan originator organization may also have an NMLSR unique identifier. 2. Loan originators without NMLSR IDs. An NMLSR ID is not required by §?1026.36(g) to be included on loan documents if the loan originator is not required to obtain and has not been issued an NMLSR ID. For example, certain loan originator organizations and individual loan originators who are employees of bona fide nonprofit organizations may not be required to obtain a unique identifier under State law. However, some loan originators may have obtained NMLSR IDs, even if they are not required to have one for their current jobs. If a loan originator organization or an individual loan originator has been provided a unique identifier by the NMLSR, it must be included on the covered loan documents, regardless of whether the loan originator organization or individual loan originator is required to obtain an NMLSR unique identifier. In any event, the name of the loan originator is required by §?1026.36(g) to be included on the covered loan documents. 3. Inclusion of name and NMLSR ID. Section 1026.36(g)(1) requires the inclusion of loan originator names and NMLSR IDs on each loan document. Those items need not be included more than once on each loan document on which loan originator names and NMLSR IDs are required, such as by including them on every page of a document. Paragraph 36(g)(1)(ii)1. Multiple individual loan originators. If more than one individual meets the definition of a loan originator for a transaction, the name and NMLSR ID of the individual loan originator with primary responsibility for the transaction at the time the loan document is issued must be included. A loan originator organization that establishes and follows a reasonable, written policy for determining which individual loan originator has primary responsibility for the transaction at the time the document is issued complies with the requirement. If the individual loan originator with primary responsibility for a transaction at the time a document is issued is not the same individual loan originator who had primary responsibility for the transaction at the time that a previously issued document was issued, the previously issued document is not required to be reissued merely to change a loan originator name and NMLSR ID. CHANGES WITH INTEGRATED DISCLOSURESApplications Received Through 10/2/ 2015 Applications on or after 10/3/2015 NMLSR ID required on(i) The credit application; (ii) [Reserved] (iii) The note or loan contract; and (iv) The security instrument. NMLSR ID required on(i) The credit application; (ii) The disclosures required by §?1026.19(e) and (f); (references to the Integrated Disclosures) It will be required on the LOAN ESTIMATE and CLOSING DISCLOSURE(iii) The note or loan contract; and (iv) The security instrument. How does your loan software work now? How does your loan software work for applications received on or after 10/3/15? REG Z CHEAT SHEET HIGH COST MORTGAGE LOANSIt’s important to read the entire regulation and commentary to the sections that have been changed. These cheat sheets may help to develop checklists for compliance.TRIGGERS FOR HIGH COST MORTGAGE LOANSChanges to Reg Z§?1026.1, §?1026.31, §?1026.32, §?1026.34. §?1026.36 are amendedWhen? Effective date January 10, 2014What’s new?Under these new rules, more loans are subject to HOEPA protections. There are expanded triggers and additional restrictions for “covered” mortgage transactions. The old Fed H15 rate tables are replaced with the APR vs. APOR rate test. There is a third trigger for prepayment penalties after the changes to points and fee calculationsIMPORTANT! (SEE another cheat sheet for the mandatory homeowner counseling requirements)Consumer only?YESWhat definitions are new?The definition for high-cost mortgage is changed with these rules and the coverage requirements are changed.Collateral typeThe consumer’s principal dwellingReal estate required? NOLien status?Not limited to first lien loans, includes first and subordinate liensTriggers?There are 3 triggers:Rate TriggerPoints & Fees TriggerPrepayment Penalty trigger The rate trigger is changed. Compare the APR to APOR6.5 percentage points for first-lien transactions8.5 percentage points for first-lien transactions if the dwelling is personal property and the loan amount is less than $50,000 or8.5 percentage points for subordinate-lien transactions.New points and fees test. If the loan is secured by the consumer’s principal dwelling, it will be a high-cost mortgage if the total points and fees exceed:5 % of the total loan amount for a loan of $20,000 or more; this amount will be adjusted annually on January 1st orThe lesser of 8% of the total loan amount or $1,000 for a loan amount less than $20,000; ; this $1,000 and $20,000 amounts will be adjusted annually on January 1stSee 1026.32 (b)(1) and(2) for point and fee definitionsThe prepayment trigger is reached and the loan will be high-cost if the loan agreement or open-end credit agreement allows the creditor to charge:A prepayment penalty under (b)(6) that is more than 36 months AFTER closing or account opening, orPrepayment penalties that will exceed, in total, more than 2% of the amount prepaid.ExemptionsReverse mortgagesInitial construction loanTwo government exceptions; one for HFA and USDA Section 502TimingOnly for the mandatory homeownership counseling in ANOTHER cheat sheetWhat can go wrong?Under the old test, a residential mortgage transaction was exempt. That exemption is gone, but there is still an exemption for the initial construction of a dwelling. NOW, a loan to finance the initial acquisition WILL be covered.Under the old test, there was an exemption for open-end credit subject to subpart B of Part 1026; that exemption has also been removed.The points and fees triggers have changed: AND the method for calculating points and fees have changed. A prepayment penalty trigger has been added. DISCLOSURE§?1026.32???Requirements for high-cost mortgages(c) Disclosures. In addition to other disclosures required by this part, in a mortgage subject to this section, the creditor shall disclose the following in conspicuous type size:(1) Notices. The following statement: “You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.”NOTE:LaserPro has a HOEPA Worksheet. Fees should be set with compliance and loan operations together. Make sure to pull in APOR site to make sure lock in is correct. Laser Pro banks can sign up for bulletins so you know what’s changing.REG Z CHEAT SHEET ESCROW REQUIREMENTS It’s important to read the entire regulation and commentary to the sections that have been changed. These cheat sheets may help to develop checklists for compliance.REG Z ESCROW REQUIREMENTSWhen? Effective June 1, 2013 but some additional changes have given certain Small Creditors that extended 50% of covered first-lien loans in any of the 3 preceding calendar years in “rural” or “underserved” areas; this includes loans by affiliates, and the asset threshold is less than $2 billion.What’s new?This rule has two impacts. It changed Reg Z to require a LONGER time for mandatory escrow account for higher-priced mortgage loans; it changes from the current 12 months to a minimum of FIVE years and provides exemptions for selected escrow transactions.Consumer only?YESCollateral typeThe consumer’s principal dwellingReal estate required? NOOnly first lien status?YES – only first lien loansTriggers?YES – there are HPML rate triggers. If the loan is NOT an HPML, there are no escrow requirements. See the HPML appraisal cheat sheet for more detailsOnly closed-end credit? YESExemptionsThere are TWO important types of exemptions First, it depends on the type of transaction. An escrow account is not required for the following:A loan secured by cooperative sharesA loan to finance the initial construction of a dwellingA temporary or “bridge” loan of 12 months or less, for example, a loan to buy a new dwelling when the consumer plans to sell the current dwelling within 12 months; orA reverse mortgage as defined in 1026.33(c).Secondly, the exemption relates to the characteristics of the creditor. There is a “rural/underserved” exception (previously referred to as a “special” small creditor. This means that an escrow account is not required if, at the time of consummation:During the preceding calendar year the creditor extended more than 50% of covered transactions (see 1026.43(b)(1), secured by a first lien on properties located in “rural” or “underserved” areas. NOTE: (A) During any of the three preceding calendar years, the creditor extended more than 50 percent of its total covered transactions, as defined by §?1026.43(b)(1), secured by a first lien, on properties that are located in counties that are either "rural" or "underserved," as set forth in paragraph (b)(2)(iv) of this section;During the preceding calendar year, the creditor and its affiliates together originated 500 or few covered transactions, as defined by 1026.43(g)(1), secured by a first lien; andAs of the end of the preceding calendar year, the creditor had total assets of less than $2,000,000,000; this asset threshold shall adjust automatically each year, based on the year-to- year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars (see comment 35(b)(2)(iii)-1.iii for the current threshold); and Neither the creditor nor its affiliate maintains an escrow account of the type described in paragraph (b)(1) of this section for any extension of consumer credit secured by real property or a dwelling that the creditor or its affiliate currently services, other than: (1) Escrow accounts established for first-lien higher-priced mortgage loans on or after April 1, 2010, and before June 1, 2013; or [Effective January 1, 2014, paragraph (1) is amended by the 9/13/13 final rule to read:](1) Escrow accounts established for first-lien higher-priced mortgage loans on or after April 1, 2010, and before January 1, 2014; or (2) Escrow accounts established after consummation as an accommodation to distressed consumers to assist such consumers in avoiding default or foreclosure. New disclosures?Not yet, there were various escrow disclosures under the original FRB version. Stay tuned – the CFPB may implement them later. What can go wrong?The escrow must remain in place for five years and the lender can’t unilaterally cancel it. The escrow must remain until the consumer requests to cancel it.Even if the consumer requests cancellation after 5 years there are two more conditions that must be met before cancellation:The unpaid balance is less than 80 % of the original value of the property securing the underlying obligation; andThe consumer is not delinquent or in default on the obligationWhen a first-lien HPML, at consummation, is subject to a commitment to be acquired by a person or creditor that doesn’t meet the rural/underserved exception, an escrow account must be established (unless another exemption applies).An escrow account can be cancelled when the underlying debt is terminated. CHEAT SHEET MANDATORY HOMEOWNERSHIP COUNSELING When is homeownership counseling mandatory? It’s important to read the entire regulation and commentary to the sections that have been changed. REG Z - WHEN IS HOMEOWNERSHIP COUNSELING MANDATORY BEFORE CLOSING?When? Effective date is January 10, 2014Where is it? 12 CFR 1026.34 – amends (a) and (b); 1026.36 – adds (without text) paragraphs (g) and (j) and important information in (k)What’s new?Requires the homeownership counseling is completed BEFORE consummation for 1) high cost mortgage loans, as well as 2) “credit to a first-time borrower in connection with a closed-end transaction secured by a dwelling, other than a reverse mortgage transaction or timeshare plan where negative amortization may occur.Consumer only?YESWhat definitions are new?A "first-time borrower" means a consumer who has not previously received a closed-end credit transaction or open-end credit plan secured by a dwelling. Negative amortization means a payment schedule with regular periodic payments that cause the principal balance to increase. Collateral typeA high cost mortgage must be secured by the consumer’s principal dwelling. For other types of loans were counseling is required (closed-end credit to a first time borrower where there is negative amortization), the rule only requires the collateral to be a dwelling.Real estate required? NOOnly first lien status?NOAre there other triggers? YES. Two kinds of loans are covered by mandatory counseling.High cost mortgage loans andClosed end credit to first-time borrower secured by a dwelling that may result in negative amortizationFor the high cost coverage, the loan must satisfy ALL the coverage tests; they include:Closed end creditTo a consumer who is also aFirst time borrowerThe loan purpose is subject to Reg Z (personal, family, household)Secured by a dwellingPotential negative amortizationClosed-end creditYES for the first time borrower/negative amortization loan typeNO for the high cost mortgageExemptionsReverse mortgagesTimeshare plan interestsTiming issues?YES – Consummation can’t happen until the lender receives certification that the required counseling has been completedNew disclosures?NO – no model disclosures have been provided, but communication must take place with the applicant. There are rules about the documentation the lender must have to show that the counseling was completed; the commentary lists:A certificate of counseling orA letter orAn email from the HUD certified or approved counselor or organization indicating that the counseling has been doneHere’s what the certification content for a high-cost mortgage should include in 1026.34(a)(5)(iv)(A) The name(s) of the consumer(s) who obtained counseling; (B) The date(s) of counseling; (C) The name and address of the counselor; (D) A statement that the consumer(s) received counseling on the advisability of the high-cost mortgage based on the terms provided in either the disclosure required by section 5(c) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2604(c)) or the disclosures required by §?1026.40. (E) A statement that the counselor has verified that the consumer(s) received the disclosures required by either §?1026.32(c) or the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq.) with respect to the transactionWhat can go wrong?The counseling can’t be done by a counselor who is either employed by or affiliated with the creditorA creditor is prohibited from steering or otherwise direct a consumer to choose a particular counselor or counseling organization for the counseling requiredIssues with fees: For a high-cost mortgage, a lender can pay the counseling fees, but can’t condition the fee payment on closing the loan or account opening of a mortgage transactionIf the consumer withdraws the application a creditor may not condition the payment of counseling fees on the receipt of certification from the counselor. A creditor may, however, confirm that a counselor has provided counseling prior to paying the fee.Wait, there’s more…..When a negative amortization is possible, the counseling must include information about the risks associated with this type of loan structureREG B DISCLOSURESWritten application required (A written application is required for an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling) 12 CFR 1002.5(e) 12 CFR 1002.13 Notice of intent of joint application A person’s intent to be a joint applicant must be given at the time of application. This requirement became effective 4/15/2004. Signatures on a promissory note may not be used to show intent to apply for joint credit. On the other hand, signatures or initials on a credit application affirming applicants’ intent to apply for joint credit may be used to establish intent to apply for joint credit. (See Appendix B). The method used to establish intent must be distinct from the means used by individuals to affirm the accuracy of information. For example, signatures on a joint financial statement affirming the veracity of information are not sufficient to establish intent to apply for joint credit 12CFR 1002.7(d)(3). There are some options on determining a person’s intent to be a joint applicant (Joint Intent Compliance):Signed Applications – with both signaturesSigned Applications & Separate Affirmation – applications with the signatures are stronger proof when the form has a separate disclosure where applicants affirm joint intent. This is the best practice.No written application – provide (at time of application) a joint intent disclosure so they can indicate joint intentNo written application & no applicant acknowledgement – the loan officer may document a note to the credit file; showing a date would be helpfulNotice of incompleteness(or, in the alternative, a notice of action taken) 12 CFR 1002.9(c)Notice of Action Taken12 CFR 1002.9(a)(2) (consumer applicants); 12 CFR 1002.9(a)(3) (business applicants) Statement of reasons for adverse action or notice of right to obtain a statement of reasons 12 CFR 1002.9(b) Credit score disclosures on adverse action noticesNEW! Rules on providing appraisals and other valuations –NEW RULES – effective January 18, 2014. (See “Cheat Sheet” in the Appendix) Applies any time an appraisal or other valuation report is used in connection with an application for credit that is to be secured by a first lien on a dwelling (dwelling is a residential structure that contains one to four units whether or not that structure is attached to real property)., 12 CFR 1002.14. 14(a) From the Commentary: Providing appraisals and other valuations.1. Coverage. This section covers applications for credit to be secured by a lien on a dwelling, as that term is defined in § 1002.14, whether the credit is for a business purpose (for example, a loan to start a business) or a consumer purpose (for example, a loan to purchase a home). Disclosure: The creditor shall mail or deliver a disclosure no later than the third business day after the application for a loan secured by a first lien on a dwelling a notice in writing of the applicant’s right to receive a copy of all written appraisals developed in connection with the application. The model language is in ppendix C-9 and says: We may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.Timing: Provide a copy of all appraisals and other written valuations developed in connection with an application secured by a first lien on a dwelling promptly upon completion or three business days prior to consummation (for closed-end or account opening for open-end credit), whichever is earlier. NOTE: Regulation B does NOT define business days Waivers: An applicant may waive the timing requirement to receive the copy; the waiver must be obtained at least three business days prior to consummation or account opening; if a waiver is provided and the transaction isn’t consummated or opened the creditor must provide copies no later than 30 days after determining that the loan will not be consummated or the account opened.Reimbursement: A creditor shall not charge an applicant for providing a copy of appraisals and other written valuations as required under this section, but may require applicants to pay a reasonable fee to reimburse the creditor for the cost of the appraisal or other written valuation unless otherwise provided by law.Withdrawn, denied or incomplete applications: the requirements still apply for applications that are not consummatedCopies in Electronic form: the copies may be provided in electronic form if all E-Sign (Electronic Signatures in Global and National Commerce Act) are followedCollecting required monitoring information when applicable (purchase or refinance of a principal dwelling) 12 CFR 1002.13ADVERSE ACTION NOTICES The financial institution must notify all applicants of its credit decision, whether favorable or adverse. A favorable decision can be communicated in a letter or conversation, or by issuing a requested credit card or loan proceeds. An adverse decision ("adverse action") requires the financial institution to provide information regarding why the application was denied, and what the applicant's rights are if he or she believes the application was rejected on a prohibited basis.What is an "adverse action"? Reg B defines the term adverse action as:a refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the financial institution makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered;a termination of an account or an unfavorable change in the terms of an account that does not affect all or a substantially all of a class of the financial institution's accounts; ora refusal to increase the amount of credit available to an applicant who has made an application for an increase.Adverse action does not include:a change in the terms of an account expressly agreed to by an applicant.any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account;a refusal or failure to authorize an account transaction at a point of sale or loan, except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or a substantial portion of a class of the financial institution's accounts, or when the refusal is a denial of an application for an increase in the amount of credit available under the account;a refusal to extend credit because applicable law prohibits the financial institution from extending the credit requested; ora refusal to extend credit because the financial institution does not offer the type of credit or credit plan requested.Financial institutions must provide applicants with a notification of action taken, ECOA notice, and a statement of specific reasons. Notification is required within:30 days after receiving a completed application concerning the financial institution's approval of, counteroffer to, or adverse action on the application;30 days after taking adverse action on an incomplete application, unless notice is provided in accordance with paragraph (c) of this section;30 days after taking adverse action on an existing account; or90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered.Content of notification when adverse action is taken. A notification given to an applicant when adverse action is taken must be in writing and must contain: a statement of the action taken; the name and address of the financial institution; the name and address of the Federal agency that administers compliance with respect to the financial institution; and either:a statement of specific reasons for the action taken; ora disclosure of the applicant's right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the financial institution's notification. The disclosure must include the name, address, and telephone number of the person or office from which the statement of reasons can be obtained. If the financial institution chooses to provide the reasons orally, the financial institution must also disclose the applicant's right to have them confirmed in writing within 30 days of receiving a written request for confirmation from the applicant.Statement of specific reasons. The statement of reasons for adverse action must be specific and indicate the principal reason(s) for the adverse action. Statements that the adverse action was based on the financial institution's internal standards or policies or that the applicant failed to achieve the qualifying score on the financial institution's credit scoring system are insufficient. Here are some specific reasons for denial, excerpted from one of the regulation's sample notices Credit application incompleteInsufficient number of credit references providedUnacceptable type of credit references providedUnable to verify credit referencesTemporary or irregular employmentUnable to verify employmentLength of employmentIncome insufficient for amount of credit requestedExcessive obligations in relation to incomeUnable to verify incomeLength of residenceTemporary residenceUnable to verify residenceNo credit fileLimited credit experiencePoor credit performance with usDelinquent past or present credit obligations with othersGarnishment, attachment, foreclosure, repossession, collection action, orjudgmentBankruptcyValue or type of collateral not sufficientNOTE: (Form C-1):Notification to business credit applicants The statement of the action taken may be given orally or in writing, when adverse action is taken; disclosure of an applicant's right to a statement of reasons may be given at the time of application, instead of when adverse action is taken, provided the disclosure is in a form the applicant may retain and contains the informationfor an application made solely by telephone, a financial institution satisfies the requirements of this paragraph by an oral statement of the action taken and of the applicant's right to a statement of reasons for adverse action.For a business that had gross revenues in excess of $1,000,000 in its preceding fiscal year or an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit, a financial institution may: notify the applicant, orally or in writing, within a reasonable time of the action taken; and provide a written statement of the reasons for adverse action and the ECOA notice if the applicant makes a written request for the reasons within 60 days of being notified of the adverse actionCOVERAGE OF FLOOD REGULATION General Rule The regulations apply when (MIRE) making, increasing, renewing or extending a loan: Secured by a building or a mobile home Located or to be located in an area determined by the Director of the Federal Emergency Management Agency to have special flood hazards. Note: Sections dealing with conducting and documenting determinations (and the fees charged for conducting a determination) apply to loans secured by buildings or mobile homes, regardless of location. Designated Loan The term means a loan secured by a building or mobile home that is located or to be located in a special flood hazard area in a participating community. Building The term means a walled and roofed structure, other than a gas or liquid storage tank, that is principally above ground and affixed to a permanent site, and a walled and roofed structure while in the course of construction, alteration, or repair. Mobile Home The term means a structure, transportable in one or more sections, that is built on a permanent chassis and designed for use with or without a permanent foundation when attached to the required utilities. For purposes of this part, the term mobile home means a mobile home on a permanent foundation. The term mobile home includes a manufactured home as that term is used in the NFIP. Note: The term mobile home does not include a recreational vehicle. Special Flood Hazard Area The term means the land in the flood plain within a community having at least a one percent chance of flooding in any given year, as designated by the Director of FEMA. Participating CommunityThe term means a community that has fulfilled the requirements for participating in the NFIP and in which flood insurance is currently being sold. Non-participating Community The term means a community located in an area having special flood hazards, but is not participating in the NFIP. Community Status Information Information about a community, its status (participating or non-participating) and the date of the current map is located on FEMA’s website at . Purchased Loans The purchase of a loan is not an event that requires the purchaser to make a new determination at the time of purchase. However, if the lender becomes aware at some point during the life of the loan that flood insurance is required, then the lender must comply with the Regulation. Similarly, if the lender extends, increases or renews the loan, the Regulation applies. Table-Funded Loans Loans made through a table funding process are treated as though the party providing the funds has originated the loan. The funding party must comply with the Regulation. SHORT VERSION OF FLOOD INSURANCE:- See the MATRIX, #9The Flood Disaster Protection Act applies to any improved real estate loan or mobile home loan (regardless of where the mobile home will be located). Complete a Standard Flood Hazard Determination Form for each property before the loan is closed. If the improved real estate or mobile home securing the loan is located or is to be located in an area identified as having special flood hazards, a Flood Hazard Notice must be delivered to the customer within a “reasonable period of time” before closing (not less than 10 days) & must be signed. The requirements of this Act apply to increases, extensions, and renewals as well as commercial and agricultural loans secured by improved real estate.WHAT IS INSURABLE? Any “building or mobile home securing a loan and any personal property securing such loan located in a building or mobile home securing a ‘loan’ must be ‘covered’ for the full term of the loan by flood insurance.” This means any insurable structure located in a flood-hazard zone must be covered by an appropriate amount of flood insurance.An insurable structure is a structure with at least two load-bearing walls and a roof. It must be affixed to land, and at least 50 percent of its value must be above ground. This definition includes almost all residential and commercial structures, as well as other buildings such as garages and barns. Storage facilities like silos and grain storage buildings are also covered. The rules don’t cover gazebos, pavilions, pole barns, and storage tanks, which don’t have two load-bearing walls and a roof.Buildings under construction are covered. Insurability begins the moment construction begins on any part of the building above the slab, and continues throughout construction. However, coverage stops if construction halts for 90 continuous days or more.Mobile homes are covered if the following three conditions exist:The mobile home must rest on a permanent foundation, meaning no weight rests on any wheels or axles. The foundation may be as simple as concrete blocks, even if they’re non-continuous. The foundation must be able to resist flotation, collapse, or lateral movement.The mobile home must be anchored to the foundation according to the community tie-down regulations. (There’s a prize to the first person who knows what they are locally)The mobile home must be connected to utilities.If these three conditions are met, any loan secured by a mobile home, regardless of whether the land it sits upon is owned or rented by the borrower, and regardless of whether the land secures the loan, must be covered by flood insurance. If the mobile home does not meet these standards, flood insurance is not mandatory.The rules also require coverage of the contents of insurable structures, if the contents also secure the loan. This means property stored inside buildings covered by flood insurance must also be insured, subject to certain rules. Property stored in the basement of a structure is not insurable unless it is necessary to the maintenance of the building. Personal property stored outside the building is not insurable, but property that is normally stored outside that is now stored inside an insurable structure, such as crops that are stored in an insurable storage building after harvest, is insurable. Mobile property, such as an automobile or trailer, normally stored inside an insurable structure like a garage is not insurable, as these can be easily removed in the event of a flood.Lenders should be particularly cautious about content coverage on loans secured by commercial real estate. Taking contents (inventory or equipment) is a common practice with commercial loans. In this case contents coverage must also be purchased.The flood insurance requirements apply to all loans secured by structures in flood-hazard areas. The rules apply equally to junior mortgages, open or closed-end loans, refinances, purchase money, construction and even when the real estate is taken as an “abundance of caution”. SPECIAL NOTE FOR COMMERCIAL LENDERS:Abundance of Caution Loans – Frequently Asked QuestionsSTANDARD FLOOD HAZARD DETERMINATION FORMThe determination of whether a structure is in a special flood-hazard area may be made by the bank or by a third party. If a check of the maps shows that any part of a structure lies in the flood-hazard area, the entire structure must be covered by flood insurance. On the other hand, if part of the land taken as collateral is located in a flood-hazard area, but none of the structure itself is in the flood-hazard area, no insurance is required. Land may not be insured against flood, only structures.A fee may be charged to the borrower for making the determination that’s made by a third party. Determinations made by a third party may be used only if the accuracy for making the determination is guaranteed by the third party. Ultimately, the bank is responsible for the accuracy of the determination and the only party who can make the final decision as to whether flood insurance is required for the loan. Lender’s Responsibility It is the lender’s responsibility to determine if a building or mobile home offered as collateral for a loan is or will be located in a special flood hazard area. The lender must also determine if the area is a participating or a non-participating community.Document the determination of flood hazard status, whether the building is in a low-to-moderate flood risk area or in an SFHA, on the Standard Flood Hazard Determination Form (SFHDF) shown in Appendix 3; Provide notice to the borrower if collateral is, or will be, in an SFHA per the appropriate sample Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance, the two versions of which are shown in Appendix 4; Require that adequate flood insurance is obtained for buildings in SFHAs; Require the escrow of flood insurance premiums if escrow is required for other items, such as hazard insurance and taxes; During the term of the loan, ensure that flood insurance is maintained or obtained if the lender becomes aware that the building involved subsequently becomes part of an SFHA; and Force place flood insurance if the borrower allows the policy to lapse or if insurance is inadequate. Third Party The lender remains responsible for the determinations, even if it contracts with a third party to perform such services. Any third party performing determination services must guarantee the accuracy of the information provided.The Flood Insurance Administration (FIA) maintains a list of Flood Zone Determination Companies. The list reflects companies that have contacted FIA or maintained contact with FIA about the services they offer relating to the NFIP. FIA attempts to maintain the list as current, but relies on information provided by these companies. FIA does not attest to the quality of accuracy of the services offered. FIA does not approve, endorse, regulate, or otherwise sanction any company on this list.Use of Form A lender must use the standard flood hazard determination form (SFHDF) to document the determination. The SFHDF may be used in a printed, computerized, or electronic manner. Note: While it may be a common practice in some areas for lenders to provide a copy of the SFHDF to the borrower to give to the insurance agent, lenders are neither required nor prohibited from providing the borrower with a copy of the form. The borrower’s signature is not required on the SFHDF, but proof of receipt of the notice if a property is located in a SFHA IS required. Duration of the Form A lender may rely on a previous determination using the SFHDF when increasing, extending, renewing or purchasing a loan secured by a building or a mobile home. The lender may rely on the previous determination if: A subsequent loan involving a refinancing or assumption is made: on the same property; by the same lender who obtained the original determination; and The other requirements contained in Section 528 are met. Note: The Act omits the ``making'' of a loan as a permissible event to rely on a previous determination. A refinancing or assumption made by a lender other than the lender who obtained the original determination constitutes “making” a new loan, thereby requiring a new determination.Section 528 Requirements Section 528 of the Act requires that a lender may rely on a previous determination only if: The original determination was recorded on the SFHDF; The original determination was made within the previous seven years; and There were no map revisions or updates affecting the security property since the original determination was made. Retention of Form A lender shall retain a copy of the completed determination form, in either hard copy or electronic form, for the period of time the lender owns the loan. FLOOD LAW CHANGESOn June 22, 2015, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), the Farm Credit Administration (FCA) and the National Credit Union Administration (NCUA) (collectively, the Agencies) issued a joint Final Rule modifying regulations applicable to loans secured by properties located in special flood hazard areas. This final rule implements certain provisions of both the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) and the Biggert-Waters Flood Insurance Reform Act. Certain provisions of this Final Rule will go into effect October 1, 2015; and others January 1, 2016. Implementation Dates: The escrow requirement and option to escrow provisions are mandated by statute and are effective on January 1, 2016. As of January 1, 2016, lenders and servicers must escrow premiums and fees for flood insurance for any designated loan secured by residential improved real estate or a mobile home when “making, increasing, renewing, or extending” (MIRE events) a designated loan. As of June 30, 2016, lenders and servicers must have distributed notices providing the option to escrow to all loans outstanding on January 1, 2016. Revisions to Appendix A and new Appendix B are effective on January 1, 2016. The forced-placement provisions were effective upon enactment of the BWA, and the detached structures provisions were effective upon enactment of HFIAA. However, lenders and servicers must adjust their systems to reflect compliance with any clarifications to those provisions provided by the rule by no later than October 1, 2015. The final rule: 1. Exempts certain detached structures from the mandatory flood insurance purchase requirement; 2. Implements provisions regarding the force placement of flood insurance; Requires servicers to escrow flood insurance premiums for certain loans secured by residential improved real estate (or a mobile home); Amends the current “Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance” form. Specifically, language was added concerning the escrow requirement and coverage for detached structures; and, Provides verbiage for an “Option to Escrow for Outstanding Loans” notice that will assist institutions in informing existing borrowers about their “option” to escrow flood insurance premiums and fees, as required. **Private flood insurance provisions will be addressed in a separate rulemaking. Key Elements of the Final Rule: The Final Rule reaffirms the mandatory purchase requirement, that a lender or servicer may not make, increase, renew, or extend a designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property. Designated loans are loans secured by a building or mobile home located in a special flood hazard area in which flood insurance is available. Detached Structures: The Final Rule provides that flood insurance is not required on any structure on a residential property if it is detached from the primary residential structure and does not serve as a residence. The original FDPA contained a requirement that any building – even a low value detached structure – securing a designated loan must be insured. The HFIAA amendments recognized that insurance on these structures – such as a storage shed or a garage – can add considerable costs for the borrower while adding minimal value, and permitted that these structures may be exempt, subject to the provisions outlined above. The exemption applies to loans made for business, commercial, or agricultural purposes, in addition to consumer loans, if they are secured by a residence. The purpose of the loan does not change the value of the detached structure, or the lack thereof. The exemption gives banks significant discretion to determine which structures require coverage. The exemption applies only to structures that the lender or servicer deems part of the residential property. When detached structures are given as collateral, lenders and servicers may require the structure be covered regardless. In this instance, the structures themselves – such as detached greenhouses – have value to the bank and the borrower, and accordingly do not meet the purpose of the exception. The Final Rule provides some clarification of the terms “residential property,” “detached,” and “serve as a residence.” “Residential property” applies only to structures for which there is a residential use (personal, family, or household purpose) and not to structures for which there is a commercial, agricultural, or other business use. A structure is “detached” from the primary residential structure if it is not joined by any structural connection to the residential structure –i.e., it stands alone. A detached structure “serves as a residence” based upon a good faith determination of the lender of the structure’s intended use. The Agencies have declined to provide a bright line test for this good faith determination, and accordingly, the lender or servicer has significant discretion, but is called upon to do a case-by-case analysis. Although no single question is dispositive, lenders and servicers might consider and document some of the following considerations in their good-faith determinations of whether a detached structure serves as a residence: Has the borrower indicated the structure will be used as a residence? Does the structure have bathroom facilities? Does the structure have kitchen facilities? Does the structure have sleeping facilities? Is the structure traditionally used as a residence? (a guest house) .Is the structure traditionally used for some purpose other than a residence? (a green house, a horse barn, a tool shed) Although active monitoring of whether a detached structure qualifies for the exemption is not required, detached structures should be re-examined upon a MIRE event to determine if the coverage determination remains reasonable. If a lender or servicer subsequently becomes aware that a detached structure is no longer exempt, the borrower must be notified that insurance is required, and if insurance is not placed within 45 days of that notification, the lender must force-place it. APPENDIXHMDA STEP BY STEP CONTROLSThere are twenty-six data fields on the HMDA LAR. The only way to avoid compliance headaches with this complicated regulation is to have adequate internal control procedures to collect and verify the data. The table below lists each of the data fields and suggestions for internal controls and data collection.HMDA LAR DATA FIELDS AND CONTROL METHODS BEST PRACTICES FOR FILE DOCUMENTATIONCreate a HMDA file folder for each LAR entry that can be verified by a person or team that is knowledgeable in HMDA procedures. Make these files available to the regulator during a compliance exam so the HMDA integrity review for accuracy will be limited to HMDA information. Label EACH data field in this file with the numbers that correspond to the HMDA LAR (1-26)Highlight each data field on the source document next to the number of the data field.Perform a second review of the data; this can be done by an outside party or audit staff. Depending on the risk factors (past HMDA violations, rapid growth, decentralized processing, etc) the second file review may be a percentage of the LAR entries or it may require 100% coverage.Sign-up for the FFIEC e-mail alerts for HMDA; maintain a current copy of the “HMDA Getting it Right Guide”Revised written procedures as needed when changes are made to HMDA or deficiencies are noted in audits and exams.Train new employees; provide refresher training for all lending employees. Annual training is not required but should be done in accordance with exam and audit findings. DATA FIELDCONTROL METHODCOMMENTSApplication or Loan NumberLoan number if originated; unique code number if denied, withdrawn, or approved and not accepted – this may be date of application with a “D”, “W” or “A”.Do not use social security number or other personally identified informationDate ReceivedDate indicated on Consumer or Commercial Approval Worksheet for originated loans; date that the application received on denied/withdrawn loan mon error if the applications are not date-stamped or systematically created in loan application software. Often a problem with business purpose loans and there may not be a commercial loan applicationLoan TypeUsually conventional loansCan be a problem if there is a great deal of secondary market activity. Use software to populate this data field if possibleProperty TypeReal Estate collateral codes on Boarding Data sheet and collateral description on Approval worksheet; also indicated on HMDA reporting information worksheet. Property type for denied or withdrawn or approved but not accepted loans is indicated on Denied-Withdrawn WorksheetThese are the property types to verify: One to four-family (other than manufactured housing)Manufactured housingMulti-family Purpose of LoanPurchase (must be secured by a dwelling) Collateral & purpose drivenHome improvement – can be secured or unsecured (purpose driven)Refinance – purpose doesn’t matter, collateral drivenProblems for multi-purpose loans. Remember that purchase trumps all, home improvement trumps refinance. Another problem area is a construction loan that is being converted to a permanent loan – typically reported as a purchase loanOccupancyUse codes on boarding data if originated; require this information in the application processUse not owner-occupied (Code 2) for second or vacation homes and rental properties. Use not applicable (Code 3) for multi-family loans or if the property is not in an MSA or is in an MSA where your bank doesn’t have a branch.Loan AmountUse the amount of the note if originated; use the application amount if denied, withdrawn, or approved but not acceptedHighlight loan amount on note for originated loans, highlight loan amount on application or adverse action notice. Loan amounts are ROUNDED to the nearest $1,000; example: a loan for $167,300 would be 167 and $15,500 would be 16.Pre approval CodeAlways 3 if there is no pre-approval program. Can be a high error field when beginning a pre-approval programAction Taken Type1 Loan originated2. Application approved, not accepted.3. Application denied 4. Application withdrawn by applicant5 File closed for incompleteness6. Loan purchased by financial institution7 Preapproval request denied 8. Preapproval request approved by not accepted (optional)1. Have copy of the note in file2. Documentation should be clear.3. Copy of adverse action notice4. Document date of withdrawal, only use if it was prior to the credit decision5. Copy of adverse action notice6. Copy of purchase info in file. 7. Documentation should be clear and copy of letter.8. Documentation should be clear and support the preapproval program guidelines.Action Taken DateDate of loan if originated, denial date, withdrawal date, date that customer declined loan approvalCopy of note, highlight date; copy of denial; file documentation of withdrawal notice or note to file that customer did not accept approval.MSA/MDFFIEC websiteMake sure you have geo-coded the correct property and used the CORRECT geo-code year.; don’t’ use appraisal or flood determination information unless verified to FFIECState““County (Parish)““Census Tract”“Ethnicity (Applicant)Request for in-person applications (must make visual observation or surname if the applicant declines to provide it) Read during phone applications; request for mailed applicationsIf the borrower is not a natural person (corporation or partnership) use the code for “not applicable”. The FDIC requires monitoring info for a sole proprietor.Ethnicity (Co-Applicant)“ If there is more than one co-applicant, provide monitoring info for the first co-applicant listed. Race (Applicant)Applicants can select more than one race, enter all codes they designateRace (Co-Applicant)If there is more than one co-applicant, provide monitoring info for the first co-applicant listed.Sex (Applicant)If the borrower is not a natural person (corporation or partnership) use the code for “not applicable” The FDIC requires monitoring info for a sole proprietor.Sex (Co-Applicant)If there is more than one co-applicant, provide monitoring info for the first co-applicant listed.IncomeThe gross income your institution used to make the credit decision. If no income was asked or relied on enter NA. Round to the nearest thousand. Report $35,500 as 36. If the borrower is not a natural person (corporation or partnership) use the code for “not applicable”. Loans for multi-family should use NA for income.Purchase TypeSee codes in the GuideEnter the code sold to the secondary market within the same calendar yearReasons for denialOptional; see codes REQUIRED for OCC banksRate SpreadReport for purchase, refinancing, or dwelling secured home improvement loans that are made for a consumer purpose that are originated. CRITICAL to document the date the interest rate was set for the final time before closing. Do NOT report rate spreads for loans that aren’t subject to Reg Z or unsecured home improvement loans. The format is 03.29 (leading zero and two decimal places; rounded if more than two decimals). Make sure that the lien status is accurate. HOEPA statusReport as code 1 for loans subject to HOEPA that were originatedLien StatusUse the collateral codes on the boarding data as documentationThe accuracy of lien status is critical for determining rate spreads correctly.RIGHT OF RESCISSION BASICSThe right of rescission gives the consumer a chance to think about the terms of the loan and security interest in their principal dwelling after closing. It’s an “undo” option. If the consumer rescinds the loan is no longer valid.What is a creditor required to do?Give each consumer with an ownership interest in the principal dwelling the right to rescind by providing two copies of the noticeRescission does not apply to :A refinance by the same creditor with no new money on a closed-end loanIt doesn’t apply to purchase or construction loans converted to permanent financingIt doesn’t apply to business-purpose loansRescission applies to new money to refinance when the previous loan wasn’t secured by the consumer’s home. The funds subject to rescission apply to the amounts that exceed the old payoff (principal and interest) and closing costs. Open-end loans ALWAYS require a right of rescission; there is no refinance exception even if there is no new money.Advances can’t be made until the 4th business day after the later of 1)the right of rescission notice is provided; 2) the note is signed AND; 3) all disclosures have been providedUntil the rescission period has expired a creditor can NOT disburse any loan proceeds to the consumer.A creditor may perform some tasks during the delay periodPrepare the loan checkPerfect the security interestPrepare to discount or assign the loan to a third partyAccrue finance charges during the delay periodWaivers may be made in the rare case of a “bona fide” personal financial emergency”Examples might include advancing funds after a natural disaster, medical emergency or funeralEmergencies do not include an inconvenience to the borrower or investment needThe waiver can’t be pre-typed by the lender and should be made in a written, dated, and signed statement by the borrower that describes the emergency AND the lender is responsible for determining if the situation can be justified as an emergency.There are consequences for failing to comply; they are severe.It extends the time a borrower can rescind by three years (translation – the lender has an unsecured loan for the next three years)Several court cases have been decided in favor of the consumer; see the next page. If the borrower rescinds the collateral interest is voided and no charges or fees can be assessed even if they were paid to a third partySpecific notices are required; closed-end notice is in H-8 and the open-end notice is in G-6 of the appendices to Regulation Z.FINAL REMINDER – Rescission applies to more than a typical real-estate secured loan!!!Definition for a Principal Dwelling; from the Commentary 1026.233. Principal dwelling. A consumer can only have one principal dwelling at a time. (But see comment 23(a)(1)–4.) A vacation or other second home would not be a principal dwelling. A transaction secured by a second home (such as a vacation home) that is not currently being used as the consumer's principal dwelling is not rescindable, even if the consumer intends to reside there in the future. When a consumer buys or builds a new dwelling that will become the consumer's principal dwelling within one year or upon completion of construction, the new dwelling is considered the principal dwelling if it secures the acquisition or construction loan. In that case, the transaction secured (only) by the new dwelling is a residential mortgage transaction and is not rescindable. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by B is a residential mortgage transaction. Dwelling, as defined in §1026.2, includes structures that are classified as personalty under state law. For example, a transaction secured by a mobile home, trailer, or houseboat used as the consumer's principal dwelling may be rescindable.RESCISSION REMINDERSRescission is one of the harshest penalties imposed on a lender for a failure to follow the lending rules and regulations. If a lender makes a loan to a consumer for a consumer purpose and the loan is secured by the consumer's principal residence, the consumer has the right to rescind the transaction unless the loan proceeds are being used to purchase the residence. Business purpose loans are not rescindable.If a loan is rescindable, the lender must provide each consumer who has a right to rescind disclosures of the material terms of the transaction that are within the rescission tolerance limits and two copies of the required notice of the right to rescind. The consumer then has until midnight of the third business day following the later of the consummation of the transaction or the delivery of the disclosures or the delivery of the notices of right to rescind, whichever occurs last.If a consumer rescinds a transaction, the lender must repay to the consumer any amounts that the consumer paid to close the transaction and any finance charges that the consumer may have paid after the closing. For example, a lender must repay to the consumer not only all finance charges that the lender has imposed but also any amounts that the consumer paid for an appraisal, survey, credit report and so forth. Also, technically, the mortgage is theoretically cancelled, leaving the creditor with an unsecured loan for the principal amount. Most courts, however, hold that rescission is an equitable remedy, and, therefore, the borrower must perform equitably as well. Courts generally require the consumer to repay the principal amount of the loan before the lender's security interest in the collateral is extinguished.Assume that a rescindable transaction to a husband and wife closes on a Monday and at the closing each consumer entitled to rescind is provided the appropriate disclosures and two copies of the notice to rescind. Midnight of the third business day would be midnight on Thursday. The lender may not fund the loan until the rescission period has ended, and it is assured that no borrower entitled to rescission has in fact rescinded. Generally, that means that the lender must wait until it would normally receive mail that was posted at midnight on Thursday. However, the regulation does allow the institution to fund if it receives written notice from all persons entitled to rescission, signed after the rescission period ended, that no one exercised the right of rescission. So, on Friday, the husband and wife come to the office of the lender, sign a statement that neither exercised the right of rescission, get their check and go happily on their way.? On Monday, the lender receives a notice of rescission from the husband that was mailed on Thursday. The husband says, "Oh, yeah. I forgot about that. Thursday, I decided I did not want the loan, but then I changed my mind." The loan was rescinded, and it cannot be resuscitated. The lender has to return the consumer's money; if it still wants to make the loan, begin again with new disclosures, waiting periods, etc.If the disclosures that were provided were not within the rescission tolerances or if the two copies of the notice of right to rescind were not provided, then, the rescission period continues for three years from the closing of the loan. If a lender discovers that it has a loan that is rescindable because of errors made in the closing documents, it has two choices. It can either wait until the end of the three year period and allow time to cure the problem, or it may send the borrowers accurate disclosures and the notices of right to rescind, wait three days and hope for the best. At this point, it is primarily a know-your-customer issue.A consumer may waive his or her right to rescind if there is a "personal financial emergency." Examples are a sick child in the hospital or a tornado took the roof off of your house. It must be both personal and an emergency; that is, it could not have been reasonably foreseen. A hot tip on the third horse in the fourth race is not a personal financial emergency.Many attorneys put what is generally known as a "spreader clause" in the mortgages that they prepare. A spreader clause says that the mortgage secures not only the loan in question but also any other loan that the borrower may have to the institution. After Regulation Z, attorneys ceased putting those clauses in residential mortgages, but they are still common place in commercial mortgage loan documents.? Be cautious if you have a commercial mortgage loan on an individual's residence and are making that individual a consumer loan, for example, for an automobile. Check the home mortgage documents to see if they contain a spreader clause; if they do, ask your attorney for his or her advice on how to address it.Bankers have been busy learning the new lending changes so it’s becomes easy to forget the rules that have been with us for years. Rescission remains an important consumer protection and should never be overlooked.REG B CHEAT SHEET APPRAISAL COPY RULES It’s important to read the entire regulation and commentary to the sections that have been changed. These cheat sheets may help to develop checklists for compliance.REG B APPRAISAL COPY RULEChanges to Reg B§1002.04 and §1002.14 are amendedWhen? Effective date was January 18, 2014What’s new?This change requires a creditor to give an applicant a copy of all appraisals and written valuations that were developed in connection with a credit application that is secured by a first lien on a dwelling. TimingThe copy must be provided 3 business days prior to closing for a closed-end request or account opening for open-end credit, whichever is earlier. WaiverThe applicant can waive the 3-day rule, but the lender must still provide the copy at or before closing or account-opening. Loan doesn’t closeThe creditor must still provide the copies no later than 30 days after determining that consummation won’t happen or the account isn’t opened.Consumer onlyNO – this will also apply to business purpose first-lien loan applicationsWhat definitions are new?Dwelling still means a residential structure of one to four units, whether or not attached to real property. Dwelling does not include a “motor vehicle” (i.e. cars, trucks, motorcycles, recreational boats & marine equipment, motor homes, campers)Valuation – means any estimate of the value of a dwelling developed in connection with an application for credit.Timing and disclosuresThe disclosure of “Right to Receive a Copy of Appraisals” must be provided 3 business days from the application dateA copy of each appraisal or written valuation must be given promptly on completion or 3 business days before closing for a closed-end request or account opening for open-end credit; whichever is earlier unless there is a waiver.What is the new disclosure form?C-9 has been revised; it’s “Sample Disclosure of Right to Receive a Copy of Appraisals.”What can go wrong?Copy is required even if the application is incomplete, denied, withdrawn, offered but not accepted. This is not just for closed loans.Can’t charge the applicant for the cost of the copy; you CAN charge for the appraisalCan be provided electronically, but only if E-SIGN is followed (unless application was electronic)This applies to business loans if there is a first-lien on a dwellingBe careful with waiver documentation for the 3 business day timing; the commentary says the waiver can be done orally or in writing. There are restrictions for Non-QM HPML appraisals; they have their own set of rulesGet the waiver at least 3 business days before closing unless is only for a copy of an appraisal/valuation that was changed for clerical reasons from a previous version that was given within the timing requirements.At the time of application the loan was going to be a subordinate lien and it’s later determined that it WILL be a first lien, the notice must be mailed or delivered no later than 3 business days after determining the first lien positionWho knew?This change actually REDUCES the scope of appraisal coverage to first lien applications secured by a dwelling. Copies MUST be provided under this new rule; the “old” rule gave the applicant a right to request a copy or the lender routinely provided copies.Bottom lineProvide a notice and provide a copy within the time framesForm C-9—Sample Disclosure of Right to Receive a Copy of Appraisals.We may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close.You can pay for an additional appraisal for your own use at your own costAdditional clarification:CoverageIt seems simple enough to say the Regulation B appraisal rule (the rule) applies anytime you have an application for a loan that is to be secured by a first lien on a dwelling. This would include applications to be secured by new construction, rentals, vacant dwellings and applications for preapprovals or pre-qualifications. However, bankers need to be careful exactly “what” constitutes an application, especially when it comes to agricultural and commercial lending. Does it meet the Regulation B definition of an application (and thus trigger these requirements) even if you don’t trigger other disclosures? For example, bankers doing a renewal or extension of an existing loan will likely do so in response to a borrower’s request. Thus, there is an application for credit, even if it is not formally documented in writing. Notice RequirementThe required notice is only triggered for those applications in which a creditor would be required to provide a copy of an appraisal or valuation. If a lender takes an application and has determined that there will be no new appraisal or use any type of valuation the notice is not required. Knowing what the Reg considers to be an “appraisal” and / or “valuation” is also very important. The Commentary does provide some examples. For example, it specifically states that governmental agency statements of appraised value that are publically available are not considered valuations. However, reports developed by internal staff (or government agency statements that are adjusted by the lender) and reports approved by a government-sponsored enterprise that provide a value are considered valuations. Thus, a valuation, for the purposes of Reg B, can be a document prepared by someone other than a traditional appraiser.The Commentary to Regulation B is clear the requirements do not apply if a lender uses a previously developed appraisal or valuation in connection with a renewal request. If a lender uses a prior valuation in connection with a new application, the regulation is less clear, but a possible position is that a lender doesn’t have to provide the appraisal notice or copy under Regulation B because the valuation is not developed in connection with the new application. However, it may be simpler to provide the notice in every case.WaiversIt’s no surprise that the idea of obtaining a waiver has grown quite popular with some lenders.However, it would be a best practice to only give the option for the waiver on a case-by-case basis. For example, if a lender knows the appraisal is going to be completed later than anticipated, inform the borrower that there is a waiver available if they don’t want to wait an additional three business days after the appraisal is provided. Keep in mind any waiver you get must still be obtained from the borrower at least three business days prior to closing. Since the CFPB believes the use of a waiver equates to the applicant giving away their rights, any practice that consistently results in a waiver will leave your financial institution with a lot of questions from examiners at the next exam.The Small Entity Compliance Guide specifically states, if you receive a completed valuation,you must promptly provide it to the applicants, even if they do not pay for it. Once an appraisal orvaluation has been completed, you have to provide a copy to the borrower, whether the loan closes or not. Collecting the appraisal fee before ordering the appraisal is a way to manage this risk.DocumentationSo, with the notice requirement and all the timing issues in this rule, how does a financial institution prove compliance? First, there is no requirement to obtain the borrower’s signature on either the appraisal notice or showing that a copy of the appraisal was received. Likewise, there is no requirement to retain a copy of the notice provided. However, lenders will want to be able to demonstrate that the procedures and processes ensure the notice is given in a timely manner and a copy of any appraisal or valuation is provided promptly. It is a best practice to have some documentation in the file as to the date the copy of the appraisal or other valuation was provided to an applicant to demonstrate the lender waited the appropriate time to close the loan.What’s an Appraisal?Regulation B never really defines the word “appraisal” but they do define the term “valuation”. An appraisal is a valuation. A valuation includes any document, which establishes a value for a dwelling that cannot be obtained from public sources. For example, if you obtain a tax-assessed value maintained by the County Assessor and do nothing to modify that value, it is not considered a valuation. This unaltered value is also readily available to the applicant. On the other hand, if the bank takes the assessor’s value and adjusts it 10% based on comparable dwellings, the bank has created a valuation, for the purpose of this requirement. Additionally, since this value is not publically available to the applicant, it would fall under the appraisal notice and free copy requirements of Regulation B.Another common example of a valuation is numerical values from secondary market underwriting programs. For example, if the underwriting system returns a value for the dwelling, it is not publically available and is therefore considered an appraisal and is subject to the rule. If the bank manually enters a value into the underwriting program, it could also be considered a valuation depending on the circumstances. It all depends on where the entered value was derived from. For example, if the tax-assessed value is entered, it’s not a valuation. If the value entered is from a previously obtained appraisal, if could be argued this did not trigger the requirements because it’s not a new appraisal (developed in connection with that application).Completed ApplicationsSeveral Forum participants asked about the definition of a “completed application” for the purpose of starting the clock for the 3 business day notice requirement, particularly from the commercial and agricultural sides of the bank. It is important to note that the appraisal rule requirements are NOT triggered by a completed application. Rather, they are triggered by a request for credit. These are two totally different things.Bankers can debate about what is and what isn’t an application. This problem begins with the fact that every regulation looks at applications and certain timing requirements differently. The term “completed application” is found in Regulation B but it pertains mostly to approvals and/or denials of a credit request. The term is not mentioned in the appraisal rule section of Regulation B because those requirements are triggered when the bank receives a request for credit that will be secured by a first lien on a dwelling and where the bank will obtain an appraisal. A request for credit occurs when an applicant says to a lender, “I would like to borrow / renew / refinance / extend a loan”. Whatever terminology is used to request credit from the bank, it is an application and the bank will need to provide the appraisal notice and also provide a copy of the appraisal promptly. It is also important to note a request for credit can be received by phone, in-person, mail, internet, etc. In other words, lenders don’t need a piece of paper that’s signed by the applicant to have a request for credit.Here are some regulatory references to prove our point:A. Application:...any oral or written request for an extension of credit that is made in accordance withprocedures used by a creditor for the type of credit requested. [§1002.2(f)]B. Procedures Used:… refers to the actual practices followed by a creditor for making credit decisions, as wellas its stated application procedures. For example, if a creditor’s stated policy is to require allapplications to be in writing on the creditor’s application form, but the creditor also makescredit decisions based on oral requests, the creditor’s procedures are to accept both oral andwritten applications. [Commentary to §1002.2(f) #2]C. Appraisal Requirements Driven by the ApplicationA creditor shall provide an applicant a copy of all appraisals and other written valuationsdeveloped in connection with an application for credit that is to be secured by a first lien on adwelling. [§1002.14(a)(1)]A creditor shall mail or deliver to an applicant, not later than the third business day after thecreditor receives an application for credit that is to be secured by a first lien on a dwelling, anotice in writing of the applicant's right to receive a copy of all written appraisals developed inconnection with the application. [1002.14(a)(2)]There is no reference to the term “completed application.Notice RequirementsA request for credit, secured by a first lien on a 1-4 family dwelling is subject to the appraisal rule. The next step is to provide the appraisal notice. The notice must be provided within 3 business days of an application (request for credit). The notice does not have to be provided to each applicant, rather one applicant (must be the primary applicant, when apparent) can receive the notice on behalf of all applicants. The notice may be provided electronically; however, it must comply with E-SIGN. The only exception is if the notice is provided on or with an application that can be accessed electronically.ExemptionsThe loan type doesn’t matter. In other words, the rule will apply whether the request is for a construction loan, bridge loan, HELOC or a commercial/agricultural loan or line of credit. Also, watch those cross-collateralization clauses. A lender may have a covered application and not even realize it. The rule also does not make exceptions for occupancy status, whether the dwelling is taken as an abundance of caution or whether the dwelling has little value relative to the amount requested. REPEAT WARNING - if the request will be secured by a first lien on a dwelling and an appraisal will be obtained, the bank owes a notice and copy. Business Days?The notice must be provided within 3 business days of application. The CFPB failed to define “business days” within the Regulation, which has led to confusion. They have; however, indicated that a “reasonable” definition is sufficient. It may be prudent to adopt Regulation Z’sdefinition since there is a very similar appraisal requirement for Higher-Priced Mortgage Loans.Regulation Z defines a business day (for these purposes) as “a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions”. To demonstrate the 3-business day delivery, assume the application is received on Monday. The notice should then be provided or placed in the mail by the end of business Thursday.Most compliance experts advise against is using the definition to exclude Saturday in the notice provision (“delaying the delivery”) and to include Saturday in the copy and closing provisions (“expediting the applicant to close”). These rules are intended to provide adequate notice and adequate time to review documents so any action to contradict the spirit of the law coulddraw examiner scrutiny.Appraisal CopyOnce the appraisal is completed and reviewed by the bank to make sure it meets the bank’sstandards and adequately documents the value of the property, a copy must be provided to theapplicant promptly. When the appraisal is considered “complete” can occur at any time during the loan process; however, the copy generally cannot be provided less than 3 business days prior to closing (unless the lender has a waiver, which is discussed below).If the free copy is delivered in person, the loan can close in three business days. For example, if you hand-deliver on Monday, you can close on Thursday. If the free copy is mailed, you have to allow three business days for it to be considered “delivered”, then you must wait three more business days to close the loan. If you count Saturday and the copy is mailed on Monday, the loan can be closed on the following Monday. The copy may also be provided electronically; however, it must comply with E-SIGN.Previous AppraisalsIf a bank intends to rely on a prior appraisal, most compliance experts believe the notice and copy requirements will apply. Regulation B states, in §1002.14(a)(1), you must provide a copy of any appraisal or other written valuation developed in connection with an application that is to be secured by a first lien on a 1-4 family dwelling. The key here is “developed in connection with”. In other words, if a lender receives an application and will rely on an existing appraisal that was developed for another loan, you don’t have a covered application. This means the appraisal notice isn’t technically required under §1002.14(a)(2) and neither is the free copy under §1002.14(a)(1). However, it may be simpler to provide the notice, in case there are updates to a previously developed value.The Commentary to §1002.14(a)(1) helps to further understand the “developed in connection with ” requirement and also provides clarification as to how this section applies to loan renewals. It states, if a new appraisal is developed in connection with an application for a renewal, it is a covered application (meaning the notice and free copy are required). However, when an application for a renewal includes a reliance on a previously developed appraisal, it is not a covered application (meaning no notice and no free copy).Closing Commercial/Ag LoansLenders have asked regarding commercial/agricultural loans. Specifically, questions about the ability to close agricultural purpose loans (such as to purchase equipment) that are to be secured by a 1st lien on a dwelling. The concern was whether closing could occur on the same day that an application is received and the answer is absolutely, but only as long as the lender is not going to obtain/perform a valuation. Remember, even though the transaction may result in a first lien on a dwelling through a direct mortgage or cross-collateralization, if the bank is not going to order or obtain a new valuation in conjunction with the new equipment loan, a reasonable position is that the bank is not required to provide the notice or a copy of the valuation.Appraisal ChangesThere have been concerns that technical corrections to a valuation would restart the 3-businessdays prior to closing clock and ultimately delay closing. The answer is not necessarily, if the applicant has already received a copy of the valuation three business days prior to closing and provides the lender with a waiver. Only in the case of a “clerical” change can a waiver be obtained within three business days of closing. Waivers are discussed more below. If the estimated value or the method used to determine the value is not impacted by the change, there is no reason to further delay closing. The applicant should; however, receive a final copy of the appraisal that includes all the technical corrections.FIL-32-2015 LOANS IN AREAS OF SPECIAL FLOOD HAZARDSThis FIL was issued July 21, 2015 and is found at: FDIC, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the National Credit Union Administration, and the Farm Credit Administration approved the issuance of a joint final rule to amend their respective regulations regarding loans in special flood hazard areas. The final rule amends the FDIC's flood insurance regulation, at Part 339 of Title 12 of the Code of Federal Regulations, to incorporate and implement certain provisions in the Biggert-Waters Flood Insurance Reform Act of 2012 (BW Act) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) regarding detached structures, force placement of flood insurance, and escrowing of flood insurance premiums and fees.The escrow and notice requirements become effective on January 1, 2016. The detached structures exemption became effective upon enactment of the HFIAA on March 21, 2014. The force-placed flood insurance provisions became effective upon enactment of the BW Act on July 6, 2012.Highlights:Escrow:?The final rule requires institutions to escrow premiums and fees for flood insurance required by Part 339 for certain designated loans that are made, increased, extended, or renewed on or after January 1, 2016. It requires lenders to offer and make available to consumers the option to escrow premiums and fees for certain loans outstanding as of January 1, 2016. The final rule also implements exemptions to the escrow requirement provided under the HFIAA.Detached Structures:?The final rule includes the exemption to the general mandatory flood insurance purchase requirement for any structure that is part of a residential property but is detached from the primary residential structure of such property and does not serve as a residence. The final rule also clarifies what is considered "a structure that is part of a residential property," "detached," and "serves as a residence."Force-Placed Insurance:?The final rule includes the statutory clarification that an institution or its servicer has the authority to charge a borrower for the cost of flood insurance coverage commencing on the date on which the borrower's coverage lapsed or became insufficient. The final rule also provides that under certain circumstances, an institution or its servicer must terminate force-placed flood insurance coverage and refund payments to a borrower to cover any period of overlap in coverage.FIL-28-2014 FLOOD INSURANCE “OTHER RESIDENTIAL BUILDINGS”On May 30, 2014 the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the National Credit Union Administration, and the Farm Credit Administration (collectively, the agencies) issued a statement regarding the new National Flood Insurance Program (NFIP) maximum limit of flood insurance coverage for non-condominium residential buildings designed for use for five or more families (classified by the NFIP as “Other Residential Buildings”). The guidance explained the agencies’ expectations and a financial institution’s responsibilities when, as a result of the increase in the maximum limit of building coverage for such properties, a financial institution determines that a building securing a designated loan is covered by flood insurance in an amount less than the amount required under federal flood insurance law.The new coverage limits are available for new policies, policy renewals, or existing policies with change endorsements that are effective on or after June 1, 2014. The Federal Emergency Management Agency has directed insurers that issue NFIP policies to provide all Other Residential policyholders with a letter informing them prior to June 1, 2014, of the new policy limits.If, as a result of the increase in the maximum limit of building coverage for these buildings, a lender or its servicer determines on or after June 1, 2014, that the building securing the designated loan is now covered by flood insurance in an amount less than required by federal flood insurance regulation, it should take steps to ensure that the borrower obtains sufficient coverage, including force placing insurance pursuant to federal law.From Jack Holznecht’s blog: content of the statement was no surprise. The need for this action was discussed in this blog nearly two years ago, shortly after the Biggert-Waters Act became law. The surprise was that the notice was published so late as to be pretty much irrelevant. The notice was published on May 30, 2014, Friday of a holiday weekend. The change was effective on June 1, 2014.CALCULATING COVERAGE EXAMPLESALTERNATE COVERAGE WORKSHEETANYBANKFlood Insurance Calculation WorksheetHow to Calculate Required Flood InsuranceBorrower Name:_______________________________ Loan Number ____________________AMax Available under NFIPResidential$250,000.00Commercial or “Other Residential”$500,000.00BReplacementCost of Each Structure$___________$___________CBalance(s) of the Loan(s)$___________The amount of flood insurance required must be at least equal to the outstanding principal balance of the loan, or the maximum amount available under the NFIP, whichever is less. We need a separate policy for each structure on the property.Required Coverage Amount $_________________________________Flood insurance Requirements:_____Insurance declaration page or application_____PAID receipt for premium_____Must have one year policy dates_____Flood coverage must equal the lesser of:Maximum insurance available under the NFIPReplacement cost of each structure to be insuredBalance of the loan (and consider ALL loan balances secured by the property; this includes prior liens with another lender and cross-pledged loans with ANYBANK)____Max deductible: $5,000.00____Verify on appraisal if detached building is on property, if so a separate flood policy is required_____Must reference borrowers name(s), property address, flood coverage amount, premium amount, yearly policy dates, and deductible amount_____Mortgagee Clause: ANYBANK , PO Box 123, Anywhere, LA and clause including ISAOA_____Document contact with customer as soon as we receive a Standard Flood Determination requiring flood insurance; document how the NOTICE was provided“OLD” REAL ESTATE LOAN MATRIX The Real Estate Matrix was created by Bankers Compliance Consulting in Nebraska. The author wishes to acknowledge and thank Bankers Compliance Consulting for providing this information and other valuable tools to the financial services industry. The basic format is available in a free download from their website at: PLEASE GO DIRECTLY TO THE WEBSITE TO DOWNLOAD THE MATRIX.THIS WILL ALLOW OPTIONS TO FORMAT. YOU CAN USE ADOBE FEATURES TO CREATE A LARGER IMAGE THAT IS EASIER TO READ NOTE: This is version 9.3; this version should replace any prior versions; it was updated on June 20, 2014 with some minor changes. The changes included clarification about the HPML appraisal requirements. TRID REAL ESTATE LOAN MATRIX The Real Estate Matrix was created by Bankers Compliance Consulting in Nebraska. The author wishes to acknowledge and thank Bankers Compliance Consulting for providing this information and other valuable tools to the financial services industry. The basic format is available in a free download from their website at: GO DIRECTLY TO THE WEBSITE TO DOWNLOAD THE MATRIX.THIS WILL ALLOW OPTIONS TO FORMAT. YOU CAN USE ADOBE FEATURES TO CREATE A LARGER IMAGE THAT IS EASIER TO READ NOTE: This is version 10.0; this version was updated to include the INTEGRATED DISCLOSURE REQUIREMENTS AND WILL APPLY TO APPLICATIONS TAKEN ON OR AFTER 10/3/15. It has been divided into sections to make it easier to read ................
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