View the presentation from our HOT TOPICS IN LENDING COMPLIANCE webinar!
Although there is much legislation in motion on Capitol Hill, financial institutions are already adapting to interim and/or final rules. This webinar covers hot compliance issues affecting consumer lending, and will include flood insurance requirements, disclosures affecting mortgage loans, private student loans, and credit cards.
Thanks to all who attended on Wednesday, January 27, 2010.
Click here to download the slide deck:
INSIGHTS_Hot_Topics_in_Lending_Compliance_Slide_Deck_2009-01-27.pdf (190.97 kb)
Click here to download the live recording:
ICSCompliance_27FEB10_FIN.wrf (8.87 mb)
Download the WebEx Player here: http://www.webex.com/play-webex-recording.html
As mentioned on the webinar, below are all the questions we received from participants, along with our answers. For any other questions, please e-mail us at: webinar@ICScompliance.com
Question: If I am modifying a 1st mortgage loan or a home Equity loan…. Just a rate only modification do I need a new flood certification?
Answer: If you are only executing a rate modification, you do not need to do a new flood determination/certification.
Question: I need clarification on is the new amended to Reg Z. It mentions any Consumer Principle dwelling needs TIL. In the past if the consumer was refinancing their principle dwelling and the purpose was for business purpose than RZ would not apply. If I heard correctly, then new Regulation says the purpose does not apply anymore. If that is the case, than any loan to a borrower (meaning) an individual and not a corporation, if it is their principle dwelling regarding of the purpose we need to disclose the R-Z.
Answer: No, business purpose loans are still not governed by Regulation Z, even though a business/commercial loan may be secured by the principal residence of an official of the business. The July 30, 2009 amendments to Regulation Z require lending institutions to provide early, estimated TIL disclosures to consumers in conjunction with applications for consumer-purpose (personal, family or household) loans which are to be secured by their principal residence, including purchase-money loans, as well as refinancings, and other purpose loans which are secured by the principal residence of the consumer borrower.
Question: Should they require borrowers to sign or at least initial the new HUD-1/HUD-1A form, despite fact that there is no signature line on the new form.
Answer: There are two ways that an institution can demonstrate compliance with applicable statutes and regulations regarding information (disclosures) provided to applicants and borrowers. One way is to have the applicant/borrower sign/date to acknowledge receipt of documents, and the other way is for the institution to have formal, written, procedures explaining when and how certain documents will be provided to applicants/borrowers. If an institution does not have formal procedures addressing the provision of documents, they would be well-advised to obtain the customer’s signature or initials to acknowledge receipt.
Question: Higher Education Opportunity Act - What is required if we do not do this type of loan?
Answer: If your bank does not make closed-end loans for postsecondary educational expenses, you have no obligations under either the Act or the applicable provisions of Regulation Z.
Question: If after the customer is initially disclosed and pays for an appraisal and credit report, if redisclosure is required does the customer has the right to cancel the transaction and must we refund the expenses incurred if they do cancel?
Answer: Assuming that you are talking about redisclosure of the APR, Finance Charge, etc., (Truth in Lending Disclosures) , the customer does not have the right to cancel a transaction simply because you have provided an amended disclosure under the relevant provisions of Regulation Z. A consumer will only have the right to rescind a transaction which is secured by their principal residence after consummation of the loan, including execution of whatever security documents are necessary (such as a deed of trust or mortgage) to perfect the bank’s lien on the property. If a customer decides not to proceed to close the loan upon receipt of an amended disclosure (or at any time prior to consummation), the bank is not obligated to refund any fees, etc.
Question: If I have a building that has 2 walls and a roof but no floor, is it considered a building for flood?
Answer: Generally speaking, the structure would be eligible for coverage simply because it is “walled and roofed.” However, FEMA’s Mandatory Purchase of Flood Insurance Guidelines booklet (Sept. 1007 revision) should be consulted to determine applicability of coverage relative to low-cost structures on high-value land.
Question: What is your position on whether a new flood cert and notice (if applicable) is necessary on a commercial line of credit that continuously renews for another year? Does it matter if the note does not specify a specific maturity date?
Answer: Flood insurance implementing regulations permit use of a prior (or initial) determination in conjunction with subsequent loans secured by the same property for up to seven years from the date of the prior determination, unless the institution has been notified of a change in the status of the property securing the loan. It doesn’t matter whether or not the note has a maturity date.
Question: Regarding MDIA, FRB published guidance that overstatement of initial APR is acceptable for mortgage loans if the overstatement relates to a finance charge. I don't understand what that means.
Answer: It means that if the APR is overstated because of an overstatement of the finance charges related to a particular loan, the overstated APR is not considered to constitute a violation of Regulation Z.
Question: If redisclosure by mail happens, the requirement is for three days to pass... Do we assume receipt after the three days and require an additional three days prior to close? Assuming we have already exceeded our seven day wait.
Answer: Yes. If/when you mail an amended TIL disclosure to a consumer, the disclosure will be considered to have been received by the consumer three days after it was mailed, then the consumer shall have three business days after receipt within which to consider or “digest” the changes and decide whether to proceed to consummate the loan, even if the initial seven-day waiting period has already passed.
Question: Isn't the 1/4 also applied to ARM's?
Answer: Whether the higher tolerance applies to ARMs is subject to interpretation. For example, Footnote 46 to §226.22(a)(3) of Regulation Z provides that “For purposes of paragraph (a)(3) of this section, an irregular transaction is one that includes one or more of the following features: multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment.)”
However, the Commentary to Regulation Z, at §226.22(a)(3), Paragraph 1 (the last sentence) reads: “It does not apply, however, to loans with variable-rate features where the initial disclosures are based on a regular amortization schedule over the life of the loan, even though payments may later change because of the variable-rate feature.”
Conservatively, it is recommended that the 1/8 of 1 percent tolerance, triggering amended TIL disclosures, be applied to ARMs.
Question: What if the Disclosures are hand delivered? Then can the loan close within the 5 days?
Answer: If you are talking about the early, estimated, TIL disclosures given in conjunction with a consumer principal dwelling-secured loan, the answer is no. You cannot close earlier than 7 days after early disclosures are given, regardless of how they may be delivered.
Question: Is escrow required no matter what LTV is on those higher-priced mortgages?
Answer: The escrow requirement is triggered by the price of the loan (higher-priced), combined with a first lien security interest in a consumer’s dwelling. LTV is not a factor.
Question: Would flood insurance premiums be considered hazard insurance and require escrow?
Answer: Yes, if/when the institution escrows for taxes and other hazard (i.e., homeowner’s) insurance, it must also escrow for flood insurance, if/when applicable.
Question: Do the early disclosure requirements under MDIA apply to dwellings other than a consumer's "principal" dwelling?
Answer: The applicable section of Regulation Z (226.19) simply refers to a “consumer’s dwelling” and not specifically to a consumer’s principal dwelling. Accordingly, the requirements of the MDIA would apply to loans secured by dwellings owned by consumers, unless exempt under Section 226.3 of Reg. Z.
Question: Can we redisclose if we find out that the fee we quoted is wrong? (ex: title fee)
Answer: There is no provision in the implementing regulations for redisclosure in order to correct mistakes made when initially issuing a GFE. In the interest of providing accurate information to applicants/borrowers, I would reissue the GFE.
Question: In regards to HUD Regulation X, what are some examples of changed circumstances?
Answer: Information about the credit quality of the borrower (credit score, etc.), the value of the subject property, the necessity for pest inspections, surveys to satisfy boundary disputes, environmental problems, the necessity to purchase flood insurance, to name a few.
Question: If a vendor misquotes us and we must get money back to our customer, can we then go back to get the money from our vendor?
Answer: You can certainly try to recover the money from the vendor who gave you the inaccurate quote. However, it is solely the lender’s responsibility to reimburse the borrower as necessary.
Question: Just to clarify under amended Regulation Z, a personal unsecured installment loan to a consumer for the purpose of "college tuition" would be covered?
Answer: Yes, if the loan was a closed-end loan, when the proceeds were known to be used, in whole or in part, for postsecondary educational expenses.
Question: If a lien is taken only on a mobile home (but not the underlying real estate), is the transaction still subject to flood insurance?
Answer: Yes.
Question: Can a consumer-purpose, principal dwelling-secured loan be closed within 5 days of receipt of the application?
Answer: No, unless the consumer is permitted to waive the 7-day waiting period in response to a “bona fide personal financial emergency.” There is no guidance in Regulation Z with respect to what constitutes such an emergency.
Question: If the APR on a principal dwelling-secured loan goes down by more than .125% between the time we provided early, estimated Truth in Lending Disclosures and consummation, do we still have to re-disclose?
Answer: Yes, re-disclosure is required whether the APR goes up or down by more than .125% or .25%, depending upon the type of transaction.
Question: When do we have to start escrowing for taxes and insurance on higher-priced mortgage loans?
Answer: Escrows are required with respect to applications received on or after April 1, 2010, which result in higher-priced, first lien-secured mortgage loans (“traditional” houses), and October 1, 2010, for first lien-secured loans involving mobile and manufactured housing.
Question: Is a short-term installment loan for college tuition subject to the new rules requiring multiple disclosures?
Answer: Yes, if a closed-end loan.
