Question: We had an applicant apply for a HELOC. We know HELOC disclosures need to be sent out within three days for phone applications but on the day after the application was submitted, we denied it but the adverse action was sent out four days after application. Should we have sent the HELOC disclosures within three days knowing it was going to be denied because the denial letter was not sent out until after the three-day timeline?
Answer: In these cases the disclosures are not required if the Bank in fact determined within the days that the application would not be approved. As set out below, Reg Z permits creditors to not provide the HELOC disclosures within the three-day period if it determines within those three days that an application will not be approved.
"Denial or withdrawal of application. In situations where § 1026.40(b) permits the creditor a three-day delay in providing disclosures and the brochure, if the creditor determines within that period that an application will not be approved, the creditor need not provide the consumer with the disclosures or brochure. Similarly, if the consumer withdraws the application within this three-day period, the creditor need not provide the disclosures or brochure." https://www.consumerfinance.gov/rules-policy/regulations/1026/interp-40/#40-b-Interp-5
Question: Would it be a requirement of any regulation for an institution to get a written cancellation request from a borrower to cancel automatic loan payments from a deposit account? We hold the Note and the account. Do we need the request to be in writing or are we required to accept a verbal request as well as written?
Answer: Preauthorized transfers are generally governed by Regulation E. Generally, under the Regulation, a preauthorized transfer may be stopped by providing the bank with either oral notice or written notice at least 3 days before the transfer is scheduled to occur. A bank is permitted to require written notice of a stop payment for preauthorized transfers, so long as this is disclosed within the account disclosure. https://www.consumerfinance.gov/rules-policy/regulations/1005/10/#b In the situation where a bank holds both a loan account and a deposit account, it is important to review both your loan agreement, as well as the deposit agreement to determine whether or not any additional notice is needed to cancel preauthorized transfers. This is because while an institution may not require the payment of a loan account via preauthorized transfers, banks holding both a deposit account and a loan account are permitted to give the customer additional benefits if the customer agrees for loan payments to be paid via preauthorized transfers. https://www.consumerfinance.gov/rules-policy/regulations/1005/10/#d-2
Question: When we make a new loan that is to be secured by a property that already secures another loan, can we rely on an existing flood cert that is less than 7 years old, or do we need a new certification? Is the certification loan specific? This is not a renewal or an extension of an existing loan.
Answer: The flood certification is property-specific, not specific to a loan. You could reuse the flood determination as long as it is less than 7 years, the flood determination was recorded on the standard flood hazard determination form, there have been no map revisions or updates since the date of the determination, and you are the same lender that requested the prior determination. 42 USC 4104b: Standard hazard determination forms (house.gov).
Question: We have a loan secured by a dwelling where the borrower used the funds to purchase a house and he is making improvements on it. The payments are interest only for 12 months. After the 12 months, he is getting a permanent takeout loan to replace it. Would this be a HMDA reportable loan or does the fact that it is short-term financing take precedence over the purchase and home improvements?
Answer: If the loans are separate and the first is intended to be replaced by separate financing later, the first loan would be considered temporary financing and is exempt from HMDA reporting for that reason. If the facts were the same but the house were going to be resold to pay off the 12-month loan, then it would not be exempt, but that does not appear to be the case in this situation. “…1. Temporary financing. Section 1003.3(c)(3) provides that closed-end mortgage loans or open-end lines of credit obtained for temporary financing are excluded transactions. A loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. … v. Lender A originates a loan with a nine-month term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Under § 1003.3(c)(3), the loan is not designed to be replaced by separate permanent financing extended to the same borrower, and therefore the temporary financing exclusion does not apply. Such a transaction is not temporary financing under § 1003.3(c)(3) merely because its term is short. …” Comment 3(c)(3)-1: https://www.consumerfinance.gov/policycompliance/rulemaking/regulations/1003/Interp-3/#3-c-3-Interp-1-iv
Question: For a TRID construction loan disclosed as two transactions, what should we disclose as the interest rate if it’s variable we don’t know what the rate will be during the permanent phase?
Answer: If it will have an adjustable rate and the rate is unknown when the Loan Estimate is provided, the bank should disclose the fully-indexed rate, which is the rate calculated using the index and margin at the time of consummation. If the index and margin that will be in effect at consummation must be provided, the fully-indexed rate disclosed may be based on the index in effect at the time the disclosure is delivered.
“1. Interest rate at consummation not known. Where the interest rate that will apply at consummation is not known at the time the creditor must deliver the disclosures required by § 1026.19(e), § 1026.37(b)(2) requires disclosure of the fully-indexed rate, defined as the index plus the margin at consummation. Although § 1026.37(b)(2) refers to the index plus margin “at consummation,” if the index value that will be in effect at consummation is unknown at the time the disclosures are provided under § 1026.19(e)(1)(iii), i.e., within three business days after receipt of a consumer's application, the fully-indexed rate disclosed under § 1026.37(b)(2) may be based on the index in effect at the time the disclosure is delivered. The index in effect at consummation (or the time the disclosure is delivered under § 1026.19(e)) need not be used if the contract provides for a delay in the implementation of changes in an index value. For example, if the contract specifies that rate changes are based on the index value in effect 45 days before the change date, creditors may use any index value in effect during the 45 days before consummation (or any earlier date of disclosure) in calculating the fully-indexed rate to be disclosed. See comment app. D-7.iii for an explanation of the disclosure of the permanent financing interest rate for a construction-permanent loan.”
Comment 37(b)(2): https://www.consumerfinance.gov/rules-policy/regulations/1026/interp-37/#37-b-2-Interp
Question: We have an instance where a customer is wanting to open a benefit account for a fellow church member whose wife has recently become ill. His initial intention was to set the account up under his name and tax ID information and he would direct the funds to the individuals. However, our institution does not typically open these types of accounts and we're hoping for recommendations and/or what is consistent in the banking industry for these types of benefit accounts.
Answer: There are several methods that may be used when opening these types of accounts:
- A simple trust can be drafted, and an account can be opened in the name of the trust. Treat the account as you would treat any account opened under an irrevocable trust agreement.
- An account opened in the name of the persons to be benefitted. Treat the account as you would treat any individual/single-party or joint/multiple-party account. The victim(s) must be authorized to transact on the account.
- An organization actively involved in the process of assisting the family may be willing to open an account in the name of the organization into which the collected funds will be deposited. For example, a local church or other charitable organization assisting the victim(s) may be willing to open and administer the account. Treat the account as you would treat any account opened by an organization.
The three methods described above are the only practical methods which should be considered. However, there are some banks that allow customers to open these types of accounts as informal trust, such as “FBO” or “ITF” accounts. If the bank will consider this, please note the following:
- Treat the account as you would any individual/single-party or joint/multiple party account with a POD.
- The person establishing the account is the owner of the account and the victim is the designated beneficiary. This means that the funds given to the victim to establish the account will not belong to the victim once deposited into this type of account.
- Ownership passes at the death of the account owner to the victim.
- If the victim dies, the funds do not pass to his/her estate. The funds belong to the owner of the account.
- Checks made payable to the victim should not be deposited into this type of account, unless the victim properly endorses the check.
- The owner’s TIN is used for IRS and CIP purposes.
In addition, Compliance Alliance has a thorough cheat sheet regarding benefit and memorial accounts, here.
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