Question: We sometimes make loans to small businesses to cover the cost of the purchase of insurance. These loans are usually made through the insurance broker who helps customers shop for loans. If we deny the application, do we have any obligations to send the applicant business an adverse action notice?
Answer: Your denial is subject to the adverse action notification requirements of 202.9(a)(3). This means that, as a small business, your applicant has a right to a statement of action taken. This may be given orally or in writing directly to the applicant. Because this application came to you through an insurance broker, you could use the 202.9(g) third party application rule. To do this, you should give your reasons for denial to the insurance broker and advise the broker to pass on the reasons for denial. You should be in a position to show that you asked the insurance broker to carry out your notification obligations under Regulation B.
Question: Under the new HMDA regulation, a refinancing must replace a loan whether made by the same or another lender. It appears that a loan on a property that had no previous loan to be paid off is not reportable. Is this correct?
Answer: Yes. A loan on the equity in a dwelling, where that dwelling had been free and clear of encumbrances, is not reportable. Even though this type of loan clearly falls within the spirit of HMDA as a loan secured by a dwelling, it has fallen through the cracks. The cracks were created by the effort to create definitions that distinguish between purchase money loans and refinancings of loans. Apparently, the equity draw on property already owned outright was not considered.
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