I have a question that one of my processors asked me. I am not sure what to tell her.



Any help?

In an Infovault post titled "Lending & the E-sign Rule", Jim Bedsole responded to this question: "Could the Loan Officer e-mail the regulatory disclosures, Authorization certification, RESPA Servicing, Private Policy, and GFE/TIL to the consumer without first making the LO send an e-mail to the borrower for an electronic consent and have the borrower send it back?"

Mr. Bedsole stated "The documents you reference are all required to be delivered in writing. Therefore, to deliver them electronically, you have to first comply with the disclosure notice and demonstrable consent provisions of E-SIGN before sending only electronic. Alternatively, you can send electronically and follow up with mailed paper, and in that case, you would not need to be E-SIGN compliant because you are sending the paper as well." (emphasis mine)

Based on Mr. Bedsole's response, does anyone think that for the purposes of sending the early disclosures and NOT having to wait 3 days to consider them received, we could email or fax the documents, consider them received for purposes of MDIA as soon as notification of receipt is received from the consumer, then still follow up with the paper documents and NOT have to comply with E-Sign (specifically the demonstrable consent requirements?

Are you referring to the ETIL? Only settlement costs that are considered to be pre-paid finance charges affect the APR. Very few settlement charges fall into this category........the biggies are any fee that the bank charges and keeps such as origination fee, points, underwriting fee, commitment Fee, discount fee. Your loan officers ought to be able to accurately disclose these fees according to your Bank's fee schedule. Smaller fees charged at settlement that are pre-paid finance charges but may not be significant enough to throw the APR out of tolerance are....fees for faxing, courier, Fed X, wire, etc. Filing fees are not pre-paid finance charges if itemized and disclosed.

From all of the feedback I have received you can do this. If we were to fax or email documents and get evidence back that the cusomter did, in fact, receive them...as well as mail a copy to them as well, we will go off the date we receive evidence that the cusomter received the docs, not an "assumed received" date of mailing.

I'm sorry if this has already been asked - I did a search and looked through this thread, but didn't see this addressed. If your customer applies for a fixed rate loan, you provide initial disclosures within the 3 business day rule, then the customer later changes his/her mind to an ARM loan. Do you think your 7 day waiting period starts all over again? A Q & A by ABA seems to imply that this would be a new application with new initial disclosures thereby having to restart the 7 day period. That seems ultra conservative, and I know I won't be able to get that to go here. I certainly agree that you have to redisclose and delay and give ARM disclosures, but I don't know that we'd have to restart the 7 day waiting period. Thoughts? I will certainly push this if I have to, but I already know it will be a fight.

Now, in reality, most of the redisclosures, I suspect, will be mailed anyway, which is a 6 business day waiting period. But, the argument will pretty much just be that this was the customer's choice to change to an ARM and they shouldn't be penalized excessively for that, etc.

My initial thought was that this would be a new app. and require new disclosures.
But the more I try to apply the Definition of an application (as defined by Reg Z and RESPA), I am thniking that the customer was shopping and comparing loans = As the changes are intended to encourage.
And they just chose to go with an ARM product = requires re-disclosure for that product.
SO - now I am unsure also and awaiting some GURU wisdom

As we have done in the past we would treat this as an amended application not a new one. We would provide the ARM disclosure and if the initial ETIL APR is out of tolerance redisclose under the new requirements, but we would not start a new "7" day clock.

OK ... so I'm a little leery about this. The guidance on Page 29 of the "Insights" publication basically says "ah, that's OK ... just lower the APR and then you don't have to worry about it". I'm a little concerned about doing this. Wouldn't you think that if the regulators find that you are consistently using a rate that is *just a smidge* lower than that week's APOR that they are going to start asking questions?

I don't want to tell my lenders to do something that's going to get us in to trouble down the road, and we do a TON of 3-5 year balloons like this.

Thoughts?

I did some research on this awhile ago. Earlier in this thread one of the posters specifically stated that it makes NO sense to lower the APR just so you can come in under the APOR. It makes a risk-based pricing decision into a compliance driven pricing decision, which is not a good business practice (let alone something that could get you into trouble with the regulators).

On a related note, you can still do 3- and 5- year balloons, you just lose the presumption of compliance. See the following note that I believe was posted on this thread some time back:

(emphasis mine)

...That makes sense...as much sense as any of this can make, that is.

Not to sound stupid, or as dumb as my avatar, but what exactly does the phrase "you just lose the presumption of compliance" mean?

Yeah, I'm with you DD...makes it sound like "well, why did they put the requirement in there to begin with if all that happens if you make them is you JUST lose the presumption of compliance...

You are supposed to document ability to pay anyway...right? Even if it's a 7-yr balloon...so what...the examiners won't really check for that if it's a 7-yr, but will if it's a 5-yr?

I don't really get it.

Voted as the understatement of the year.

The FRB put a civil liability issue into Reg Z. IOW, if you give someone a loan that they should have not have had, they can now sue you for it. The presumption of compliance is like a safe harbor. IOW, "We believe this is the right loan for you". However, Reg Z still states this isn't a 100% guarantee. If the borrowers claims (with evidence) the lender disregarded repayment ability, they can still challenge this in court.

SO - even if you follow all of the rules in §226.34(a)(4)(iii), you can still get sued. I see tons of civil issues in the near future where a borrower is being foreclosed on and they just raise the claim "The lender should have never given me this loan!". Whether you followed the presumption of compliance or not, you may have to defend it.

David- that is probably the best explanation of the whole "presummed compliance" I have seen. Thank you

We now have "suitability" just like with investments. Yuck.

Thanks Marie.

To go further - in my part of the country & my clients (mostly community banks) this is a real joke. When I train lenders on these issues, they look at me like I'm stupid. While that may be true, it is idiotic to think a lender would make a loan to someone who couldn't afford it. Unfortunately, a few have created this mess for all of us.

I'm not bent out of shape about the whole "you can't make a loan under 7 years" argument. If you do, you simply lose the safe harbor. But as I explained in my post, you really don't have it anyway.

Thanks for your response Swiggles. That is what I thought but since I have been out of the compliance world for so long I wasn't sure. I have decided to go back and start at the beginning - going to National Compliance school this fall. I am sure it will be a lot harder than it was the first time I went thru it. Hopefully once I get started I will remember some things. Of course so much has changed it might be best if I forget what I knew.

Aside from the typical account verifications, what other documentation do you suppose the regulators will be looking for when verifying assets? I can't find anything in the final rule.

There are plenty of examples of income, but nothing for assets.

I need a Reg Z policy to work with. We have open end loan and credit cards. Could someone share a policy with me?

Reg Z Exam procedures check out page 33. Does this mean any variance up or down is a violation if not properly addressed under MDIA?

Has anyone read the "From the Examiner's Desk: Changes to Regulation Z Afford Increased Consumer Protections"?

On page 29 it discusses the loans under 7 yrs in term with a balloon issue.

Quote:
"But where a balloon payment comes due before the end of seven years, the balloon payment must be considered in determining repayment ability, in effect, prohibiting higer priced morgage loans with balloon payments due in less than seven years in almost all cases.


Further down they say:

Banks continuing to offer these mortgage loans on or after October 1, 2009, likely will have to reduce the APR charged to prevent these loans from being higher-priced morgages.


Then further down they discuss this out:

Of course, where the borrower has the right under the mortgage contract to renew the loan beyond seven years, there is no balloon payment that needs to be considered in determining repayment ability. While this right may be conditional, it is improtant to note that satisfying the conditions must be withing the borrower's control.

They refer to comment 17(c)(1)-(7) for conditions within the consumer's control.

So, does all this mean the examiners don't think it is possible to offer 3yr or 5 yr balloons?

The way I read the chart on page 33 is that if the APR is overstated and the finance charge is also overstated in a "regular" loan secured by real estate or a dwelling, if the overstated finance charge caused the APR to also be overstated, there is no APR violation.

DD, I think we are in limbo until there is a definitive guidance issued by The Agencies.
The article you mentioned is from the FDIC and makes it pretty clear they say no balloons under 7 years unless the borrower can qualify considering the baloon payment or the bank committs to "auto renew".
See This Thread for my prior posts that indicate I received an answer from our Fed District office that they are allowed - but as indicated in prior posts in this thread, you just lose the presumption of compliance.

And I am trying to balance this with our HELOC's that have an annual renewal, so we essentially have a one year balloon. I am wondering if we need to switch to a some other type of HELOC program.