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#1246879 - 09/09/09 01:16 AM
Re: Regulation Z changes - 10-01-09
misha
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10K Club
Joined: Jul 2001
Posts: 83,364
Galveston, TX
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There is no prohibition from splitting a large loan up into two transactions. What concerns do you have? However, if you are selling the first liens, you are basically assuming all of the transaction risk.
Presumption of compliance will (in theory) only come into play if challenged in court. If you choose not to comply with a specific requirement, as they are all affirmative requirements, you will be cited for regulatory violations by the regulators.
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#1247070 - 09/09/09 02:17 PM
Re: Regulation Z changes - 10-01-09
rlcarey
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Member
Joined: Dec 2006
Posts: 51
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The issue my bank has and probably Misha too is that we are a small community bank that does not sell its loans and even bigger issue is that we don't escrow and don't want to. We have jumbo loans we do now but they will be HPMLs with the current rates we have. We are trying to figure out what we can do rather than just lower the rate since we portfolio 100% and don't want jumbo risk at standard loan pricing. So we figured we could offer the loan amounts in two products which both combined be 80%LTV or less but which would not put us in HPML category. Would we have any issues with the new regs if we were to struture our jumbos in this manner? I am not sure if we would still have the issues of compliance you mentioned. It is all too confusing for my old brain and an upcoming FDIC exam next month!
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#1247317 - 09/09/09 05:38 PM
Re: Regulation Z changes - 10-01-09
jlroberts
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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Would we have any issues with the new regs if we were to structure our jumbos in this manner? I see no problem as long as the home equity loan you referenced is a closed-end home equity and not a HELOC. If you structure them using a HELOC then you would be construed as structuring a closed-end product as an open-end product for the purpose of evading the restrictions of HPMLs. However, that is my opinion and I urge you to discuss the scenario with your regulatory authority for their opinion.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1247358 - 09/09/09 05:56 PM
Re: Regulation Z changes - 10-01-09
drpackrat
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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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The issue my bank has and probably Misha too is that we are a small community bank that does not sell its loans and even bigger issue is that we don't escrow and don't want to. We have jumbo loans we do now but they will be HPMLs with the current rates we have. We are trying to figure out what we can do rather than just lower the rate since we portfolio 100% and don't want jumbo risk at standard loan pricing. So we figured we could offer the loan amounts in two products which both combined be 80%LTV or less but which would not put us in HPML category. Would we have any issues with the new regs if we were to struture our jumbos in this manner? I am not sure if we would still have the issues of compliance you mentioned. It is all too confusing for my old brain and an upcoming FDIC exam next month! I'm not getting this scenario...if you lower the loam amount enough to give the standard interest rate (rather than jumbo), but you have to then create a junior lien to get it down low enough to do that...I don't see where you have lowered your risk any, so why not just lower your rates on the jumbo's? Your exposure is the same either way!
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#1247383 - 09/09/09 06:11 PM
Re: Regulation Z changes - 10-01-09
RR Joker
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Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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RRJ...they could lower the rate on the first lien to avoid the escrow requirements of a HPML. They could charge a higher rate on the closed-end second to offset the adjustment on the first and although it (the 2nd) may hit HPML status they would not be required to escrow because it's a subordinate lien.
I don't see a problem with this, however keep in mind this is new territory and would the examiners consider it to be "structuring" to avoid the HPML limitations. That's why I urge discussion with your regulatory authority. Until the first exam and feedback none of us really knows what to expect, we can only speculate based on our readings and past experiences.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1247452 - 09/09/09 07:32 PM
Re: Regulation Z changes - 10-01-09
RR Joker
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100 Club
Joined: Feb 2003
Posts: 202
USA
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226.35(a)(3) states:
the term ``higher-priced mortgage loan'' does not include a transaction to finance the initial construction of a dwelling, a temporary or ``bridge'' loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months, a reverse-mortgage transaction subject to Sec. 226.33, or a home equity line of credit subject to Sec. 226.5b.
I'm stuck on "does not include a transaction to finance the initial construction of a dwelling"....do they mean construction loans that include permanent financing or loans for construction only, where a new vehicle will be put in place to cover the permanent financing?
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#1247498 - 09/09/09 08:06 PM
Re: Regulation Z changes - 10-01-09
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Joined: Nov 2003
Posts: 3,726
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Where are the instructions for the FFIEC calculator?
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#1247527 - 09/09/09 08:33 PM
Re: Regulation Z changes - 10-01-09
Dan Persfull
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Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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I'm stuck on "does not include a transaction to finance the initial construction of a dwelling"....do they mean construction loans that include permanent financing or loans for construction only, where a new vehicle will be put in place to cover the permanent financing? Your construction permanent loan would be for the initial construction of the dwelling, therefore I would opine it would be exempt.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1247559 - 09/09/09 08:54 PM
Re: Regulation Z changes - 10-01-09
Dan Persfull
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Power Poster
Joined: Nov 2003
Posts: 3,726
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How did I miss that?  Thanks!
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It's not that I take life for granted. It's only that the good won't make it. Innocence dies, while Villany Thrives.
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#1247734 - 09/10/09 12:56 PM
Re: Regulation Z changes - 10-01-09
David Dickinson
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Platinum Poster
Joined: Dec 2005
Posts: 553
USA
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Yes. It could be a HOEPA loan because of high fees (credit insurance) and the APR is not high enough to be a HPML. You could have a loan subject to HPML at 1.6% over the APOR which will not be a HOEPA loan. Im not sure I follow you here. I believe both HPML and HOEPA need to use the APR. Thus I do not see it as possible to have a HOEPA loan that is not a HPML. Can you give me an example? I realize they both use two different indices’ but both are actually tied (not a perfect regression). The price of treasury securities is in some way correlated to loan interest rates. I bet there is a scenario I just cant fathom it.  Thanks
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#1247745 - 09/10/09 01:08 PM
Re: Regulation Z changes - 10-01-09
CompDat
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Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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All fees and charges that are used in the HOEPA calculation are not finance charges that affect the APR therefore you could have an APR that is not over the 1.5/3.5% (for HPML) but the fees and charges could exceed 8/10% (for HOEPA). I agree it would be a rarity but it is possible.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1247750 - 09/10/09 01:18 PM
Re: Regulation Z changes - 10-01-09
Dan Persfull
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Platinum Poster
Joined: Dec 2005
Posts: 553
USA
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All fees and charges that are used in the HOEPA calculation are not finance charges that affect the APR therefore you could have an APR that is not over the 1.5/3.5% (for HPML) but the fees and charges could exceed 8/10% (for HOEPA). I agree it would be a rarity but it is possible. Are you referring to the second trigger: (ii) The total points and fees payable by the consumer at or before loan closing will exceed the greater of 8 percent of the total loan amount, or $400; the $400 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index that was reported on the preceding June 1.The reason that I usually exclude this scenario is it is very hard for the total of points and fees to exceed the greater of 8% or $400 (usually the 8%). If you are then I agree there are probably scenrios that there could be a HOEPA loan and not HPML, but it would be pretty unlikely.
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#1247757 - 09/10/09 01:32 PM
Re: Regulation Z changes - 10-01-09
CompDat
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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HOEPA has 2 triggers where HPML only has one. The fees and charges trigger is the one David and I are referring too and you should never automatically exclude that trigger, especially if you still do single premium PMI and/or credit insurance.
As I said earlier I agree it would be a rarity but it is possible.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1247811 - 09/10/09 02:12 PM
Re: Regulation Z changes - 10-01-09
David Dickinson
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Platinum Poster
Joined: Dec 2005
Posts: 553
USA
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OK I agree. We look for loans that trigger the credit life/ disability test, but everything else is fairly hard to catch befoer loan closing... or it just doesnt trigger the fee. I wonder about the VA funding fee on secondary market loans now. That should often hit the trigger for fees for HOEPA.
Until I thought better about it I thought the insurances increased APR more than they would as a pure % lof loan amount. That is why I was getting hung up with that. My bad.
Last edited by CompDat; 09/10/09 02:15 PM.
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#1247955 - 09/10/09 03:31 PM
Re: Regulation Z changes - 10-01-09
Dan Persfull
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Member
Joined: Dec 2006
Posts: 51
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"Your construction permanent loan would be for the initial construction of the dwelling, therefore I would opine it would be exempt."
Dan you said the above in refernce to CO OFFICER's question....we only do our construction perms as 2x closings, therefore we are thinking our perm portion could fall under HPML qualifying since it is a seperate closing....again, we don't escrow and are looking at lowering rates to not fall into a "Have To" escrow scenario. Am I correct in thinking these 2x closing CPs would have the perm rates not be exempt from HPML inclusion? thanks.
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#1247983 - 09/10/09 03:43 PM
Re: Regulation Z changes - 10-01-09
CompDat
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Junior Member
Joined: Feb 2008
Posts: 27
Pennsylvania
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Forgive me if this question is redundant, but most of the focus has been on balloon loans. For a regular 5/1 ARM that does not have a discounted initial rate but is a HPML - what interest rate is used for qualifying the customer since the rate/payment will change in the first seven years? If the annual change is capped at 2%, should the initial rate plus 4% (the highest possible rate changes in the fifth and sixth years) be used? This is the last issue in our implementation of these dreadful changes.
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#1247990 - 09/10/09 03:46 PM
Re: Regulation Z changes - 10-01-09
drpackrat
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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Take this as "my opinion".
A construction/permanent loan is for the purpose of the initial construction and long term financing of the dwelling. IMHO I don't think it matters whether you have a 1 phase or a 2 phase construction/permanent loan. I think both scenarios are for the initial construction of the dwelling and therefore would be exempt.
Again, "my opinion".
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1248368 - 09/10/09 08:36 PM
Re: Regulation Z changes - 10-01-09
Dan Persfull
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Junior Member
Joined: Jan 2009
Posts: 45
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Is the 7 year balloon rule applicable to Sec 32 loans as well as HPMLs? I attended a seminar in May that indicates both are subject to the rule but Supervisory Insights only mentions HPMLs.
Thanks
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#1248402 - 09/10/09 09:01 PM
Re: Regulation Z changes - 10-01-09
SpaceNeedle
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Gold Star
Joined: Jul 2007
Posts: 273
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I believe that a Section 32/HOEPA loan would also be a Higher-Priced Mortgage Loan, as the APR that triggers Section 32 status would certainly be high enough to qualify as HPML. Perhaps the fees test could result in a Section 32 loan that is not HPML - I haven't done the math, but it seems like it would be a very rare possibility.
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