I agree with you.

There is no prohibition against doing either HPMLs or balloons. You just want to fulfill the criteria to meet Presupmtion of Compliance.

The thrust of HPMLs is recognizing that the loan you're doing actually is a Higher Priced Mortgage Loan. Then you must confirm the repayment ability in DTI ratios; get third party verifications of whatever is relied on for the repayment ability; and HPMLs must escrow.

I've said it before and I'll say it again here, I just don't understand the pox that's being put on HPMLs. Historically speaking, all banks have been doing them. imho, this part of the Reg basically just wants us to recognize them and properly document why we felt they were ok to make.

I could be oversimplifying this so I hope someone will pull me up short if I am.

If it is not a HPML (or a HOEPA loan), you can have a balloon of < 7 years as the repayment ability and presumption of compliance requirements are not triggered.

Must we do all the analysis (as required by the new law) on any short term loan under 7 years or only on those short term loans that are considered “higher-priced mortgages” as determined by the rate spread?

Only HPML and HOEPA loans.

The scenario is the loan is tested and is found not to be a HPML. Loan comes up for renewal - do we need to test? My understanding is that a renewal or modification would not be subject to the rules however it was mentioned to me today that we probably should test. I'm not sure I see the benefit of that but it was mentioned that there are concerns about loans going through several renewal cycles and that the rules were trying to prevent that. Is there a concern I'm not seeing here? Thank you.

As a HPML, a ballon loan can be for exactly seven years, correct? For instance, it doesn't have to be seven years and a day.

I agree.

If you replace the loan with a new note (refinance), it is subject to all Reg Z requirements. If you renew it (don't replace), it is not subject to HPML (or other Reg Z requirements.).

Truff . . . I think the reason some bankers have been put into a tizzy on this is because even if you decide to keep doing balloon loans, for anything less than seven years you must include that balloon payment in your repayment ability. So, in order to show repayment ability, they're having to go out to seven year balloons to be in compliance, which not many banks do at this point. Just my opinion.

Property is a principal dwelling titled to an LLC. Loan purpose is consumer purpose, but the loan will be in the name of an LLC. I don't think HPML applies because section 226.3(a)(2)excludes an extension of credit to other than a natural person.

Am I right?

Yes.

Any input on this one? I was just asked the same thing - technically, it's not 3rd party documentation to just print our own screens, but logically, if we have that info, why bother the customer to provide additional documentation when we can see the automatic deposit there on the account history whether it be something like social security or employer, etc.?

For SS and retirement benefits I would think the electronic deposit would be sufficient since the benefit checks are deposited by a 3rd party. However, for "emloyment" deposits, how do you know the guy hasn't been laid off since the date of the last deposit?

Okay - that makes sense - except you also won't know that information from a W2, tax return, or paystub either, but you are allowed to use that as your verification document. Again, though, even in terms of assets - can a printing of the bank's records be sufficient even though that is not 3rd party documentation (i.e. screen print of CDs and Savings accounts, etc.)?

We are allowing staff to use print outs for government benefits but not for standard salary. The amount deposited into the account is net and we base debt to income ratios off gross income. Also, with a joint deposit account it does not state who's income is coming in. We want a paystub or something showing the income belongs to our borrower.

I have one a little better than currently proven income.

Scenario: Initial construction - exempt. Run the disclosures for the permanent loan...oh nice...right now, it's HPML....will it still be 12 months from now? What happens if the borrower is laid off in the interim., or rates increase and although he qualifies DTI today...not so much in 12 months...the possibilities are frightening...

The only saving grace I can see at that point would be a "workout"?

We require the 2 most recent pay stubs in addition to W2s and/or tax returns. If we have some knowledge the company is gong through layoffs we will also verify current employment through the employer. One of the advantages of being a community bank in a mid-size community.

I personally do not see the examiners not allowing you to use your own records for verification purposes of assets such as account balances.

However, for income purpose you have to show a reasonable continuation of the income and I don't think bank statements of previous deposits would meet the 3rd party requirement for that, but that is just my opinion.

BTW, how do you "third party" verify an employee's ability to repay?

We continue to use direct deposit (on current statements) in some instances...we also gross up the income 120%.

Joker ~

I'd been wondering about the 'gross up' factor. Are we allowed to rely on a grossed up figure if that is not the amount that was 'verified'?

Sorry if this is a redundant question.

Just to be clear, we do not need to test whether a mortgage is a HOEPA mortgage or an HPML mortgage if the dwelling securing the loan is not the borrower's primary dwelling, correct?

If correct, than a loan to purchase a vacation home would not need to go through these tests, correct?

Furthermore, in this same scenario, we would now need to provide an early TIL whereas before, we did not, correct?

Thanks.

Clarification needed....for section 226.35 (HPML) is a covered loan one in which the application is 'dated' or 'received' October 1, 2009 or after? I heard both in recent seminars. Once instructed that the rules applied to any loan where the application is 'dated' 10/1/09 and the other stated that is applied to any loan where the application was 'received' after 10/1/09. I have an application dated 9/28/09 but was noted as received on 10/2/09 so I'm confused if the new HPML rules apply to this loan.

Under the commentary 226.1, 1(d)Organization, it clarifies this. It is for applications received on or after 10-1-09.

To be clear, if we wish to make a fixed-rate balloon loan that is a HPML, we will need to make it for at least 84 regular payments (7x12) and one final balloon payment at the 85th month to maintain the presumption of compliance. Is this correct?