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#1260275 - 10/01/09 06:54 PM Re: Regulation Z changes - 10-01-09 P*Q
SMQ, CRCM Offline
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Between the lines
I agree that you use the final APR, however, the rate spread will be based on the date that you locked the rate. But I could be wrong again.
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#1260299 - 10/01/09 07:07 PM Re: Regulation Z changes - 10-01-09 SMQ, CRCM
Dan Persfull Offline
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Bloomington, IN
Quote:
there is a prior post by Dan Persfull indicating that they don't lock any rate and it could change during processing if their "Stated Rate" for that product changes, so for his institution the note date makes sense.


This is close to what I said but not exact. What I said is we don't automatically lock the rate at the time of approval as it appears you do. We give the applicant the choice of locking the rate or letting it float.


Quote:
The key on checking the rate spread is that you have to use the Final APR, correct? So if you check the rate spread today and you are under 1.5%, but the APR changes 1/8 a week later, you go check it again and the Average Prime Offer rate has changed and it could become a HPML. Am I on the right track with this?


Here's an explantion I gave another poster in a PM.

When you use the calculator to determine the rate spread you use the APR disclosed at consummation and use the date that you set (locked) the simple interest rate. From the Commentary to 226.35:

3. Rate set. A transaction's annual percentage rate is compared to the average prime offer rate as of the date the transaction's interest rate is set (or "locked") before consummation. Sometimes a creditor sets the interest rate initially and then re-sets it at a different level before consummation. The creditor should use the last date the interest rate is set before consummation.

You can't use the "initial" APR (for final determination of HPML status) because due to additional fees and/or charges the APR can change at consummation but the simple interest rate will not change. The APR determines whether you have a HPML, not the simple interest rate.

Again, I lock the rate at 5% and the APR is 5.12% and I run a test on the rate spread and I'm within the 1.5% so I don't have a HPML.

On 10/21 when I'm ready to close and due to some changes in the process I have added additional fees and charges to the loan that affects the APR. So the APR now goes to 5.14% and this time when I do the rate spread calculation the .02 difference is within the MDIA tolerance where I don't have to redisclose but it is enough to cause the APR to hit the 1.5% threshold. So now I have a HPML. IOWs the 5.12% APR had a rate spread of 1.48% (below the threshold) but the 5.14% APR had a rate spread of 1.5% (equals or exceeds the threshold).


Now with that said, there would be one way around it but I'm not sure how the exminers are going to look at these loans in their first examinations after these rules go into effect.

If the ETIL is within tolerance you do not have to provide a "final" TIL. So if your APR does not exceed the .125 or .250 tolerance then you don't have to provide the "final" TIL, but if you do provide a final TIL then, IMO, you will have to use the APR dislcosed on that TIL for your HPML comparison.
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#1260410 - 10/01/09 08:43 PM Re: Regulation Z changes - 10-01-09 P*Q
swiggles Offline
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I have a question about the prompt credit of payments (EFFECTIVE TODAY!!!!!) Eeek!!

Our mainframe system can be set to credit a borrower's payment to the loan effective as of the due date, regardless of when the payment is actually physically credited. My IT Department stated that other banks that use the same system we use will be using this as their method of compliance. The regulation allows for the credit of a payment on a day other than the day it was received if the borrower will not be charged a fee or reported negatively to a CRA. For example:
  • The borrower's payment due date is the 10th.
  • The borrower's payment is received on the 15th, but when it's posted, it automatically posts effective the 10th....no penalty, no fee no negative report.
  • The same borrower's next payment is received on the 5th, but when it's posted, it automatically posts effective the 10th....this method creates a negative interest figure that will be used up during the next five days.

In theory, this would work. Anyone?
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#1260479 - 10/01/09 09:40 PM Re: Regulation Z changes - 10-01-09 swiggles
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Dan, do you regularly do final TILs? I'd love to use your the method you outlined above but we always have both an ETIL and a final TIL in the file. If we were to suddenly stop doing that, I'm afraid it would flag the examiners and make an issue of it. What do you think?

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#1260518 - 10/01/09 11:18 PM Re: Regulation Z changes - 10-01-09 Truffle Royale
Runreb Offline
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Is this a covered loan under the new sections?
A loan is made to John, Jr. (the borrower) but the loan is secured by the principal dwelling belonging to John, Sr. (not a borrower). I know the rule says "secured by a consumer's principal dwelling" and I believe it is covered, but want to confirm.

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#1260612 - 10/02/09 01:05 PM Re: Regulation Z changes - 10-01-09 Runreb
Dan Persfull Offline
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Bloomington, IN
TR, we always provide a final TIL and we have no intention of changing our procedures. HPMLs and HOEPA loans don't bother us. They are legal and we properly disclose them, so no big deal for us. We haven't had a HOEPA loan in over 2 years, we will have HPMLs with our in house loans and some of our second mortgage products, but again no big deal for us.

Runreb....Sr is not a consumer for the purposes of extending credit under Reg. Z therefore the loan is not secured by a "consumer's dwelling". Sr is a consumer however for the purposes of rescission. See 226.2 for the definition of a consumer.
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#1260697 - 10/02/09 02:05 PM Re: Regulation Z changes - 10-01-09 Dan Persfull
swiggles Offline
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Originally Posted By: Dan Persfull
TR, we always provide a final TIL and we have no intention of changing our procedures. HPMLs and HOEPA loans don't bother us. They are legal and we properly disclose them, so no big deal for us. We haven't had a HOEPA loan in over 2 years, we will have HPMLs with our in house loans and some of our second mortgage products, but again no big deal for us.


Ditto. And the only loans we make that have EVER been subject to HOEPA are those loans for which the borrower wishes to purchase credit life and disability insurance. We have number of those every year because a loan secured by someone's principal dwelling is an easy sell for credit insurance.
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#1260771 - 10/02/09 02:38 PM Re: Regulation Z changes - 10-01-09 swiggles
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That's what I was thinking too Dan, but just needed to hear it straight from you. We always do final tils and will continue to do so. Because we're running 4506T on all loans and have been doing 3rd party verifications forever, if one changed at the Final Til stage, we'd just have to make sure it was escrowing, which is nbd.

Glad to hear you're not afraid of having HPMLs either. I was beginning to wonder if I should be so that's why I asked.

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#1260828 - 10/02/09 03:14 PM Re: Regulation Z changes - 10-01-09 ktac MITCH
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Can I use my own bank's statements to verify income? For example Social Security etc.?

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#1261174 - 10/02/09 07:57 PM Re: Regulation Z changes - 10-01-09 timberlane74
Compliance Chick Offline
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In order to verify income, can I use a tax return provided to me by the borrower or do I have to obtain independent verfiication of what was filed from the IRS?
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#1261178 - 10/02/09 08:03 PM Re: Regulation Z changes - 10-01-09 Compliance Chick
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One more thing, if I have a borrower that wants to purchase a new home and renovate it to be their new primary residence ... as long as the term is 12 months or less than HPML does not apply. Correct?
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#1261247 - 10/02/09 09:00 PM Re: Regulation Z changes - 10-01-09 Compliance Chick
David Dickinson Offline
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Originally Posted By: Compliance Chick
One more thing, if I have a borrower that wants to purchase a new home and renovate it to be their new primary residence ... as long as the term is 12 months or less than HPML does not apply. Correct?

This is NOT a construction loan as the dwelling already exists. This is a purchase loan.
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#1261253 - 10/02/09 09:03 PM Re: Regulation Z changes - 10-01-09 Compliance Chick
David Dickinson Offline
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Originally Posted By: Compliance Chick
In order to verify income, can I use a tax return provided to me by the borrower or do I have to obtain independent verfiication of what was filed from the IRS?

It must be a 3rd party prepared income verification. This could be a tax return prepared by an accountant, a pay stub or income verification from the employer. I don't believe a tax return, prepared by the borrower, will suffice.
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#1261302 - 10/02/09 09:44 PM Re: Regulation Z changes - 10-01-09 David Dickinson
Compliance Chick Offline
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Originally Posted By: David Dickinson
Originally Posted By: Compliance Chick
One more thing, if I have a borrower that wants to purchase a new home and renovate it to be their new primary residence ... as long as the term is 12 months or less than HPML does not apply. Correct?

This is NOT a construction loan as the dwelling already exists. This is a purchase loan.


But the term is less than 12 months!
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#1261379 - 10/03/09 04:48 PM Re: Regulation Z changes - 10-01-09 Compliance Chick
David Dickinson Offline
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HPML does not apply to Construction-only loans (for initial construction), Bridge Loans or other temporary loans with a term of 12 months or less, Home Equity Lines of Credit or Reverse Mortgages.

First, this is not a construction loan. "Construction" means "initial". This home is already built, so it is a purchase.

HPML does not apply to "other temporary financing with a term of 12 months or less. How is this loan temporary financing. There's a difference between "short-term" financing and "temporary financing". For instance, 2 phase financing to remodel my home. The first phase would not be subject to HPML requirements.

If you loan will be replaced by a 2nd loan of a much longer term, I would agree your loan is not subject to the HPML requirements, but you haven't mentioned this.
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#1261383 - 10/03/09 05:43 PM Re: Regulation Z changes - 10-01-09 Tryin-2-Comply
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Originally Posted By: Dazed&Confuzed
Ok, I attended a seminar where one of the speakers provided a solution to doing balloon loans. Many of the small banks in my area are considering or have made the decision, based on the speakers' recommendation that the following would be in compliance, to go with the stated solution:


In the FED box of the note state, example: We are NOT required to refinance this loan, however, if a decision is made to refinance this loan, the rate will not exceed 9.0% during the first 7 years.

for example: a 3 year balloon, amortized over 180 months. Calculate the balloon, take the balloon and use the highest rate as stated in the note (9.0%), in this example - recalcuate using the remaining amortization schedule. (balloon amount x 9.% / 144)= it is understood that this would be the highest P&I payment.

My arguement - using the statement we are NOT...means we are stating we may not refinance the loan and in that case, the highest P&I payment would be the balloon. so, to me the balloon is just not possible.

Management at my bank also agrees with me - but i want to make sure we are not missing the opportunity to continue balloon loans less than 7 years.


I would like to bring this back to life: if the verbaige in the FED box was changed to read:
At maturity the rate will not exceed 2% over the current rate or exceed 9.0% during the first 7 years.

This does not state we will or will not renew the loan - it simply puts a cap on the highest possible rate during the first seven years.

Would this work?

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#1261407 - 10/04/09 02:44 AM Re: Regulation Z changes - 10-01-09 Tryin-2-Comply
David Dickinson Offline
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I don't think so. First, you can't put anything IN the Fed box unless it is allowed by 226.17. Second, the TIL disclosure is not legally binding. It is a disclosure - not a legal obligation. Third, I don't think this gets you out of the HPML requirements anyway.
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#1261706 - 10/05/09 04:56 PM Re: Regulation Z changes - 10-01-09 RR Joker
andyugooney Offline
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I know this is off the subject of 5 vs. 7 year balloons, but could someone give me their opinion...For the section of Reg Z that came into place on October 1, 2009, Higher Priced loans, etc, is that based on App date or funding date of October 1?

I'm some what new to compliance and I'm beginning to think i've been thrown into a shark tank!!

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#1261749 - 10/05/09 05:49 PM Re: Regulation Z changes - 10-01-09 andyugooney
MarieR Offline
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It is the application date.
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#1261882 - 10/05/09 07:50 PM Re: Regulation Z changes - 10-01-09 MarieR
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Hills of TN
andyugooney - You have been.

love the goonies too.

David - thanks - been arguing this for weeks.

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#1262889 - 10/07/09 03:02 PM Re: Regulation Z changes - 10-01-09 Tryin-2-Comply
ahkcompliance Offline
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Midwest
I have a question regarding higher priced loans with purchasing a condominium unit. I know the final rule provides an exception for condos. The borrower pays a monthly fee to the association that includes, maintenance, insuance, property taxes, etc. As a lender, are we required to escrow for the property taxes? The borrower does not actuall pay the taxes, the association does.

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#1263125 - 10/07/09 05:39 PM Re: Regulation Z changes - 10-01-09 ahkcompliance
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You can only escrow for bills you can actually pay. If the association fee includes taxes, than the association is paying the taxes and you don't escrow for them. I must say that including taxes in the association fee is a new one for me, tho. Usually that the one thing the borrower does have to pay and we escrow for.

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#1263175 - 10/07/09 06:23 PM Re: Regulation Z changes - 10-01-09 Truffle Royale
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I agree with Truffle Royale. I have never seen a condo unit where the association paid taxes on the unit. The association pays taxes on the common area.

The only exception I can envision would be where the association owned the unit itself.
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#1263526 - 10/08/09 01:58 PM Re: Regulation Z changes - 10-01-09 Sinatra Fan
#Just Jay Online
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Yes, kinda odd, as each unit could be valued and taxed differently. I would have your borrower get some clarifiaction, or speak directly to the HOA management to get clariy on that point. As Sinatra pointed out, generally the only property taxes the HOA collects and pays for are for the common areas.

Also, be sure to inlcude the HOA dues as well into your payment calculations, as failure to pay could put their ownership interest in jeapordy.
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#1263654 - 10/08/09 03:39 PM Re: Regulation Z changes - 10-01-09 #Just Jay
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Here's something that I just read the other day in the Official Staff Commentary on Section 226.34(a)(4) Repayment ability. I think I'm reading it right, but I hope not.

OSC on 226.34(a)(4)6. Income, assets, and employment. Any current or reasonably expected assets or income may be considered by the creditor, except the collateral itself.

If I'm understanding that last clause correctly, on a primary residence, 2-family dwelling, we would be prohibited from considering any rent income from the second unit. If that's correct, I see limited potential for HPMLs on 2-4 family dwellings.

How do the rest of you read that clause?
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