So I was reading through the CFPB Small Entity Guide for the Reg. B valuation rule and of course it sparked a question. The guide notes that "Loss-mitigation transactions, such as loan modifications, short sales, and deed-in-lieu transactions, if they are credit transactions covered by Regulation B." Well if you look at the definition of a credit transaction under Reg. B it states "Credit transaction means every aspect of an applicant's dealings with a creditor regarding an application for credit or an existing extension of credit(including, but not limited to, information requirements; investigation procedures; standards of creditworthiness; terms of credit; furnishing of credit information; revocation, alteration, or termination of credit; and collection procedures).

So reading of this leads me to beleive if we do a loan modification or short sale, we would be required to provide the borrower with a notice and a copy. I'm hoping I'm reading this incorrectly. Any thoughts?

That's my understanding, but raised the question with me about our Special Assets Department. According to the definition of "credit transaction" it seems a work-out situation where a new appraisal or inhouse evaluation is done would also trigger the rules. Can someone confirm? And what about renewals not specifically mentioned. Are these covered? Our lenders often do an in-house evaluation on renewals due to fluctuating real estate values.

For renewals, the Buckley Sandler Alert on the Appraisals and Valuations says, "The requirements also apply to any application for renewal of an existing extension of credit to the extent that the creditor develops appraisals in connection with the renewal." Obviously, that is their interpretation, but it echoes what our group has been thinking.

I understand that under Reg B's rules, we would be required to give the notice and provide a copy of the appraisal/valuation used in a workout of a first-lien loan. If we are dealing with a second-lien HPML transaction, I do not see any requirements under Reg Z to provide a copy of an appraisal that may be obtained as part of a workout of the second lien HPML. Is that correct? So, only if we have a first-lien HPML would we be required to provide a copy of the appraisal and that is because of the Reg B rule (not the Reg Z rule.)

The Federal Register/Vol. 78, No. 21 - pg. 7223 talks about whether loss mitigation activities are covered and makes reference to Consumer Affairs Letter CA 09-13 which goes over whether modifications are subject to adverse action notices. We are talking a different section of Regulation B, however, the implication is that if a modification is for a delinquent borrower we are not required to give a copy of the valuation.

They did not rule one way or the other. It is left to the individual transaction and whether or not there is an application or applicant:

While some loan modifications can be subject to the provisions of Regulation B, including the existing § 1002.14 disclosure-upon-request regime, there is variation between different types of loss mitigation programs; the particulars of the program at issue are important to understand in evaluating whether there is an application or applicant for an extension of credit within the meaning of Regulation B.

What date would start the 3-day clock for sending an Appraisal Notice when a non-performing loan is transferred from the branch loan officer to Credit Admin to begin a "workout"? Would it be the date that Credit Admin receives the file? Or the first date that Credit Admin contacts the borrower (i.e., send the Notice with our first letter to the borrower?) How will other banks treat this?

I would depend on whether or not you have an application for credit that triggers the delivery. An internal transfer for servicing purposes is not an application for credit under Regulation B.