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#874951 - 12/18/07 03:57 PM
Abundance of Caution - training nightmere
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Diamond Poster
Joined: Jan 2004
Posts: 1,621
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As we get ready to go live on 1.1.2008 the big training challenge is proving to be commercial loan officers. Every commercial loan they do takes the owners home as an abundance of caution - the mortgage already exists, they just tie yet another loan to the mortgage. I am telling the officers that when you renew that loan it will be a refinance. or If you do a new loan with the abundance of caution and part of the proceeds pays off any old loan with the abundance of caution dwelling - its hmda. Biggest whine: but the mortgage on the home only accoutns for 2% of the total collateral! When these events occur in 2008, the biggest challange is not reporting HMDA - it will be collecting the GMI before the loan renews or is made (if paying off a old loan). I am not giving a inch on this unless i hear from someone telling me where i could be wrong.
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#874969 - 12/18/07 04:06 PM
Re: Abundance of Caution - training nightmere
Burgess
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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You are not wrong as for as HMDA is concerned. Every commercial loan they do takes the owners home as an abundance of caution This practice would concern me. If they are taking the home as a condition of the loan then it's not an abundance of caution. Every file where this has happened should have full documentation that the loan fully qualified for the terms it was made under without having the home as collateral. Otherwise you have some serious issues. Appraisal requirements comes to mind.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#875062 - 12/18/07 05:14 PM
Re: Abundance of Caution - training nightmere
Kathleen O. Blanchard
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10K Club
Joined: Jul 2001
Posts: 83,362
Galveston, TX
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Kaybee is correct - most standard mortgage and deeds of trust do not provide for spreader clauses. And make sure that the "commercial" loan is not really for consumer purposes (a favorite trick of commercial loans officers) and subject the loan to a RofR.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#875064 - 12/18/07 05:15 PM
Re: Abundance of Caution - training nightmere
Kathleen O. Blanchard
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Diamond Poster
Joined: Oct 2007
Posts: 1,152
Tennessee
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I don't think HMDA training is the problem. I think credit underwriting training is the problem.
Point out to the lender that by taking the residence as an AoC, it is 0% of the collateral, not 2%. It is possible that they have an LTV problem on each of those loans, if you recalculate the LTV without the value of the AoC property.
Keep fighting the good fight.
MJ
(A good fight being any that causes a lender to buckle to his knees and learn something about compliance, regs, the Fed and policy.)
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#875268 - 12/18/07 07:30 PM
Re: Abundance of Caution - training nightmere
Mint Julep
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Platinum Poster
Joined: Jul 2007
Posts: 571
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We are also going live in Jan. 08. Our bank seems to be a twin of the bank using AOC whenever and wherever possible. We have decided the only way around it, and to totally cover us, is to do a "change in terms agreement"/"modification" of that note/loan. We are not paying off and replacing the first note, we are only "modifying it". Specific language in our "modification/change in terms agreement" refers back to the original note and states that the agreement is only changing certain specific terms and all other terms and conditions stay the same: and the two notes then are married to be one part. However, we can not take this action if a borrower wants new money. At that point we would have to truly refinance the loan. We think this will solve the problem. I am curious to know what everyone thinks about this process and if we are on the right track.
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#875302 - 12/18/07 07:46 PM
Re: Abundance of Caution - training nightmere
Relax
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10K Club
Joined: Jul 2001
Posts: 83,362
Galveston, TX
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Sounds like a lot of work for abundance of caution collateral. If it is truely an abundance - then why bother. As stated before, if you are requiring this on a good persentage of your loans, it no longer can be considered an abundance of caution under the regulation. You are then going to be subject to the supervisor LTV limits.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#875306 - 12/18/07 07:49 PM
Re: Abundance of Caution - training nightmere
Relax
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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If the property is a requirement of the loan then IMO it is not an AOC regardless how you take it.
If I was S&S examiners and saw all these modifications for AOCs I would be scrutinizing your loan policy and underwriting habits with a fine tooth comb. Something about deceptive practices (and I'm not talking necessarily deceptive to the borrower) to circumvent regulatory requirements. But that's just me.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#877556 - 12/21/07 07:24 PM
Re: Abundance of Caution - training nightmere
Dan Persfull
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Gold Star
Joined: Nov 2007
Posts: 437
Nevada
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I have seen an increase in using the property as collateral for "abundance of caution" on unsecured revolving lines of credit. Today I even saw one where there is no equity in the property. Borrower qualified for unsecured but loan officer nervous in the current lending environment and added the prop stipulation. It has become a disclosure nightmare on this and would be greatful for anyone's opinion.
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#877580 - 12/21/07 07:36 PM
Re: Abundance of Caution - training nightmere
Dan Persfull
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Gold Star
Joined: Nov 2007
Posts: 437
Nevada
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I have seen an increase in using the property as collateral for "abundance of caution" on unsecured revolving lines of credit. Today I even saw one where there is no equity in the property. Borrower qualified for unsecured but loan officer nervous in the current lending environment and added the prop stipulation. It has become a disclosure nightmare on this and would be greatful for anyone's opinion.
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#877594 - 12/21/07 07:47 PM
Re: Abundance of Caution - training nightmere
Marnie
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Power Poster
Joined: Nov 2004
Posts: 5,925
So Cal
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Your loan officers could also be bringing up Flood issues. And with the ongoing penalties being levied for Flood violations, you have my well wishes that you are able to convince your LOs that "abundance of caution" is not the cloak of exemption that some people believe it to be.
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#877627 - 12/21/07 08:12 PM
Re: Abundance of Caution - training nightmere
Marnie
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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Borrower qualified for unsecured but loan officer nervous in the current lending environment and added the prop stipulation. If the property is a stipulation of making the loan then it's no longer an AOC. However, even if it did qualify as an AOC your LOC is no longer unsecured and is now a HELOC and requires all applicable disclosures. Including Flood and if it's the primary residence the ROR. The only regulatory requirement an AOC gets you out of is some appraisal requirements.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#877727 - 12/21/07 09:23 PM
Re: Abundance of Caution - training nightmere
Dan Persfull
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Gold Star
Joined: Nov 2007
Posts: 437
Nevada
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The Bank wants to classify these loans as unsecured because they underwrote them based on unsecured policy. In most cases they wouldn't qualify under the HELOC policy because the LTV is too high. They are being reported on the call report as unsecured. However, your answer indicates to me that we really can't have an unsecured loan with property used as an abundance of caution. They would always be considered a HELOC, correct? This "abundance of caution" just seems like a detour masking the real intended destination. Given what you said, I don't understand any circumstances where using this would be beneficial.
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#877742 - 12/21/07 09:31 PM
Re: Abundance of Caution - training nightmere
Marnie
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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Your loan has a security agreement secured by a 1-4 family dwelling. How is that an unsecured loan? And yes if they don't properly meet the AOC guidelines you have an LTV issue. http://www.occ.treas.gov/ftp/release/99-93a.doc• Abundance of Caution. The Guidelines indicate that any loan for which a lien on or interest in real property is taken as additional collateral through an abundance of caution may be excluded from the supervisory LTV and capital limits. The Guidelines specifically state that “abundance of caution” exists when an institution takes a blanket lien on all or substantially all of the assets of the borrower, and the value of the real property is low relative to the aggregate value of all other collateral. Because real estate is typically the only form of collateral on a high LTV loan, the abundance of caution exclusion would not apply to these transactions.
Last edited by Dan Persfull; 12/21/07 09:31 PM.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#877793 - 12/21/07 10:08 PM
Re: Abundance of Caution - training nightmere
Kathleen O. Blanchard
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Gold Star
Joined: Nov 2007
Posts: 437
Nevada
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Thanks Dan--this gives me the documentation to have credit admin evaluate the use of AOC.
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