Workout
Posted By: Anonymous
Workout - 01/03/03 12:10 AM
We have a loan that is a workout for a car loan. No new $, taking a lean on their primary residence as extra precaution. Can a consumer application be used or should we have a R/E application?
Posted By: JMB
Re: Workout - 01/03/03 12:23 PM
Wow, must be some car. I can't say that I would EVER offer my house for the sake of securing transportation. Bravo to the person that talked the customer into that one.
I would use a consumer application - don't want to collect government monitoring info on that one. Also, it would NOT be HMDA reportable.
Posted By: Andy_Z
Re: Workout - 01/03/03 01:17 PM
While you do not need a 1003 application, you do need to look at the applicability of flood, RESPA and parts of Reg. Z addressing home loans.
Posted By: Anonymous
Re: Workout - 01/03/03 01:55 PM
I agree w/ Andy, If a residential property is being used to secure the loan.
Posted By: Anonymous
Re: Workout - 01/03/03 02:01 PM
You need to give the ROR. If they did rescind, it would only remove the home from the loan and the new money in connection with securing the property (ie flood determination, recording fees), the original funds would still be owed.
The transaction may be HMDA reportable. If existing debt is refinanced in the workout and it is secured by a dwelling, then HMDA may apply. According to Regulation C, "An institution may always determine the actual purpose of the existing obligation. Alternatively, an institution may:
iii. Assume that the new obligation is a refinancing of a home-purchase or home-improvement loan only if the new obligation will be secured by a lien on a dwelling."
Posted By: rlcarey
Re: Workout - 01/03/03 02:18 PM
If the existing debt was secured by a lien on a dwelling I would agree with you. However, since the previous loan was secured by a lien on a automobile, I would be hard pressed to justify reporting this under HMDA. Refer to page 25 in "Getting it Right". It clarifies that the existing loan has to be secured by a dwelling.
I agree with Randy that this loan is not subject to HMDA.
The original post indicates this is an auto loan that is being redone with no new money and they are taking a lien on the property primarily as an abundance of caution, which would indicate that the lien is probably a junior lien.
Posted By: Andy_Z
Re: Workout - 01/03/03 03:05 PM
But the thought provoking point is valid. Don't dismiss HMDA as the loan may be structured such that HMDA is applicable.
The original post didn't indicate that another lender of any kind was going to be paid off, but we all know that postings are not always complete. For someone researching this later, it does clear up for the reader that HMDA could apply in some circumstances.
Posted By: SMQ, CRCM
Re: Workout - 01/03/03 05:09 PM
Never underestimate loan officers!!!! This same situation came up at our bank today----or maybe the anon poster was our bank!
Anyway, thanks.
LOOK OUT for Section 32 of Reg Z and any other anti-predatory ordinances out there that could affect your bank. I would hazard a guess that the APR on an auto loan may be more than some of the anti-predatory triggers.
Taking a lien on someone's home MAY seem like a solid work-out arrangement, but you may be setting yourself up for a whole lot of trouble down the road.
Posted By: Andy_Z
Re: Workout - 01/03/03 07:54 PM
I initially thought the same thing about the rate but categorized my advice in general terms since in a workout situation as this seems, they should be more concerned with a return of the money, than a return on the money.
Posted By: Anonymous
Re: Workout - 01/03/03 08:51 PM
The loan is simply an auto loan that is being reworked and is not HMDA reportable. CAnderson I am not from Mississippi, just a coincidence I guess.
Read the next sentence. "Finally, you may choose to report the transaction only if the new loan will be secured by a lien on a dwelling." See also the information on page A-8 & 9 particularly, "You may report all refinancings of loans secured by one-to-four-family residential dwellings, regardless of the purpose of or the amount outstanding on the original loan, and regardless of the amount of new money (if any) that is for home purchase or home improvement purposes". The transaction may be reported for HMDA during 2003; however, it would not be reportable under the new rules in 2004.
"New money" is not required for a loan to be HMDA reportable. Also lien status is not a factor
Jack, based on the following assumption I have to disagree that this loan may be reportable:
They are refinancing a car loan.
They are taking a junior lien on the home to "shore up" the loan.
If the assumptions are correct they are refinancing a car loan and not a home loan, thus this loan is not reportable as it is not for the purpose of purchasing, refinancing or rehabilitating a dwelling or the property upon which the dwelling is located.
PS. I enjoyed your 2002 Loan Pricing Issues Seminar you conducted fot the IBA back on 7/1/602.
Jack is correct that you COULD report this as HMDA. Some banks don't want to apply any type of reasoning and since HMDA now allows this, you could simply say "all refinancings secured by a dwelling are reported."
My 2¢ worth: it is this Illogical reasoning that leads to more rules and refinements. I certainly don't think that this is "right" way to do it, but it is do-able.
In reply to:
PS. I enjoyed your 2002 Loan Pricing Issues Seminar you conducted fot the IBA back on 7/1/602.
Boy, you guys are quite a bit older than I thought. I didn't realize compliance had been around that long. 
In reply to:
7/1/602.
Hey I look good for my age don't I? 
Ok, so I can't type, it was suppose to be 7/16/02 
If they are taking a first lien on this property, then I would agree that this loan may be reportable. But I still contend that if the loan is a junior lien it would not be, becasue taking a junior lien would not be refinancing the dwelling. I don't think this loan could be reported as a refinancing under HMDA.
iii. Assume that the new obligation is a refinancing of a home-purchase or home-improvement loan only if the new obligation will be secured by a lien on a dwelling." In this case I don’t think you can “assume” this is a refinancing of a home purchase or home improvement loan simply because you are taking a lien on the dwelling.
From Jack’s post: According to Regulation C, "An institution may always determine the actual purpose of the existing obligation.
You have determined the purpose of the existing obligation, You know the loan you are refinancing is a car loan and not a home purchase or home improvement loan.
And, if they were taking a first lien and there is no outstanding loan on the dwelling then I also would contend that the loan would not be reportable, as you are not refinancing any type of existing obligation on the dwelling, and the existing obligation you are refinancing is not secured by a dwelling nor is the loan's purpose to purchase, refinance or rehabilitate a dwelling.
MHO.
Hey dpersfull,
My point is that the loan may be reported for HMDA. Clearly you do not want to report loans of this type, and you don't have to. But some lenders want to report every loan that they may report. It's that CRA volume thing.
Several years back the Fed added the flexibility to HMDA to report refi-type loans without having to determine the original purpose. One result of the change was a huge increase in the pool of potentially reportable loans. Another result was a major disparity in reporting. Some lenders reported only those loans that they had to report. Others reported as broadly as possible under the revised rule.
Now the Fed is trying to resolve the disparity issue through the revised definitions that take effect 1/1/04. The new refi definition will impact every HMDA reporter. Those that have reported narrowly will be required to report more broadly. Those that have reported broadly will be required to report more narrowly. In my experience most lenders are in your camp – they report narrowly. Therefore before 2004, procedures must be revised and employees must be trained to assure the broader collection takes place.
PS: Thanks for the nice comment on the seminar. Yes, you do look good for your age, which according to my calculation would be about 1401 years.
Jack, I will concede that this loan MAY be reportable if placing a first lien, which I did alude to earlier, but I will stick by my convictions if it is a junior lien.
The new ruling for 1/1/04 will eliminate these type docussions becasue if the loan is secured by a lien it will be reportable. As far as I'm concerned that will make things easier.
Dpersfull,
I was once told by a banker that arguing with an examiner (or in my case a former examiner) is like wrestling with a pig in mud - after a while you figure out that they like it.
I am willing to agree to disagree.
The lien staus doesn't matter.
A lot of lenders think the 01/01/04 rule will be tougher. Now a lender may report a refi if either the original or the new loan is secured by a dwelling, and determining if the new loan is secured is real easy. In '04 both the original and the new loan will have to be secured before HMDA reporting on a refi takes place. This will require some additional work. And for those who have only been reporting a refi if it involved a refi of an original home purchase or improvement loan, the new rule will substantially expand reporting requirements.
In reply to:
I am willing to agree to disagree.
Ditto. This is what makes compliance so interesting.
Dpersfull,
You are so right - this type of discusssion is what makes the compliance game interesting. But I find it hard to explain to non-banking, and even non-compliance friends, what makes this interesting.
The typical reply is something like, "Let me see if I have this straight - you spend all day, every day reading, writing and talking about federal regulations that affect lending. And that is exciting?"
In reply to:
And that is exciting
Well, here we go again, disagreeing. 
I didn't say anything about exciting, I said interesting!