Young & Associates provides banks and thrifts with support for their compliance programs, independent reviews and in-bank training, as well as a full menu of management consulting, loan review, IT consulting and policy systems.
RESPA. Q: We are acquiring a bank at the end of May. This is my first time going through a merger. Are we, as the surviving institution, required to submit a short-year escrow account statement to the borrower within 60 days of the effective date of transfer under Regulation X (RESPA), 1024.17(i)(4)(ii), or do we only have to do this if something is changing, such as changing a disbursement date?
Our loan department does not plan on changing anything and just transferring the accounts over. They would like to keep these loans on their current escrow analysis cycle. For example, if at the old bank the annual analysis was in March, then we plan to also do the annual analysis in March each year.
A: RESPA requires that only the transferor (old servicer) must issue a short-year statement. The new servicer is not required to issue another short-year statement unless the new servicer is making changes (monthly payments, accounting methods, disbursement dates, etc.).
ECOA. Q: We are refinancing a loan secured by some land. A single man had given a deed of trust (mortgage) on the land and every year renewed the line of credit using the land as security. He has married in the past year. His spouse is not on the loan. We are wondering whether the spouse should sign in some capacity upon renewal of this line of credit.
A: It is possible that the spouse would need to sign some document to perfect the bank’s security interest. However, this is an issue that can vary by different state laws and, so, should be referred to the bank’s legal counsel for a determination.
BSA. Q: Two sisters were joint owners of a checking account. The account was closed, and a cashier’s check was issued to the two sisters for the balance remaining in the account. The sisters decided to cash the check and split the proceeds. Both signed the back of the check, and both were present during the check-cashing process.
How do we complete the Currency Transaction Report (CTR)? The instructions in CTR FAQ #24 seem to be relevant. This FAQ deals with a withdrawal from a joint account where you have knowledge that the withdrawal — or in our case, a check cashing — is being done on behalf of both individuals. If this applies to our case, which payee do we designate as the “person conducting transaction on own behalf — Item 2a” and as the “person on whose behalf transaction was conducted — Item 2c,” when both were present?
A: A CTR filing deals only with the cash portion of any transaction(s), so in this case, the bank would be reporting on the check being cashed by the two individuals to whom the check was made payable.
Since both were present, each would have a Part I Person Involved in Transaction section completed on them, and both would be identified as “2a-Person conducting transaction on own behalf.”
TILA. Q: We are reviewing a loan for which the prepaid finance charge is understated by $150 on the Closing Disclosure. However, the bank did not calculate the annual percentage rate (APR) correctly. The loan is an adjustable-rate mortgage (ARM) loan, fixed for the first 36 months, and then the rate changes every year for years four through 10, with a balloon payment in year 10. The APR was calculated based on the initial rate for the first year and then increased by the contractual rate caps each subsequent year rather than stopping at the fully indexed rate. Because of this, the APR and the finance charge (FC) are overstated.
Does the bank have to reimburse the $150 or does that get negated by the overstated FC due to the way the APR was calculated?
A: In calculating the APR for an ARM, the lender does not take any possible future rate changes into account — unless the loan has an initial rate that is arbitrarily set rather than according to the formula for future rate changes (a discounted or premium initial rate). In such a case, the APR is based on the initial arbitrary rate for the time it is in effect and the fully-indexed formula rate for the remaining term, taking into account any rate change caps — e.g., if the initial discount is 2.5% and there is a 2% annual change cap, then the APR would be a composite of the initial rate for the first year, initial rate plus two for the second year and initial rate plus 2.5 for the remaining years (up to year 10 in this case, when the balloon payment will come due).
On the other hand, if the initial rate is computed by the formula for later rate changes (no initial discount/premium), then the lender just uses the initial rate for the entire term of the loan with no presumed rate increases (just like for a fixed-rate loan).
As for any reimbursement, the correct amount financed and projected payment schedule must be input into the online APR verification tool, along with the disclosed values for the APR and FC, and periodic (monthly) payments that may have been made since closing. The program will indicate if any reimbursement is due. (The APR and APR-related FC overstatements may very well cancel out the understatement of the prepaid FC.)
TISA. Q: The bank is doing a joint marketing effort with the local minor league team. Children under 18 can come into the bank and open a savings account, mention the team’s kids club, and they will receive a 2024 season pass to the team’s home games (provided by the team), as well as a kids club t-shirt and lanyard (provided by the bank). The t-shirt and lanyard combined have a value under $10. How do we determine the amount to use in determining if this is a “bonus” under Regulation DD (Truth in Savings)? Do we also include the season pass that is provided by the minor league team? Or is the “bonus” based only on what the bank itself is providing, which is under $10?
A: Regulation DD requires that the bank aggregate the values of all items it provides to customers to open or maintain a particular account, which, in this case, would include the season pass for the team.
Flood insurance. Q: We have a question about the need for running a flood hazard determination after a commercial loan has closed. Our commercial credit staff runs a flood check on commercial deals at the time of application based on whether or not the county’s valuation states that it has a building and/or improvement value. If the particular property does not have a building/improvement value listed, a flood hazard determination is not run.
We now have a situation where a loan that was recently closed was secured by three parcels. One parcel reflected a building/improvement value, and two parcels reflected no such value. Our operations department is completing their due diligence and is requesting that flood checks be run on the two other parcels that we initially had not run them on.
I have no problem running these flood checks, that is simple. However, these new flood determinations will be dated after the closing date of the loan.
Is a flood determination needed or warranted after a loan is closed if we can show from the county that the two questioned parcels have no building and/or improvement value?
A: Flood hazard determinations are required only for properties that have insurable buildings/improvements on them since flood insurance does not cover the land itself.
TILA. Q: We have an individual who wants a home equity line of credit (HELOC) secured by the home he is living in. The home is owned by a limited liability corporation (LLC) of which our borrower owns 100%. Should he or the owner (LLC) be signing a notice to cancel?
A: If the home is owned 100% by the LLC, then no one will be signing any notice of the right to cancel since there will be no rescission right. The right to rescind applies only when a natural person owns the subject dwelling (other than when a trust established for tax or estate planning purposes or a land trust is involved).
Advertising. Q: If we have yard signs printed up that will say “Financing Provided by ABC Bank” with our telephone number, do we have to include “Member FDIC” and the “Equal Housing Lender” logotype? These signs would be placed on properties where houses are being built with bank-loaned funds.
A: No and yes. No, “Member FDIC” is not required since this is advertising related only to lending. Yes, the “Equal Housing Lender” logotype (the phrase and the “doghouse” logo) must be included since the signs are promoting the bank’s home lending.
