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.

TILA. Q: We are scheduled to close a loan tomorrow and found out today that our property is being split into two parcels. This will require a second deed and will change both deeds from standard to non-standard documents, increasing the government fees by 84% from what was disclosed. The customers shopped for the closing company. Can we rectify this, and how?

A: Yes, you can. Since a Closing Disclosure (CD) should already have been issued, but with the original deed filing fees, a corrected CD may be issued without delaying the closing since this fee change does not make the previously disclosed annual percentage rate (APR) inaccurate, does not involve a product change and does not involve the addition of a prepayment penalty.

BSA. Q: Our bank discovered that we failed to file a continuing activity SAR (a first for us, fortunately). What should we do to fix this?

A: You should just file one now and keep tracking the customer’s activity for possible future filings. You cannot fix timing. Once something is passed, it is passed.

This continuing activity SAR (like all such reports) should reference the previously filed SAR — Document Control Number (DCN) and date. The bank should acknowledge the untimeliness in the file somewhere and acknowledge the lateness to the board, perhaps when the SAR filing is reported. The bank also should review its SAR processes to make sure this does not happen again.

ECOA. Q: We have an application for a loan to refinance a second mortgage home equity line of credit (HELOC). We are not subject to HMDA. Do we have to collect “government monitoring information” (GMI) for this application?

A: Yes, assuming this involves a closed-end loan paying off the open-end HELOC. Regulation B and its Commentary do not make any fine distinctions but merely require the collection of GMI for a new loan secured by the applicant’s primary dwelling that is paying off another credit secured by that dwelling.

TISA. Q: I have a quick question regarding disclosing stop-payment fees online. We do hand out our fee schedule any time we open an account for new customers or if anybody asks for a fee schedule. However, we are wondering if we need to disclose stop-payment fees at the time when a customer places the stop-payment online.

A: There is no requirement in Regulation DD to disclose the stop-payment fee at the time a stop payment is placed (whether online, by phone or in person). Disclosing the fee on or with the account disclosure when the account is opened satisfies the TISA disclosure requirements.

However, notifying the customer as they place a stop payment is more of a UDAAP — unfair, deceptive, or abusive acts or practices — issue, ensuring that the customer is reminded of the cost associated with the action they are taking at the time they are taking it. This is generally seen as a prudent practice and to the benefit of the customer.

TILA. Q: During my review of rate/payment change notices for adjustable-rate mortgages (ARM), I noticed on a loan originated in 2008 that a change notice was not generated. The rate is supposed to adjust every five years with a 45-day rate forecast. I recalculated the date that it should have generated a notice, and according to my calculation, the rate will not change. So, my question is if the rate does not change, are we still required to send the change notice?

A: No. Notices are required only when the interest rate results in a corresponding adjustment to the payment amount. The required timing for such notices is based on when a change in payment related to a rate change becomes effective.

Flood Insurance. Q: We occasionally take a mortgage on a property as an “abundance of caution.” Our procedures indicate that we must get a flood hazard determination on that property. Then, if needed, also provide a flood hazard notice and require flood insurance.

I have been requested to get clarification that this is correct. Is there anything that speaks to an abundance of caution situations?

I have been using the reasoning that the flood insurance regulation does not care why we put a mortgage on a property. If we do, then we must follow all the steps required.

A: You are correct; the regulation does not care why the mortgage was put on the property. In fact, the Interagency Q&A on Flood Insurance in the Other Security Interests section, question 9, addresses this. The answer given about whether the regulation would apply in such a situation is that it does and that “The Act and Regulation look to the collateral securing the loan. If the lender takes a security interest in improved real estate and contents located in an SFHA [special flood hazard area], then flood insurance is required.” This is true regardless of the reason for taking the security interest.

Funds Availability. Q: When putting a large deposit hold on a deposit made up of a mix of different check types (on-us, transit, etc.), are we required to separate out any on-us checks for a maximum of a two-day hold or are we allowed to put a maximum seven-day hold on the full amount regardless of check type?

A: For the large deposit exception, a depository bank may extend hold schedules when deposits (other than cash or electronic payments) exceed $5,525 on any one business day. A hold may be applied to the amount in excess of $5,525. To apply the rule, the depository bank may aggregate deposits made to multiple accounts held by the same customer, even if the customer is not the sole owner of the accounts.

The regulation provides that this exception applies to local and nonlocal checks, as well as to checks that otherwise would be made available on the next (or second) business day after the day of deposit. Although the first $5,525 of a day’s deposit is subject to the availability otherwise provided for checks — in other words, not affected by the hold — the amount in excess of $5,525 may be held for an additional period of time.

HMDA. Q: A year ago, we made a business-purpose loan for a borrower to build a cabinet shop on the parcel of land that includes his residence. Our collateral was the entire parcel, including the residence. Because this business-purpose loan was not for the purchase, refinance or improvement of a dwelling, we did not report it under HMDA when it originated in 2022.

This year, the loan was refinanced, with a new note replacing the old note. This time, because there is a dwelling on the site that is part of our collateral and the purpose of the loan is to refinance the business-purpose dwelling-secured loan, this refinancing is now HMDA reportable.

Do you agree that the loan was not HMDA reportable when originated in 2022, but it is now HMDA reportable in 2023 as a refinance?

A: Yes, your understanding is correct. A business-purpose loan is not reportable unless for the purchase of a dwelling, the refinancing of a dwelling or the improvement of a dwelling. Your original loan was not for any of these purposes, but the new loan is a “refinancing” under Regulation C.

RESPA. Q: Is it accurate to state that mortgage loans made on residential properties, such as the business owner’s primary or secondary home, that are for business, agricultural or commercial purposes are exempt from RESPA?

Also, are loans involving rental properties of one- to four-family units exempt from RESPA? The loan would be considered for business purposes for purchasing or refinancing and for updating/repairs to the properties. I have been reading mixed information regarding the treatment of rental properties as covered by RESPA and being exempt.

A: The loan’s purpose determines exemption, not the collateral. As you noted, RESPA exempts loans that are primarily for business or commercial purposes and relies on the definitions and guidance in Regulation Z for this determination.

Credit extended to acquire, improve or maintain rental property (regardless of the number of housing units) that is not owner-occupied is considered to be for business purposes and not be covered under RESPA.

There is a little wrinkle if the owner occupies one of the units. Then, the exemption depends on both the loan purpose and the number of units. Credit extended to acquire the rental property is deemed to be for business purposes if it contains more than two housing units. However, credit extended to improve or maintain the rental property is deemed to be for business purposes if it contains more than four housing units.