Pub. 4 2016 Issue 2

20 The Community Banker www.mibonline.org COMPLIANCE Q&A – SUMMER 2016 By Bill Showalter, Senior Consultant, Young & Associates, Inc. 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. MLA. Q: Under the newMilitary Lending Act rules I've read that bare land loans require the MLA disclosures for covered borrowers. I've also read that a loan to purchase some personal property and secured by that property is exempt. So, if bare land is purchased for personal use, and also serves as the collateral for the loan, is the loan exempt if it involves a covered borrower? A: No, it is not. “Consumer credit” in the MLA rule relies on Reg- ulation Z for the “consumer” (personal, family, or household) versus “commercial” purpose distinction – with only consumer credit to military members being covered (subject to exceptions). Three of those exceptions are a “residential mortgage,” a vehicle purchase (secured by the vehicle), and a personal property purchase (secured by the personal property). So, a mortgage secured by raw land, even if it is to purchase that land and is “consumer credit,” is cov- ered. It does not fit the “residential mortgage” exception since there is no residence involved, and the attorneys tell us that raw land is not “personal property,” but “real property.” HMDA. Q: Our bank issued a conditional approval, the condition being that we need paystubs to verify income. We also told the appli- cant we would need flood insurance. The applicant said, “No, I don’t want to buy flood insurance. I’mwithdrawing my application.” For HMDA purposes, is this a “denied,” “withdrawn,” or “approved not accepted” application? It looked like the last, until I saw Comment 4 to paragraph 4(a)(8) about “conditional approvals” since this appli- cant did not meet an underwriting condition. The comment states, “If an institution issues a loan approval subject to the applicant's meet- ing underwriting conditions….and the applicant does not meet them, the institution reports the action taken as a denial.” Help? A: This transaction is clearly not a “withdrawn” application since a credit decision has been made, even though conditioned. You expressed skepticism about a “denied” application since the bank did not issue a denial. However, Regulation C does not make sending an adverse action notice a prerequisite for using the “denied” code. In this situation, “denied” is the correct action type to report – a conclu- sion confirmed in the CFPB’s Summer 2016 Supervisory Highlights report. EFAA. Q: Does the bank have to pay interest on an interest-bear- ing transaction account during the time a hold is in place on a deposit to that account? A: Yes, interest must be paid beginning no later than when the bank receives credit for a deposited item, with one exception. If a check is returned unpaid, then the bank does not have to begin paying interest right away when that check is redeposited and an exception hold is placed on the deposit (of course, citing the “rede- posited check” hold reason). CRA. Q: Where can I look to find out whether locations within our assessment area are low-income, moderate-income, and so forth geographies (census tracts)? I have been looking on www.census.gov but can't seem to locate this information. A: The Federal Financial Institution Examinations Council has links to various databases with Census information for specific geogra - phies. Their access page with the links is at www.ffiec.gov/census - products.htm. Flood. Q: We have a flood determination that came back with split zones (X and A) and a building in each zone. Our commercial customer is telling us they do not own the building in flood zone A – another of their entities owns it. However, we have a mortgage on the property the building sits on. If our loan is with one entity and the building – which is also securi- ty for our loan – that is owned by a different entity is in a flood zone A, do we need to have flood insurance on our loan? A: Yes. If the building in zone A will secure your loan (at least in part), the bank must require it to be covered by flood insurance (for at least the principal amount of the loan, replacement value of the building, or maximum available under the NFIP, whichever is least). The fact that the building in a “special flood hazard area” (zone A) is owned by an entity other than your borrower is not relevant to the requirement to obtain flood insurance to cover that building. TILA. Q: If we have an appraisal fee and an appraisal management company fee, I know they have to be listed separately on the Loan Estimate and Closing Disclosure. However, if the bank is paying for the appraisal management company fee and not charging it to the borrower, on every loan, is it OK to not list it? I thought I remembered that it had to be listed and disclosed as paid by lender before closing. I just can’t seem to find the regulatory citation that says that. A: No, it would not be permissible to leave the appraisal manage- ment company fee off the LE/CD. Since the service provided by the appraisal management company is one the borrower cannot shop for, it should be listed and be offset by a lender credit or shown (on the CD) in the “paid by lender” column. Compliance Q&A