Pub. 5 2017 Issue 1

TILA/RESPA. Q: Does the bank need to disclose taxes and insurance amounts on the Loan Estimate (LE) for a second mortgage loan it is extending when the first mortgagee is escrowing these amounts? A: Yes, there is no exception in Regulation Z from the require- ment to disclose these amounts in the “Estimated Taxes, Insur- ance & Assessments” section on page 1 of the LE. You, of course, would not be indicating that your bank would be escrowing these amounts (since the first mortgag- ee is already doing that). Privacy. Q: What are the current requirements for annual privacy notices? With the passing of the FAST Act and proposed amendments to Regulation P, I’m not sure if we still need to send them out. Our policy does not trigger the opt-out requirements and has not changed since it was mailed last year. A: We are in a gray area right now – the law has changed, but the regulation has not (proposed, but not final). Some banks are choosing to stop sending annual privacy notices, others continue. It is really up to the bank. A quick call to your examination team may be in order to see which way they lean. ECOA/TILA. Q: We have a mortgage loan transaction where the borrower’s parents are pledging their home as col- lateral for his loan. The parents are not going to be obligated on the loan itself. I’m provid- ing the parents with a notice of the right to receive a copy of the appraisal and a copy of the loan estimate since their collateral would be at risk. At closing they would be signing the mortgage and receiving a copy of the closing disclosure. Is there anything else that they would be entitled to? A: Besides their copy of any ap- praisal (three days before closing, unless they waive that timing), the parents will be entitled to each receive two copies of the notice of right to rescind. Of course, disbursement must be delayed until their rescission period has expired and the bank is reasonably satisfied that the parents have not rescinded. You do have to provide them with the “material disclosures” (annual percentage rate, finance charge, amount financed, total of payments, payment schedule, and prepayment penalty) to which they are entitled because they have the right to rescind. The material ones are actually the final figures in the Closing Disclo- sure, so giving those to anyone entitled to rescind is easier than breaking out just the “material” disclosures into some separate document. BSA. Q: Our customer brings in a check for $38,490. She deposits half and takes half in cash. What line in the “Cash Out” section (Part II, item 27) does this go on? Is it “d. Nego- tiable instrument(s) cashed,” even though half was depos- ited? A: You treat this as a negotiable instrument cashed and, unless the account the check being cashed is drawn on the bank, no account number will be affected since the depositing account is not where the funds are coming from. HMDA. Q: The bank is doing a first and second mortgage to payoff a land contract and pro- vide additional funds for home improvement. The first mort- gage will be to payoff the land contract (“home purchase” for HMDA) and provide some addi- tional funds for home improve- ment. The second mortgage is being used strictly for home improvement. Is the second mortgage considered a home improvement loan or also a home purchase loan? A: The second mortgage loan is a “home improvement loan” for HMDA purposes. All of its funds are for that purpose, not for the purchase. RESPA. Q: We have a mortgage loan that is part of a bankrupt- cy and showing a six-month delinquency. This loan has an escrow balance, but not enough to pay the taxes and insurance that are due next week. We also have sent the customer a letter that the escrow account will be closed in three weeks. In the mean- time, do we allow the insurance to cancel and force place since there is not enough to pay the full premium price, or do we take what funds we have to pay on the insurance even though it is not enough? And once the escrow account is closed assuming there is a balance, can the funds be applied to the principal owed on the mort- gage? A: You need to work through the escrow account and renew the existing coverage. This issue is dealt with in the Mortgage Servicing Small Entity Compli- ance Guide (page 57). When a delinquent consumer’s escrow account has insufficient funds to cover payment of the consumer’s hazard insurance premium, gen- erally, you will have to advance the funds through escrow to continue coverage. Also, consult with the bank’s legal counsel to make sure there are not some bankruptcy-related limitations or requirements. EFAA. Q: We are going to extend our lobby hours from 3:00 p.m. to 4:00 p.m. Since we disclose our cutoff time at 3:00 p.m. already, does this lobby hours change trigger any dis- closures under Regulation CC? A: No, a change in office or lobby hours does not impact your funds availability disclo- sure. However, a change in your cut-off time would require some change-in-policy disclosure to customers, as well as revised lob- by funds availability notices. 24 The Community Banker www.mibonline.org COMPLIANCE Q&A – SPRING 2017 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. Compliance Q&A — Spring 2017