By Mary Beth Guard
- FDIC Talks Internet Banking
- HMDA LAR Update
- SAFE Act Renewals
- Payment Order
- The BCFP “Gets It”
- The Big “Why” – Part 3
FDIC Talks Internet Banking
The Fall 2011 edition of FDIC Consumer News features three segments on online banking. The first tells consumers what the FDIC thinks they should know about new federal guidelines for how banks confirm the identity of online users. If consumers are reading this, your bank should, too, so you’re ready for any questions that might arise regarding authentication procedures.
The second segment advises customers on how to get started with online banking. It says “If your bank doesn’t offer Internet banking or the fees seem high, shop around.” That has to give those of you who don’t offer online banking cause for pause. And for those of you who do offer Internet banking, you should note that the FDIC urges customers to check out the ratings by independent consultants who rate various institutions’ Intern banking services for reliability, speed and ease of use before the customer picks an institution for online banking.
The third segment points consumer to sources for more help or information about safe Internet banking.
Since the FFIEC’s authentication guidance requires banks to have education and awareness initiatives for customers regarding online banking risks and precautions, reposting, or at least linking to, the FDIC’s articles on the topic is something you should consider doing.
HMDA LAR Update
The FFIEC has updated the HMDA 2011 Loan Application Register and Code Sheet on its website. Institutions reporting 25 loans or less may submit their HMDA data using the hardcopy Loan Application Register (LAR) and Transmittal Sheet (TS). The LAR Code Sheet identifies the proper codes used for reporting.
Also, the 2011 HMDA Data Entry Software Release 2 is available, as well as Census 2010 MSA, State, County and Tract listing for calendar year 2012 CRA/HMDA reporting.
SAFE Act Renewals
It seems like only yesterday when you were registering mortgage loan originators under the SAFE Act. The deadline for registration was July 29, 2011. Any registration that became initially active before July 1 is required to be renewed by the end of the same calendar year. Those who registered early – to beat the initial registration deadline — will fall into that boat. The Annual Renewal Period is from November 1 to December 31.
Remember that there are two separate requirements: 1) registration of the individuals who are mortgage loan originators and 2) filing of an account for the financial institution itself. All institution accounts must be renewed on an annual basis, regardless of when the institution’s account was created.
Here’s a spot of good news: Mortgage loan originators are not required to submit new fingerprints or authorize new background checks as part of the renewal process.
The Uniform Commercial Code says that a bank may pay items on its customer’s account in any order deemed convenient for the bank. Section 4-303(b) says “Subject to subsection (a), items may be accepted, paid, certified, or charged to the indicated account of its customer in any order. “
Unfortunately, the term “items” is a specially defined term under Section 4-104 of the UCC that means an instrument or a promise or order to pay money handled by a bank for collection or payment. The term does not include a wire transfer under UCC Article 4A or a credit or debit card slip. It also would not include ACH transactions or ATM withdrawals.
Because of all the recent litigation involving overdraft fees, payment order has been placed under great scrutiny as customers allege that various banks’ payment order schemes have been structured to maximize overdraft fee income for the bank.
It used to be that many banks paid checks in amount order, largest to smallest with the rationale being that the largest checks were probably the most important and if there weren’t enough funds to cover all items, the customer would probably want the large, important ones paid. Some litigants have claimed that payment order scheme has the most detrimental impact on a customer whose transactions exceed his balance.
A bill introduced in the Senate would have impacted payment order on accounts for servicemembers and their dependents by prohibiting the charging of fees for overdraft services if the bank processed checks from largest amount to smallest. This provision in the bill hasn’t moved forward yet, but could be a harbinger for things to come.
Many banks are moving to processing items in check number order as they are presented. (This is after payment of on-us items cashed at the teller window and payment of any electronic transactions for which the bank has become obligated through pre-authorizations.) An interesting fact emerged at the recent Compliance Roundtable, however. In many families, there is more than one checkbook in use for the same account. While it doesn’t matter if all is well with the account and there are plenty of funds, it could lead to some interesting results if only part of the checks written by the different checkbook holders could be paid. In other words, processing in check number order is not a panacea either.
At the very least, you need to review, and perhaps rethink, how you are processing any and all transactions against your customer’s account. Determine where there is flexibility and where there is not. Study the impact of your current order on overdraft fees. Be prepared to explain and defend whatever your processing order is going to be – to examiners, but also to a court should you find yourself a party to this type of lawsuit.
The BCFP “Gets It”
I cannot tell you how excited I was to read the Bureau of Consumer Financial Protection’s Notice of streamlining project and request for information in the Federal Register on December 5th. The reason I was so excited is because as I read through the 5 page document, it was clear that the Bureau “gets it” – they understand what a mess the various consumer protection regulations are currently in and they want to fix them. What a golden opportunity for us to have a voice for change.
The comment deadline is March 5, 2012. Then they have something I have never seen before – they provide 30 additional days for people to respond to comments others have made. It is a step toward a more meaningful dialog.
The Bureau will be republishing the regulations they have inherited from other agencies that implement fourteen different consumer laws, ranging from the Electronic Fund Transfer Act to RESPA. If I am reading between the lines correctly, they will be renumbering them, too, which gives me nightmares. There are so many citations engrained deep within our little pea-brained compliance heads. Finance charge rules? Section 226.4 of Reg Z. Error resolution provisions for EFTs? Section 205.11 of Reg E. Please, dear Lord, let them retain some semblance of the old numbering system. Amen.
When the rules are initially republished, there won’t be any new substantive requirements. The republication will simply codify the rules into Chapter X of Title 12 CFR. But the Bureau notes there may be opportunities to streamline the inherited regulations by updating, modifying, or eliminating outdated, unduly burdensome, or unnecessary provisions, so the Bureau is seeking specific suggestions from the public (that includes us – who knows the regs better than bankers?) not only for changes, but also for what should be considered the highest priority areas for streamlining. In other words, they are going to triage. It can’t all be done at once. Take the most fatally deficient rules first and try to address their problems, then move on. This Bureau initiative is mandated by the Dodd-Frank Act.
Here is why I think the Bureau has a clue about what is needed in the way of changes:
The Bureau says: “Due to changing technology or market practices, some provisions of regulations may be less necessary or no longer needed. Provisions may refer to technologies that are no longer frequently used; fail to reflect technologies that are now in use; or inhibit the use of existing or emerging technologies. “ Technology is changing rapidly. The regs need to change with the technology without chilling innovation.
The Bureau says: “Provisions of regulations may be more stringent than necessary to achieve the objective, or they may have little incremental effect over and above other existing laws or market forces. Provisions may suit larger market participants but impose unnecessarily disproportionate costs on smaller participants. These types of circumstances may call for relaxing, reducing, or eliminating provisions of regulations at least for some types or sizes of providers.” A prime example would be the requirements for private education loans. Congress used a canon to kill a fly with its amendments to TILA that are now reflected in subpart F of Regulation Z. In so doing, they created an onerous regulatory structure that makes small banks say “Sorry, no can do” when a customer wants a loan where any part of the proceeds will be used for post-secondary education expenses. If the rules could include exceptions for instances where a bank does 25 or fewer such loans a year, for example, everyone would benefit. It may take a change to the statute, but the Bureau says “If the Bureau judges that a desired change requires a statutory amendment, the Bureau will consider making recommendations to Congress.”
The Bureau is asking commenters to provide input on the following:
1. The Bureau could define its priorities for reviewing the inherited regulations in at least two different ways. It could focus on a particular regulation or set of regulations. Or it could focus on a market sector and all of the regulations that apply to that sector. Commenters may suggest other approaches. What approach should the Bureau take, and why? In what order should the Bureau review the inherited regulations, and why?
2. Commenters are invited to offer their highest priorities for updating, modifying, or eliminating specific provisions of regulations that are outdated, unduly burdensome, or unnecessary. Suggestions should focus on revisions that would not require Congressional action. Commenters may wish to take into account: The size, likelihood, and speed of potential gains from streamlining; the resources needed to achieve the gains; and the strength of the evidence with which to judge these factors. Commenters may consider suggesting provisions of regulations that should be:
• Simplified, rationalized, or consolidated;
• Relaxed, modified, or eliminated, perhaps for smaller firms or certain classes of transactions, without undermining essential protections;
• Updated to reflect current practices and technology;
• Adjusted to avoid unintended consequences; or
• Changed to remove an obstacle to responsible innovation.
3. The Bureau is in the midst of testing new mortgage disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act. Are there other required disclosures that available evidence suggests should be considered for modification or removal?
4. For each suggestion in response to questions 2 and 3, commenters are asked to describe and, where possible, quantify the potential benefits and costs to consumers and providers of changing the regulation as recommended.
5. For each suggestion, commenters are asked to submit or identify empirical models, data, research, case studies, or other evidence the Bureau could use to analyze and, if possible, to quantify or describe the potential costs and benefits of the changes the commenter advocates.
6. Are there pilots, field tests, or demonstrations that the Bureau could launch to better assess benefits and costs of potential revisions to regulations?
7. The Bureau is interested in identifying practical measures it can take, apart from revising regulations, to make compliance with the inherited regulations easier. For example, are there systematic ways the Bureau could improve guidance about how to comply with regulations?
Are there ways the Bureau could make it easier for financial institutions to obtain answers to specific compliance questions they may have? The Bureau will evaluate recommendations according to the same factors it will use to evaluate suggestions to revise regulations.
8. The Bureau also is interested in identifying practical measures it could take to promote, or remove obstacles to, responsible innovation in consumer financial services markets.
The Bureau is also seeking information and views about specific potential revisions to the inherited regulations. That’s where you can really see the depth and breadth of the Bureau’s understanding of the issues. It gives several examples of how some of the inherited regulations define key terms differently. Terms like consumer, credit, and business day are defined various ways. How do you tell if an application if approved, denied or withdrawn, since those terms are not defined? Should the ATM fee disclosure be eliminated or revised? What about HMDA — if a bank doesn’t originate home purchase loans but occasionally simply refinances a home purchase loan as an accommodation for a customer, should that be exempt from HMDA reporting? Should banks that make only a small number of HMDA-related loans be exempted? How about electronic disclosures? Should it be permissible for some disclosures to be made by text messaging?
Start making your list now. Concentrate on the most frustrating and maddening areas of the rules. Prioritize the changes you wish to suggest. Be heard.
The Big “Why” – Part 3
In the last two editions of Legal Briefs, we have included installments in a series I call The Big “Why” – a series of articles to explain my view of the reason a particular law or regulatory requirement exists. Last time, I covered some initial provisions within the Electronic Fund Transfers Act, which is implemented by the Federal Reserve’s Regulation E, which will now fall under the purview of the new Bureau of Consumer Financial Protection. This installment continues the Reg E review.
The most recent changes to Regulation E relate to requirements for overdraft services. Put yourself in the shoes of the customer. Some banks have been advertising “bounce protection” or something similar for years. What “bounces” (in the mind of the customer)? Checks. Customers don’t necessarily take a “holistic” view of their account, looking at the big picture and realizing that an overdraft could be caused by any type of transaction, not just a check. In fact, most consumers would be inclined to believe that if there aren’t enough funds in their account, the machines won’t “let them” make an ATM withdrawal or initiate a debit card transaction. The back end of banking is, and will remain, a mystery to customers.
Customers complained loudly about overdraft fees emanating from ATM transactions and one-time debit card transactions, so the Federal Reserve implemented new provisions within Regulation E to try to “protect” consumers from such fees. The way they went about it was an approach we had not previously seen in other contexts.
They did not prohibit banks from imposing overdraft fees for such transactions. Instead, they imposed a “Mother may I?” type hurdle you must jump over. Before you can charge a consumer an overdraft fee for an overdraft stemming from an ATM withdrawal or one-time debit card transaction, you must first get the customer’s permission. The permission is in the form of the customer “opting-in” to pay such fees after first being given full disclosure about the process.
Specifically, the fee cannot be charged unless the bank:
(i) Provides the consumer with a notice in writing, or if the consumer agrees, electronically, segregated from all other information, describing the institution’s overdraft service;
(ii) Provides a reasonable opportunity for the consumer to affirmatively consent, or opt in, to the service for ATM and one-time debit card transactions;
(iii) Obtains the consumer’s affirmative consent, or opt-in, to the institution’s payment of ATM or one-time debit card transactions; and
(iv) Provides the consumer with confirmation of the consumer’s consent in writing, or if the consumer agrees, electronically, which includes a statement informing the consumer of the right to revoke such consent.
As bankers, we are very accustomed to regulations that allow us to do something (such as share nonpublic personal information about a customer with a nonaffiliated third party under the privacy rules) unless a customer opts OUT of the action. This is just the opposite. The customer has to make an affirmative choice to be dinged with fees.
From the customer’s standpoint, it’s all about informed consent – knowing in advance that these types of transactions can possibly result in overdrafts and knowingly authorizing the bank to pay them anyway, even though it means incurring a fee.
It’s maddening. We look at the regulatory developments every single day and throughout the last month virtually nothing has happened in the way of new compliance developments. Normally, that’s a good thing, but with Dodd-Frank hanging over our heads, we know that the onslaught of new and revised regulations will come – we simply don’t know when. In the meantime, we’re treading water, trying to keep our heads above the waves, and there are certainly lots of questions regarding the existing compliance requirements. In this segment of Legal Briefs, we are sharing some of the recent questions answered by your OBA Compliance Team:
QUESTION: My bank is updating our policy in regards to abandoned/unclaimed property. I’m having trouble finding info on how long to keep deposit accounts (safe deposit box also) before they are escheated to the state. Can you direct me to a link that has the most updated information (that is in layman terms)?
ANSWER: With regard to abandonment of contents of safe deposit boxes, that is relatively easy to explain in layman’s terms: it is based on expiration of the lease. If the period after expiration is over 5 years, the property (if any) in the box is presumed abandoned, however, you would still need to comply with Tit. 6 O.S. Sec. 1310 regarding notice before drilling.
Deposit accounts are trickier to explain but I think the Administrative Code provision is about as clear as it gets:
735:80-3-10. Banks, savings and loans or other financial institutions; reporting requirements
(a) Any deposit with a banking or financial organization, including deposits that are automatically renewable, or a mutual investment certificate, or any other interest in a banking or financial organization, is presumed abandoned unless the owner has, within the previous five (5) years (15 years in the case of automatically renewable time deposits):
(1) In the case of a deposit, increased or decreased the amount of the deposit or presented the passbook for the crediting of interest;
(2) Communicated in writing with the banking or financial organization indicating an interest in the property;
(3) Owned other property to which paragraph (1) or (2) of this subsection is applicable and, if the banking or financial organization communicated in writing with the owner in regard to the property that would otherwise be presumed abandoned under this subsection at the address to which communications regarding the other property are regularly sent; or
(4) Had another relationship with the banking or financial organization concerning which the owner has:
(A) Communicated in writing with the banking or financial organization; or
(B) Otherwise made contact with the banking or financial organization, and if the banking or financial organization communicates in writing with the owner with regard to the property that would otherwise be abandoned under this subsection at the address to which communications regarding the other relationship are regularly sent.
QUESTION: We currently ask the question on our consumer application “are you a party to a lawsuit?” Can we deny credit based on a “yes” answer? If so, what reason do we give on the Adverse Action Notice? For example, let’s say that we know of a lawsuit involving our applicant that has the potential to diminish her ability to repay the loan if she lost…. although that is an unknown at this point.
ANSWER: The question is way too broad: it includes the situation where the borrower is the plaintiff in a lawsuit, a nominal party in an action to quiet title, a speeding ticket, etc. Merely answering “yes,” without more would have little or no impact on ability to pay.
As far as a reason for denial, ask for non-contingent amounts owed for attorneys’ fees and costs which currently existing. In that case you may have insufficient income to support the DTI. Otherwise, I suppose you would have to be specific under “other” such as “significant contingent liability due to pending litigation.” And you would have to be very careful how and when you use this reason when a protected class is involved.
QUESTION: We have situation. A 20-something customer who has only been with us six months had had over $1 million wired into his account from a law firm in another state. He has used about half the money to purchase cashier’s checks, made out to title companies. He says it’s to purchase properties. He has now come into the bank and asked us to get $200,000 in cash for him so he can “diversify.” I feel comfortable about our SAR responsibilities, but would like you provide some feedback about the position of financial liability the bank may be in. The last wire came in about six weeks ago. Is it possible that there is fraud about which the bank may be liable? Can I tell the customer they cannot have the $200,000 in cash and basically hold funds until we can verify the bank’s position?
ANSWER: I don’t believe you have any justification for holding up this customer’s access to his funds. As you’ve said, the money’s been in the account for six weeks; if there had been any fraud detected at the sending end, someone should have contacted your bank a long time ago.
That said, you’re right to wonder what’s going on, and I suggest you or someone else in your bank invite your customer in to get to know him better. You are certainly within your rights to inquire about the nature of his “sudden” cash flow, just as he will be within his rights to suggest you go pound sand. But your goal ought to be to allay any concerns you might have about the legitimacy of the cash source, in light of “hundreds of bank customers across the country” who are victimized by scams that often appear “like the real thing.”
What struck me as a little surprising is the fact that he’s already burned through half the money in other ways that would have — had this whole business been shady — put your bank equally at risk (the cashier’s checks), since there is really no way you’d be able to avoid liability for those checks as they are presented for payment. If there had been genuine concern for the legitimacy of the deposits, it should have been exercised well before now. The phrase “locking the gate after the horses have escaped” comes to mind.
QUESTION: Our bank is courting a major stockyard for their deposit account. They tell us their current account (elsewhere) is a trust account regulated by the Packers and Stockers. I am not familiar with this type of trust and am seeking input regarding account styling, documentation required, and any other nuances to be aware of if we should obtain the business. Or if there is somewhere I can go to do more research.
ANSWER: Your customer is referring to the federal law known as the Packers and Stockyards Act. This brochure from the U.S. Department of Agriculture explains everything you need to know about the custodial/trust accounts that are required.
QUESTION: If you are re-disclosing a GFE but it didn’t affect your APR so there will not be a new TIL, can your new GFE be taken to closing and signed there?
ANSWER: We assume you are saying that you have a changed circumstance that warrants providing a revised GFE. If that’s the case, yes, you may simply give the revised GFE at closing since no waiting period is required prior to consummation, but you must give the revised GFE within the time period required after you learn of the changed circumstance.
QUESTION: What legal ramifications would there be for allowing a DDA account owned by a Corporation to designate a POD Beneficiary (I know what you are thinking, but I had to ask)? I know it makes absolutely no sense to do so and am aware of Title 6 Section 901 of the Oklahoma Statutes. What would happen, legally, if at some point we paid out funds to this “POD” from an account owned by a corporation?
ANSWER: If you have an account set up this way, you are between a rock and a hard place because Oklahoma law simply does not authorize such a thing. A corporation does not “die.” You can’t pay on death if the accountholder doesn’t “die.” A dissolution of a corporation is not a “death” as contemplated by Section 901 of the Banking Code.The designation of POD would be void since the statute only allows a natural person to name one or more PODs and those must be natural persons, trusts or charitable organization. If you paid out the funds to a POD, you would be liable to both the creditors of the corporation and the heirs/estate of the deceased shareholder.
On the other hand, you have entered into a contract that says you are going to pay the funds out upon the death of the accountholder. Since the corporation doesn’t die, paying the funds out would be a breach of the contract and contrary to Oklahoma law.
QUESTION: I have a customer that is buying 50 acres of land to farm that comes with a house. He will use the house as his primary dwelling but is buying it all because of the land. Does Reg Z apply? Escrow?
ANSWER: Look to the exemptions in Reg Z:
“An agricultural purpose includes the planting, propagating, nurturing, harvesting, catching, storing, exhibiting, marketing, transporting, processing, or manufacturing of food, beverages (including alcoholic beverages), flowers, trees, livestock, poultry, bees, wildlife, fish, or shellfish by a natural person engaged in farming, fishing, or growing crops, flowers, trees, livestock, poultry, bees, or wildlife. The exemption also applies to a transaction involving real property that includes a dwelling (for example, the purchase of a farm with a homestead) if the transaction is primarily for agricultural purposes.”
If the loan is not subject to Regulation Z , the loan is exempt from Reg Z’s escrow requirement. RESPA is also inapplicable.
QUESTION: How do we communicate to a customer that we are closing his/its account?
ANSWER: As a rule, it’s best to keep such letters short, to the point, and devoid of any reason for closing the account. It’s also preferable not to offer to discuss the matter.
I suggest you simply notify the customer that you will close his account on a specific future date (check your account agreement for any agreed notice period), and instruct him to stop depositing to the account on receipt of the letter. Remember that you may have to provide 30 days’ notice if he receives federal direct deposits. Tell him that on the specified date the bank will send a check for the available account balance, and that after that date, checks will be returned “account closed,” the debit card (if any) will be canceled, and no further activity will be permitted.
Don’t offer a reason for the action or invite him to contact you for clarification.
QUESTION: When we are sending out the letter to the customer “Important Information About Your Account” regarding a garnishment, do we use same the time line (3 business days from account review) to we send the “Claim for Exemption and Request for Hearing” and the “Claim For Exemption Information to Be Delivered to the Judgment Debtor”? The examiners want to know the method in which we sent the letter and the date.
ANSWER: The Oklahoma statutes require that you send the garnishment packet immediately:
A. When a garnishment summons is issued in any action after the judgment is filed, the court clerk shall attach to the garnishment summons a notice of garnishment and exemptions required by subsection C of Section 1174 of this title and an application for the defendant to request a hearing. If the garnishee is indebted to or holds property or money belonging to the defendant, the garnishee shall immediately mail by first-class mail a copy of the notice of garnishment and exemptions and the application for hearing to the defendant at the last-known address of the defendant shown on the records of the garnishee at the time the garnishment summons was served on the garnishee. If more than one address is shown on the records of the garnishee at the time of service of the summons, the garnishee shall discharge the duty by mailing the required items to any one of the addresses shown on its records. In lieu of mailing, the garnishee may hand-deliver a copy of the notice of garnishment and exemptions and the application for hearing to the defendant. The garnishee shall have no liability except for willful failure to mail or hand-deliver the copy of the notice of garnishment and exemptions and the application for hearing to the defendant. The answer of the garnishee shall contain a statement indicating substantial compliance with this section. If the application requesting a hearing is filed, the court shall set the matter for hearing within not less than two (2) nor more than ten (10) days from receipt of the returned application, and the court clerk shall give notice of the hearing to each of the parties by first-class mail. The defendant shall have the burden of proof to show that some or all of the assets subject to the garnishment are exempt. The court shall issue an order determining the exemption and directing distribution of funds, as appropriate. The court may direct such other orders to the judgment creditor as are necessary to prevent subsequent garnishment of the exempt property.
QUESTION: We have a commercial lender with an existing commercial loan that was to purchase a commercial building that has been paid down by $200,000. The borrower wants to add $60,000 to the existing commercial loan but he wants the money for a consumer purpose – home improvement on his personal residence. I have told the lender that he cannot circumvent consumer regulations and disclosures by mixing a consumer purpose loan with a commercial purpose loan in this instance . What’s the rule?
ANSWER: The Reg Z Commentary says that business-purpose credit that is exempt from the regulation may later be rewritten for consumer purposes. Such a transaction is consumer credit requiring disclosures only if the existing obligation is satisfied and replaced by a new obligation made for consumer purposes undertaken by the same obligor.
If the loan was being made all at once and part of the proceeds were for a commercial purpose and part were for a consumer purpose, clearly what you would do is look to see what the proceeds were “primarily” being used for. The “primarily” test means even a penny over 50% of the proceeds. In this instance, you have an existing commercial loan and the lender wants to simply tag on consumer purpose credit after the commercial loan is already for the consumer-purpose request and treat it as covered by Reg Z. I agree with you, you cannot circumvent the consumer protections by bundling the new consumer purpose advance with an existing commercial loan.
QUESTION: We normally don’t pull credit bureau reports for loans secured by CDs. Do we still have to provide a risk-based pricing notice?
ANSWER: Under 222.70(a) coverage of the RBPN applies to you if you use a consumer report in connection with an application for credit and may vary the pricing based on that report. If you do not pull a credit report for any of these loans and therefore do not vary the pricing based on the credit report, the risk-based pricing notice requirements are not triggered. No disclosure should be required.
QUESTION: We have a customer applying for a loan to purchase at hot tub, would this be considered a Home Improvement loan and HMDA reportable?
ANSWER: Yes, just like a swimming pool, it is a home improvement loan and reportable.
QUESTION: We have a Director whose aggregate lending amount has exceeded the $500,000 limit. Does it need prior approval if the extension of credit that made it exceed the $500,000 is CD secured?
ANSWER: It needs prior approval. The nature or amount of collateral is a consideration when determining whether a particular extension of credit is subject to federal or state lending limits, but it is irrelevant under Regulation O’s section 215.4(b)(2), which requires prior approval by a majority of the full board.
QUESTION: In researching USPAP, I cannot find anything that details if an appraisal needs to make note of flood zone. We have a situation where we have a property that includes a mobile home and two barns. The barns are located at the opposite end of the property from the home. The flood determination says the home is in Flood Zone A and the 2 other structures are in Flood Zone X. This is supported by the aerial photo with the flood zone overlay provided by the flood vendor. The appraisal we received states that “**Flood map too close to call. I recommend the loan survey determine status.” We do not rely on the appraisal for a flood determination, we use the one provided for our vendor; however, my question is – is there a requirement that the appraisal contain this information? Should the appraiser be asked to further research the flood zone for this specific appraisal?
ANSWER: There is no requirement flood zone information be included in the appraisal, but if the appraiser is using that information as a factor to determine the value, this should be stated.
QUESTION: Our bank is thinking about not charging the customer for the credit report fee. If we do this I believe we still have to disclose it on the GFE and the HUD. I have looked in the RESPA FAQ’s and did not find it. Where do we place it on the GFE and the HUD if we are absorbing the cost?
ANSWER: Your options are to show it as a credit in Block 2 and a charge in Block 3, or a charge in Block 3 and a credit in the 200 series on the HUD 1.
QUESTION: We are having issues with our closing offices telling us that they cannot put the name of the Service Provider in the 804-808 series. They said that fees like the Flood Certification Fee were included in our APR and they cut us a check for those items, so they could not list the company that does our Flood Certifications. I have not seen an exception to listing the name of the actual service provider in the regulation for items that we receive a check for or items that are included in our APR. Do you know of the exception that they are talking about?
ANSWER: Show this to your closing office: From Appendix A to RESPA:
“The settlement agent shall complete the HUD–1 to itemize all charges imposed upon the Borrower and the Seller by the loan originator and all sales commissions, whether to be paid at settlement or outside of settlement, and any other charges which either the Borrower or the Seller will pay at settlement. Charges for loan origination and title services should not be itemized except as provided in these instructions. For each separately identified settlement service in connection with the transaction, the name of the person ultimately receiving the payment must be shown together with the total amount paid to such person. Items paid to and retained by a loan originator are disclosed as required in the instructions for lines in the 800-series of the HUD–1 (and for per diem interest, in the 900-series of the HUD–1).”