I have a quick question related to Regulation D and reserve requirements. If we offer commercial escrow services to hold funds for two or more parties, are these funds held in escrow generally subject to Reg. D?
Answer: Yes, escrow funds are specifically included in the definition of "deposits" for purposes of Regulation D: §204.2 Definitions.
For purposes of this part, the following definitions apply unless otherwise specified:
(ii) Money received or held by a depository institution, or the credit given for money or its equivalent received or held by the depository institution in the usual course of business for a special or specific purpose, regardless of the legal relationships established thereby, including escrow funds, funds held as security for securities loaned by the depository institution, funds deposited as advance payment on subscriptions to United States government securities, and funds held to meet its acceptances; 12 CFR § 204.2(a)(1)(ii) https://www.ecfr.gov/cgi-bin/text-idx?SID=8ddd88a51a067ba79f787e95219009c7&mc=true&node=se12.2.204_12&rgn=div8
For examination purposes, should we
be logging all changes to our website or just the ones related to compliance?
Answer: Since the bank's website is
generally considered an advertisement and sometimes contains disclosures
required by federal regulations, the bank would want to be sure to retain
records of the webpages for any applicable retention periods. How long the
pages should be kept would generally depend on the regulation that the content
of the page falls under. For example, if the page contained an advertisement
for deposit accounts, then the bank would want to retain a copy of that webpage
for 2 years under Regulation DD.
The bank may also find our Record
Retention Schedule helpful here: https://www.compliancealliance.com/find-a-tool/tool/record-retention-schedule-cheat-sheet
We have two commercial lines of
credit that originated in 2016 but were increased by $200,000 each in 2019. We
did not have new disclosures signed, and we simply executed a loan modification
for the loan amount increase to both files. Should these increases be reported
on the small business LAR for this year or is this just for originations?
Answer: Yes, the bank should report in this
case because increases are treated as new originations for CRA purposes, as set
out in the Guide here:
A3. Institutions must collect
and report data on lines of credit in the same way that they provide data on
loan originations. Lines of credit are considered originated at the time the
line is approved or increased; and an increase is considered a new origination.
Generally, the full amount of the credit line is the amount that is considered
Page 12 at https://www.ffiec.gov/cra/pdf/2013_CRA_Guide.pdf
I have spent the afternoon looking
for a simple “definition” of what a distressed and underserved community is. I
have found bits and pieces, and I have found the updated lists for 2018, but we
are undergoing some policy updates, and would like to align our definition with
what the FRB and FFIEC define them as, but I am at a loss to find something.
Can you help, or point me in the right direction?
Answer: Distressed or underserved
communities are designated by the FRB, FDIC, and OCC, based on rates of
poverty, unemployment, population loss, population size, density, and
dispersion. The bank would need to use the lists for determining if a loan is
being made in a distressed or underserved community.
For reference: The distressed lists: https://www.ffiec.gov/cra/distressed.htm
And the CRA:
(iii) Distressed or underserved
nonmetropolitan middle-income geographies designated by the Board of Governors
of the Federal Reserve System, FDIC, and Office of the Comptroller of the
Currency, based on—
(A) Rates of poverty,
unemployment, and population loss; or
(B) Population size, density,
and dispersion. Activities revitalize and stabilize geographies designated
based on population size, density, and dispersion if they help to meet
essential community needs, including needs of low- and moderate-income
Question: By what
day do we have to file the continuing activity SAR? Is it Day 90 or Day 120?
Answer: The guidance provides that
"Financial institutions with SAR requirements may file SARs for continuing
activity after a 90 day review with the filing deadline being 120 days after
the date of the previously related SAR filing. Financial institutions may also
file SARs on continuing activity earlier than the 120 day deadline if the
institution believes the activity warrants earlier review by law
So the review period itself is 90
days, but the filing deadline is 120 days from the last one filed, to include
the additional 30 days allowed for filing. It does also say that the bank has
the option of filing earlier than the 120 days if it believes that law
enforcement should review earlier.
Financial institutions with SAR
requirements may file SARs for continuing activity after a 90-day review with
the filing deadline being 120 days after the date of the previously related SAR
filing. So, for filings where a subject has been identified, the timeline is as
Identification of suspicious
activity and subject: Day 0.
Deadline for initial SAR filing:
End of 90 day review: Day 120.
Deadline for continuing activity
SAR with subject information: Day 150 (120 days from the date of the initial
filing on Day 30).
If the activity continues, this
timeframe will result in three SARs filed over a 12-month period.
We have a potential borrower who
has several buildings we will be taking as collateral. The corner of one
building is in a flood zone. We have requested flood insurance covering the
entire building. Our borrower stated that his previous lender allowed them to
obtain flood insurance on the one unit of the building that has the corner in
the flood zone. We disagree with this. Should we receive flood insurance on the
Answer: That is correct. Under the “one
brick rule,” if the bank is taking the entire building as collateral and if
even one corner or brick of the building is in the flood zone, the entire
building must be covered. There’s not an exception for only securing the percentage
of the building that is in the flood zone, unfortunately.
This was discussed in our latest
(a) In general. An
FDIC-supervised institution shall not make, increase, extend, or renew any
designated loan unless the building or mobile home and any personal property
securing the loan is covered by flood insurance for the term of the loan. The
amount of insurance must be at least equal to the lesser of the outstanding
principal balance of the designated loan or the maximum limit of coverage
available for the particular type of property under the Act. Flood insurance
coverage under the Act is limited to the building or mobile home and any
personal property that secures a loan and not the land itself.
With regard to the FDIC's Part 350
Annual Disclosure Statement rescission, would it only apply to one of our
charters or would it apply to the holding company and everything under it as a
whole? We are two chartered banks under one holding company.
Answer: The rescission applies to all FDIC
supervised bank at the federal level, so in your case, it appears that it would
apply to both banks independently, regardless of whether they're both under a
...This Financial Institution
Letter applies to all FDIC-supervised institutions, including community
FIL-14-2019: Removal of the FDIC'S Part 350 Annual Disclosure Statement
Removal of the FDIC's Part 350
Annual Disclosure Statement Requirement Printable Format: FIL-14-2019 - PDF ().
Summary: On March 8, 2019, the FDIC Board approved a final rule rescinding and
removing Part 350 of the FDIC's regulations, which is entitled Disclosure of
Financial and Other Information by FDIC Insured State Nonmember Banks. The FDIC
is taking this action to simplify its regulations ...
When is the deadline to provide a
PMI notice of cancellation/termination?
Answer: Assuming this is subject to the
Homeowners Protection Act, the bank has 30 days after the PMI relating to a
residential mortgage transaction is canceled or terminated to send out a notice
to the borrower, as set out here: https://www.federalreserve.gov/boarddocs/supmanual/cch/hpa.pdf
Cancellation or Termination of PMI Relating to Residential Mortgage Transactions
General Requirements Not later than thirty days after PMI relating to a
residential mortgage transaction is canceled or terminated, the servicer must
notify the borrower in writing that
has terminated and the borrower no longer has PMI and
further premiums, payments, or other fees are due or payable by the
borrower in connection with PMI."
We escrow for taxes and insurance.
This is not an HPML loan nor is flood insurance required in this situation. The
taxes, with respect to this loan, are subject to a continual homestead credit
that exceeds the tax charge. So, year after year, the amount via escrow that is
owed is $0.00. The bank would like to collect a small amount as a cushion in
case the taxes increase over the established credit. We don’t necessarily
anticipate the taxes to increase, though. Can we do this?
Answer: 12 CFR 1024.17(c)(ii): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1024/17/#c-1-ii
- (1) A lender or servicer (hereafter servicer) shall not require
a borrower to deposit into any escrow account, created in connection with a
federally related mortgage loan, more than the following amounts:
(ii) Charges during the life of
the escrow account. Throughout the life of an escrow account, the servicer may
charge the borrower a monthly sum equal to one-twelfth (1/12) of the total
annual escrow payments which the servicer reasonably anticipates paying from
the account. In addition, the servicer may add an amount to maintain a cushion
no greater than one-sixth (1/6) of the estimated total annual payments from the
Question: We are
selling one of our branches next month. The branch only has one HMDA loan to
date. Do we need to report that loan on the HMDA LAR? The bank that is
purchasing the branch is not a HMDA-reporting bank.
Answer: Assuming that purchasing this
branch will not cause the acquiring back to become a HMDA-reporting bank, then
yes, in this instance you'd report any HMDA reportable loans that originated
prior to the sale in April. Any reporting after the sale by the acquiring
bank is optional for the remainder of the year.
CFPB HMDA Guide, p. 121 https://files.consumerfinance.gov/f/documents/bcfp_hmda_small-entity-compliance-guide-final_2018-10.pdf
When an institution that is not
subject to Regulation C acquires a Branch Office of an institution that is
subject to Regulation C but that acquisition does not result in the acquiring
institution becoming subject to Regulation C, data collection is required for
transactions of the acquired Branch Office that take place prior to the
acquisition. Data collection by the acquired Branch Office is optional for
transactions taking place in the remainder of the calendar year of the
On a business loan where we have
personal guarantees, do we have to check MLA on the guarantees, since they are
acting as individuals?
Answer: No, because a business loan is not
a covered transaction under the MLA. The MLA applies to "consumer
credit" offered to covered borrowers, as those terms are defined in the
Regarding the applicability of the
MLA to guarantors, the Act is not clear as to whether it does apply or does not
apply to guarantors. Conservatively, the bank would treat guarantors as if they
fall under the scope of the MLA because they are to some extent "obligated
on the consumer credit transaction..."
12 CFR § 232.3(g)(1)
("Covered borrower means a consumer who, at the time the consumer becomes
obligated on a consumer credit transaction or establishes an account for
consumer credit, is a covered member (as defined in paragraph (g)(2) of this
section) or a dependent (as defined in paragraph (g)(3) of this section) of a
12 CFR § 232.3(f)(1)
("Consumer credit means credit offered or extended to a covered borrower
primarily for personal, family, or household purposes, and that is: ...")
Does the bank have to comply with
the appraisal independence requirements even if an appraisal is not required?
Answer: While not an explicit requirement
if the appraisal itself is not required, we advise that the bank should ensure
independence in the appraisal ordering process even if the appraisal was not
required by the appraisal regulations. Note that the bank should also follow
the same independence requirements for evaluations as well. The independence
requirements can be found in the Interagency Appraisal and Evaluation
Guidelines here: https://www.fdic.gov/regulations/laws/rules/5000-4800.html
request a tri-merge credit report for each applicant. Our credit decision is
relies on the single lowest middle score applicant(s). Can you give guidance on
how credit scores would be reported for two or more applicants? Do we report
the one score relied on for all applicants, or report the score relied for one
applicant and then the other as not applicable?
Answer: The bank would report the credit
score that it relied upon in making the decision. From what you described, it
sounds like it would be the lowest middle score in this instance. The score
would be reported for the applicant or co-applicant and not applicable for the
one whose credit score was not used (since it wasn't relied upon in making the
To illustrate, assume a
transaction involves one applicant and one co-applicant and that the financial
institution obtains or creates two credit scores for the applicant and two
credit scores for the co-applicant. Assume further that the financial
institution relies on a single credit score that is the lowest, highest, most
recent, or average of all of the credit scores obtained or created to make the
credit decision for the transaction. The financial institution complies with §
1003.4(a)(15) by reporting that credit score and information about the scoring
model used for the applicant and reporting that the requirement is not
applicable for the first co-applicant or, at the financial institution's
discretion, by reporting the data for the first co-applicant and reporting that
the requirement is not applicable for the applicant.
Comment 3, 1003.4(a)(15), https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/Interp-4/#4-a-15-Interp-3
We have a commercial customer with
a line of credit that they use for working capital. They may also use the line
for any other type of business-related expense. So, the commercial borrower
used this original line to purchase a rental property. Now, we are paying down
the line of credit with the property that was purchased as security. The
original line won’t be fully paid down. Is this HMDA-reportable?
Answer: No – this is not HMDA-reportable.
This is because a commercial-purpose loan is only reportable as a home purchase
loan, home improvement loan, or refinance. This situation only possibly
implicates “refinance” for HMDA purposes (since there’s no indication that this
is a home purchase or home improvement loan). However, this type of transaction
does not constitute a “refinance” under HMDA because the new loan is only
paying down the existing line of credit, rather than fully satisfying and
replacing the line.
(10) A closed-end mortgage loan or
open-end line of credit that is or will be made primarily for a business or
commercial purpose, unless the closed-end mortgage loan or open-end line of
credit is a home improvement loan under § 1003.2(i), a home purchase loan under
§ 1003.2(j), or a refinancing under § 1003.2(p);
12 CFR 1003.3(c)(10): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/3/#c-10:
1. Loan or line of credit secured
by a lien on unimproved land. Section 1003.3(c)(2) provides that a closed-end
mortgage loan or an open-end line of credit secured by a lien on unimproved
land is an excluded transaction.
(p) Refinancing means a closed-end
mortgage loan or an open-end line of credit in which a new, dwelling-secured
debt obligation satisfies and replaces an existing, dwelling-secured debt
obligation by the same borrower.
12 CFR 1003.2(p) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/2/#p
Question: We have a question on a loan that
is a refinance of a purchase of a second home and is adding funds to pay off
personal credit cards. Should be report the HOEPA Status as "Code 3 -
Answer: Assuming the loan is just secured
by the second home and is not also secured by the principal dwelling, then yes,
it should be reported as "Code 3 - NA" like you said. The reason for
this is that HOEPA only applies to:
...a high-cost mortgage, which
is any consumer credit transaction that is secured by the consumer's principal
So the HOEPA rules do not apply to
this particular loan and, thus, it would be reported as not applicable for HMDA
Question: For HMDA purposes, would a
construction-to-permanent loan be considered a refinance under the Loan
Answer: It would actually be considered a
home purchase loan under HMDA regardless of whether it is a combined
construction to permanent loan or the permanent financing that replaces the
temporary construction financing. If it is a construction-only loan to be replaced
by permanent financing later, it will be excluded as temporary financing under
1003.3(c)(3). Construction and permanent
financing. A home purchase loan includes both a combined construction/permanent
loan or line of credit, and the separate permanent financing that replaces a
construction-only loan or line of credit for the same borrower at a later time.
A home purchase loan does not include a construction-only loan or line of
credit that is designed to be replaced by separate permanent financing extended
by any financial institution to the same borrower at a later time or that is
extended to a person exclusively to construct a dwelling for sale, which are
excluded from Regulation C as temporary financing under § 1003.3(c)(3) Comment
3, 1003.2(j), https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/Interp-2/#2-j-Interp-3
Question: I have a HMDA question about
construction loans. Our construction loans are 360 months plus 9 months
interest. They are construction to perm. The first 9 months are interest only
and then the 10th month includes principal &interest. Would we report this
on HMDA as an interest-only loan?
Answer: If the loan is a single
transaction--a construction-to-perm loan (one closing)--our interpretation is
that you would report it as having an interest-only feature. If this was
two transactions, a construction-to-perm loan with two closings, then you would
only report on the perm portion of the loan.
The requirements of this part do
not apply to: Temporary Financing...
12 CFR § 1003.3(c)(3) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/3/#c-3
A loan or line of credit is
considered temporary financing and excluded under § 1003.3(c)(3) if the loan or
line of credit is designed to be replaced by separate permanent financing
extended by any financial institution to the same borrower at a later time.
Commentary to 12 CFR §
Whether the contractual terms
include or would have included any of the following: (ii) Interest-only
payments as defined in Regulation Z, 12 CFR 1026.18(s)(7)(iv);
12 CFR § 1003.4(a)(27) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/4/#a-27
The term ‘interest-only’ means
that, under the terms of the legal obligation, one or more of the periodic
payments may be applied solely to accrued interest and not to loan principal;
an ‘interest-only loan’ is a loan that permits interest-only payments.
12 CFR § 1026.18(s)(7)(iv) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1026/18/#s-7-iv
Question: Do loans made to executive officers
have to be preapproved by the board?
Answer: No, unless the general requirement
to get preapproval applies (which generally includes extensions over $500,000),
the loan must be reported to the board but does not require preapproval. This
is because the general prohibitions on insiders (§215.4), including the
preapproval provision, and the more specific executive officer provisions (§
215.5) are related, yet distinct.
What this means is that the
executive officer may very well need to gain preapproval from the board, but
not automatically just because she or he is an executive officer. This being
said, the executive officer will need to report the extension to the board in
(b) Prior approval. (1) No
member bank may extend credit (which term includes granting a line of credit)
to any insider of the bank or insider of its affiliates in an amount that, when
aggregated with the amount of all other extensions of credit to that person and
to all related interests of that person, exceeds the higher of $25,000 or 5
percent of the member bank's unimpaired capital and unimpaired surplus, unless:
(i) The extension of credit has been approved in advance by a majority of the
entire board of directors of that bank; and (ii) The interested party has
abstained from participating directly or indirectly in the voting.
12 CFR § 215.4(b)(1):
(d) Any extension of credit by a
member bank to any of its executive officers shall be:
(1) Promptly reported to the member
bank's board of directors;
12 CFR § 215.5(d)(1): https://www.ecfr.gov/cgi-bin/text-idx?SID=e05fffd3223a689ff17a3e90755f0aa2&mc=true&node=se12.2.215_15&rgn=div8
Question: If we
collect personal income from a Guarantor of a Small Business Loan, should we
include this loan on our CRA Report and indicate it as a small business loans
with gross revenue of less than $1 million if the personal income is under that
Answer: No--the guarantor's personal income
should not factor into whether the loan qualifies as a small business loan. The
guarantor's income does not affect the gross revenues of the business.
SECTION __.42(a)(4) – 1: When
indicating whether a small business borrower had gross annual revenues of $1
million or less, upon what revenues should an institution rely?
A1. Generally, an institution
should rely on the revenues that it considered in making its credit decision.
For example, in the case of affiliated businesses, such as a parent corporation
and its subsidiary, if the institution considered the revenues of the entity’s
parent or a subsidiary corporation of the parent as well, then the institution
would aggregate the revenues of both corporations to determine whether the
revenues are $1 million or less. Alternatively, if the institution considered
the revenues of only the entity to which the loan is actually extended, the
institution should rely solely upon whether gross annual revenues are above or
below $1 million for that entity. However, if the institution considered and
relied on revenues or income of a cosigner or guarantor that is not an
affiliate of the borrower, such as a sole proprietor, the institution should
not adjust the borrower’s revenues for reporting purposes.
Question: Our bank is acquiring another bank,
and once the acquisition is complete, we are going to change our name to the
acquired’s name. The only thing changing from a servicing perspective is
the name and address of the bank. Based on this information, are we still
required to send out a Notice of Servicing Transfer? Also, should the
other institution be sending out a Notice of Servicing Transfer as well?
Answer: Yes, the notice would generally be
required of both the transferee and transferor servicer as set out here:
(i) In general. Except as
provided in paragraphs (b)(3)(ii) and (iii) of this section, the transferor
servicer shall provide the notice of transfer to the borrower not less than 15
days before the effective date of the transfer of the servicing of the mortgage
loan. The transferee servicer shall provide the notice of transfer to the
borrower not more than 15 days after the effective date of the transfer. The
transferor and transferee servicers may provide a single notice, in which case
the notice shall be provided not less than 15 days before the effective date of
the transfer of the servicing of the mortgage loan.
Although a single notice on behalf
of both could be provided, it is best practice and would be required of your
institution anyway since it is the one acquiring and changing names. It also
would not be exempt, unfortunately, since the payee name and address are
(2) Certain transfers excluded.
(i) The following transfers are
not assignments, sales, or transfers of mortgage loan servicing for purposes of
this section if there is no change in the payee, address to which payment must
be delivered, account number, or amount of payment due:
(A) A transfer between
(B) A transfer that results from
mergers or acquisitions of servicers or subservicers;
(C) A transfer that occurs
between master servicers without changing the subservicer;
Question: We have some confusion in regards
to using a Closing Disclosure to reset the tolerance on a “0” tolerance item
(origination charge) if there is a bona fide Change in Circumstance. On
November 8, 2018, the customer requests an increase in the loan amount to
$115,000, which is approved since the appraisal would allow for additional
funds. The initial Closing Disclosure had not been delivered before this
requested Change in Circumstance. The processor prepares an initial Closing
Disclosure using a loan amount of $115,000 and shows the increased origination
charge and a closing date of November 19, 2018. This was given to the borrower
in person. My question is, since there was adequate time before the closing
date of November 19, 2018, should we have not issued a new Loan Estimate on
November 8, 2018 showing the increased loan amount and origination charge since
the CD did not have to go out on November 8, 2018?
Answer: Under the recent "black
hole" amendments, the bank would be allowed to "reset" these on
the CD rather than the LE. Note, however, that it still has to be given within
three business days of the changed circumstance and that may or may not have
been the case from what you described above, as set out here:
…The creditor must provide the
consumer with the Closing Disclosure reflecting the revised estimate at or
before consummation and within three business days of receiving information
sufficient to establish that the changed circumstance or other triggering event
Question: We have a customer that is leaving
for boot camp for the Air Force. Am I correct in stating that boot camp is not
Answer: Boot camp is included in active
duty. "Military Service" is defined under SCRA as period of active
duty status. For members of the regular Armed Forces, active duty begins the
day they leave civilian life; for them, active duty is not synonymous with
deployment. For a member of a reserve component, the protections the SCRA
offers begin when a member of the Reserves or National Guard receives
mobilization orders. It is initiated upon receipt of mobilization orders in
order to give the soldier time to put his or her affairs in order.
There may be several active duty
periods during a member of the Reserves or National Guard’s career, including
the initial active duty for training ("boot camp") and subsequent
call-ups for service, whether or not the Servicemember volunteered for active
duty is immaterial. Finally, military service also includes any period during
which a Servicemember is absent from duty because of sickness, wounds, leave or
other lawful causes.
Our Lending to Servicemembers Policy
has great information regarding both the SCRA and MLA: https://www.compliancealliance.com/find-a-tool/tool/lending-to-service-members-policy
The term “active duty” means
full-time duty in the active military service of the United States. Such term
includes full-time training duty, annual training duty, and attendance, while
in the active military service, at a school designated as a service school by
law or by the Secretary of the military department concerned. 10 USC 101(d)(1) http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title32-section101&num=0&edition=prelim
current practice on residential balloon mortgages is to extend the maturity
date prior to the balloon period if the customer requests it prior to the
balloon and the borrower meets certain conditions. This is completed with a
change in terms document leaving the current amortization period the same. The
examiners have reviewed the process and are ok with this. We have a customer
that has approached the bank and would like to extend the maturity but would
like to shorten the amortization. She currently has 13 years left, but wants
the bank to shorten it to 12. I guess my concern is, do we now have to treat it
as a new request because it is a change that is increasing the monthly burden,
not decreasing it.
Answer: So the rules on whether a
"modification" would be considered a "refinancing" for Reg.
Z purposes can be found in 1026.20 here: https://www.consumerfinance.gov/eregulations/1026-20/2016-14782_20160627#1026-20
Generally speaking, if there's
satisfaction and replacement, or if the bank changes the rate based on a new variable
rate feature, it will be considered a refinance which would require new
disclosures. And although the rule doesn't specifically say this, we also
interpret that it's best practice to provide new disclosures for any increase
in credit, or if the prior obligation has already matured. So if any of these
are occurring, that's when a new set of disclosures should be provided--but
from what you describe, it doesn't sound like any of these are happening here.
Question: With the lapse in
funding for the NFIP, is it true that no new policies can be written?
Answer: On December 28, 2018
FEMA announced that it will resume the sale of new insurance policies and the
renewal of expiring policies.
This press release
rescinds initial guidance that was issued on December 26, 2018 to suspend sales
operations as a result of the current lapse in annual appropriations. The
National Flood Insurance Program has been reauthorized by congress until May
The guidance is
located here: https://www.fema.gov/news-release/2018/12/28/fema-resumes-selling-flood-insurance-policies-during-appropriations-lapse