Source: https://www.rskcompliance.com/2015/11/
Timestamp: 2019-04-24 14:39:15+00:00

Document:
The Bank asks whether it is required under the new TRID rules to disclose the cost of the borrower’s attorney in the Loan Estimate. If such is included, how would it best be handled?
If it is customary for consumers in the jurisdiction where the property is located to be represented by an attorney, the Bank should treat the fee of the consumer’s attorney as being in effect a Bank-required charge. If the Bank wishes to have the benefit of the 10 percent cumulative tolerance for charges by the service providers that it requires, it must allow the consumer to shop for his/her attorney. In such case, the estimate of the attorney’s fee would appear in the Loan Estimate in “Services You Can Shop For,” and a written list of service providers would be given to the consumer at the time the Loan Estimate is provided. In choosing an attorney for the list, the Bank would consider factors such as the attorney’s experience in handling residential real estate transactions. If the consumer chooses an attorney on the list, the attorney’s fee would fall within the 10 percent cumulative tolerance for such charges. If the consumer chooses an attorney not on the list, the fee of this attorney would not be subject to a tolerance limitation.
In closed-end mortgage transactions other than reverse mortgages, the Truth-in-Lending Real Estate Settlement and Procedures Act Integrated Disclosure (“TRID”) Rule requires a lender to provide the consumer with a Loan Estimate disclosing the fees and charges associated with a loan, including loan costs. Generally, “loan costs” are those costs paid by the consumer to the bank or third party providers of services the lender requires the consumer to obtain. Other costs include taxes, governmental recording fees, and other fees and charges associated with the real estate closing process. 12 CFR §1026.19(e)(3)(iii).
Lenders are responsible for ensuring that the figures stated in the Loan Estimate are made in good faith and consistent with the best information available. Such charges are considered to have been given in good faith if they do not exceed the prescribed tolerance for such charges. There is a 10 percent cumulative tolerance for charges paid to third parties, zero tolerance for such charges as the loan origination fee or transfer taxes, and charges for which no tolerance restriction applies. 12 CFR §1026.19(e)(3)(ii).
The general rule is that if the charge imposed on the consumer at closing exceeds the amount disclosed in the Loan Estimate by the tolerance factor allowed, it will not be deemed to have been made in good faith, regardless of the basis for the estimate. It will only be considered to have been made in good faith to the extent the lender charges the consumer no more than what was disclosed, together with the tolerance factor. §1026.19(e)(3)(i) & (ii).
A lender, however, can charge the consumer more than was disclosed on the Loan Estimate, or not disclosed at all, but only if the original estimate was based on the best information reasonably available to it. 12 CFR §1026.19(e)(3)(iii).
In this case, the Bank asks how the charges for a consumer’s attorney should be disclosed. We will assume that the consumer’s attorney is providing personal counsel to the consumer and is not the closing attorney, which would be considered a lender-required charge. Since the Bank would not have required the consumer to have obtained counsel, would this fall under one of the exceptions? If so, would it have to be disclosed only to the extent the Bank was aware at the time of the Loan Estimate that the consumer was going to obtain the services of his/her own legal counsel?
The answers to these questions turn upon the facts of the transaction. As per the official commentary, if the subject property is located in a jurisdiction where a consumer is customarily represented at closing by his/her own attorney, even though it is not a requirement, and the Bank fails to include a fee for the consumer’s attorney, or includes an unreasonably low estimate for such a fee, then the Bank’s failure or underestimation would not comply with the requirements of the TRID Rule. Official Interpretations, ¶1026.19(e)(3)(iii)-3.
This means that, if the customs of the jurisdiction where the property is located are such that a consumer would probably be represented by counsel, the Bank in making a loan in that jurisdiction will have, in effect, required the consumer to obtain counsel. While this creates an ambiguity with the wording of the regulation, the interpretation of that wording by the commentary is so clear that the prudent practice of the Bank in addressing it should be to treat the fee of the borrower’s attorney as a charge it requires, whenever this conforms to the customary usage of the jurisdiction in which the property is located.
State that the consumer may choose a different provider for the service. 12 CFR §§1026.19(e)(3)(ii) and (e)(1)(vi)(C).
In the event that the consumer chooses the attorney on the list to represent him, the attorney’s fee will be included in the charges subject to the 10 percent cumulative tolerance. If the consumer chooses an attorney who is not on the list, there is no tolerance limitation on the fee charged by this attorney. 12 CFR §§1026.19(e)(3)(iii); Official Interpretations, ¶1026.19(e)(2)(iii)-3.
The Bank has recently started purchasing loans that would be HMDA reportable if they originated with the Bank. Since these loans did not close in the Bank’s name and the Bank is not making the credit decision, does the Bank report them on the HMDA LAR?
The Bank is required to report data for all loans it purchased during the calendar year described in the HMDA LAR, following specific reporting requirements.
Purchased loans are reported for the purposes of the Home Mortgage Disclosure Act (“HMDA”). Regulation C, which gives effect to HMDA, requires an institution to report data in the HMDA Loan Application Register (“HMDA LAR”) for all loans it originated and purchased during the calendar year described in the report, though not for loans it declined to purchase. 12 CFR §1003.4(a)(1)(i); Staff Commentary, ¶4(a)(8)-3.
Property Location: Report the location by census tract in an MSA or Metropolitan Division where the institution has a home or branch office, even if the originating institution did not have a home or branch office in that MSA or Metropolitan Division and did not collect the property location information.
Amount of Loan: Enter the unpaid principal balance of the loan at the time of purchase.
Owner Occupancy: Enter code 1 unless the loan documents or application indicate that the property will not be owner-occupied as a principal residence.
The remaining HMDA LAR fields (i.e., Application or Loan Number, Loan Type, Property Type, Purpose, Action Taken Date, Property Location, Gross Annual Income, Type of Purchaser [if loan is sold to another entity in the same calendar year], and HOEPA Status) are completed with the appropriate information for the purchased loans.
As a result of a recent Regulation E audit, the Bank is changing its current practice of providing all business customers with Regulation E disclosures at account opening. Effective immediately, the Bank is no longer providing such disclosures and, as such, is no longer required to provide provisional credit in the event of a claim. The Bank’s question is whether it still needs to honor the requirements of Regulation E for those customers whose accounts were open prior to this change if they have a Regulation E claim.
Regulation E does not apply to business accounts, but if the Bank incorporated the disclosures into the account agreement, it may be contractually obligated to provide the Regulation E protections to existing business account holders. In such case, it would have to provide the advance notice required by the regulation in order to remove those protections.
Regulation E applies to the accounts of natural persons that are opened and maintained primarily for personal, family, or household purposes 12 CFR §1005.2(b)(1),(e). Therefore, a business account would not be covered by its requirements.
The problem is that even though Regulation E does not apply to business accounts, the Bank may be contractually obligated to provide the protections of the regulation to existing business account holders.
If the Regulation E disclosures indicate what is and is not covered — for example, if the disclosures state that such are applicable only to consumer accounts — then the Bank may not be obligated to continue providing Regulation E protections for existing business accounts. However, if the Bank has provided such protections in the past, it may have created an opportunity for an account holder to claim that the protections have been established through a course of dealing. In order to terminate such a course of dealing, the Bank would have to provide the account holder with written notice that such provisions no longer apply.
If there is no language in the Regulation E disclosures excluding business accounts, or if the account agreement includes the Regulation E disclosures among the terms and conditions of the business account, then disclosures of the regulation will be incorporated into the terms and conditions of the account agreement and can be enforced by the account holder.
The account agreement should allow the Bank to change its terms and conditions upon providing proper notice in advance. If the Regulation E protections are incorporated contractually in the account agreement, the advance notice will be that required by the regulation, which means that it must be given at least 21 days prior to the effective date of the change 12 CFR §1005.8(a).
For existing business accounts incorporating the Regulation E protections, such protections will continue until the terms of the account are changed.

References: §1026
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 §1003
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