Source: https://www.rskcompliance.com/2016/07/
Timestamp: 2019-04-24 13:48:06+00:00

Document:
The Bank imposes longer holds on check deposits totaling more than $5,000 to any account. For deposits to commercial accounts, the Bank wishes to increase the amount subject to the hold to $10,000. What does the Bank need to do regarding the customer disclosure? Does the section of Regulation CC pertaining to longer delays also apply to commercial accounts?
Under the large deposit exception of Regulation CC, a depository bank may extend hold schedules when deposits other than cash or electronic payments exceed $5,000 on any one day. An extended hold for a reasonable period may be applied to any amount in excess of $5,000. The regulation does not distinguish between consumer and commercial accounts, or between various amounts in excess of $5,000. A funds availability policy which imposed an extended hold on deposits of $10,000 or more to commercial deposits would be within the regulatory requirements.
Under the large deposit exception of Regulation CC, a depository bank may extend hold schedules when deposits other than cash or electronic payments exceed $5,000 on any one day. A hold may be applied to the amount in excess of $5,000. To apply the exception, the depository bank may aggregate deposits made to multiple accounts held by the same customer, even if the customer is not the sole owner of the account. 12 CFR §229.13(b).
If the depository bank invokes the large deposit exception, it can extend the time within which funds must be made available under the schedule for a reasonable period of time. A “reasonable period of time” is generally one business day for “on us” checks, five business days for local checks, and six business days for deposits in non-proprietary ATMs, in addition to the availability time period provided in the schedule. Under certain circumstances, however, an even longer period of time may be reasonable. In these cases, the burden is on the depositary bank to establish that the longer period is reasonable. Appendix E to Part 229 – Commentary, Section 229.13(h) – 1, 4.
Regulation CC does not distinguish between consumer and commercial transaction accounts, except as to the notice that must be provided when the depository bank extends the time that funds will be available for withdrawal on the basis of an exception. 12 CFR §229.13(g)(2).
In addition, the regulation does not distinguish between amounts in excess of $5,000. This means that if the Bank were to impose an extended hold on deposits of $10,000 or more, rather than $5,000 or more, it would be within the exception. Only if the Bank were proposing an extended hold on the basis of the large deposit exception for deposits less than $5,000 would it be in violation of the regulatory requirement.
The Bank’s funds availability policy presently requires an extended hold on deposits in excess of $5,000 to any account. A change from that requirement to an extended hold for deposits in excess of $5,000 to consumer accounts and $10,000 for deposits to commercial accounts would have the effect of expediting the availability of funds. In such case, the notice of a change in a depository bank’s funds availability policy can be disclosed to holders of consumer accounts no later than 30 days after implementation. 12 CFR §229.18(e).
There is no similar requirement pertaining to non-consumer accounts. As such, the Bank should refer to the agreement establishing these accounts, as to what is required in the way of notification.
How Soon can a Closing Disclosure be Provided After a Revised Loan Estimate?
Under the TRID Rules, if a revised Loan Estimate is issued on Thursday, July 7th, what is the earliest date that the Closing Disclosure can be provided?
The revised version of the Loan Estimate cannot be provided on or after the date on which the Closing Disclosure is provided. The revised version must also be provided at least four business days prior to consummation. If there are less than four business days prior to the scheduled date of consummation, the revised disclosures can be reflected in the Closing Disclosure, rather than in a revised Loan Estimate.
The TRID rules prohibit a creditor from providing a revised version of the Loan Estimate on or after the date on which the creditor provides the Closing Disclosure. The consumer must also receive a revised version of the Loan Estimate no later than four business days prior to consummation.
If the revised version of the Loan Estimate is not provided to the consumer in person, the consumer is considered to have received it three business days after the creditor delivers or mails it. If, however, there are less than four business days between the time the revised version of the Loan Estimate would be provided and the scheduled date of consummation, creditors will be in compliance with the disclosure requirements of the TRID rules if the revised disclosures are reflected in the Closing Disclosure. Official Interpretations, ¶1026.19(e)(4)(ii) – 1.
This means that if the Bank provides a revised Loan Estimate to the consumer in person on Thursday, July 7th, the Closing Disclosure can be provided on any day after July 7th. If the revised Loan Estimate is mailed on July 7th, the consumer will be deemed to have received it on Wednesday, July 11th. In that case, the Closing Disclosure can be provided on any day after July 11th.
Whether the Bank will want provide a revised Loan Estimate will be affected by the timing requirements related to the consummation of the loan. For example, if the revised Loan Estimate is given to the consumer in person on July 7th, the loan cannot close before Wednesday, July 11th, four business days after the revised version has been provided. If the closing has been scheduled for Tuesday, July 10th, the Bank would not provide a revised Loan Estimate, but would have the revised disclosures incorporated in the Closing Disclosure.
Note: The Closing Disclosure must be provided at least three business days prior to consummation. If the Closing Disclosure is subsequently revised, some revisions (i.e., the APR becomes inaccurate, the loan product changes, or a prepayment penalty is added) may require the closing to be re-scheduled, in order to accommodate the three business day period, but others will not. 12 CFR §1026.19(f)(1)(i).
Borrowers are applying to the Bank for a “construction loan” to purchase a two-family home, which they will renovate and keep as an investment property. They intend to apply for permanent financing after the 12 month construction period. It has not been decided yet if they will obtain permanent financing through the Bank or another institution. Would this be HMDA reportable?
For HMDA purposes, the loan is being used for the purchase and improvement of a dwelling. If it was HMDA-reportable, it would be reported as a home purchase loan. As it is temporary financing intended to be replaced by permanent financing, it would be HMDA-reportable only if the Bank also gave a commitment to provide the permanent financing.
The Bank’s question is not addressed directly by the Home Mortgage Disclosure Act (“HMDA”) or Regulation C. Breaking down the legal and regulatory requirements will allow for an acceptable answer, but where HMDA itself is not clear or unambiguous, the Bank must choose an approach, develop a rationale for the approach, and apply it consistently.
The Bank has classified the loan as a “construction loan,” but this alone does not determine whether or not such is HMDA-reportable. The question is whether a loan meets the definition of a home purchase loan, a home improvement loan, or a refinancing. Loans in these categories are HMDA-reportable. 12 CFR §1003.4(a).
A non-dwelling secured loan that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling on the real property on which it is located, and that is classified by the financial institution as a home improvement loan. 12 CFR §1003.2.
A house can be erected only once. From that point on, any work completed on it is in the nature of an improvement. An argument can be made that the renovation of a structure can be so extensive as to be less the improvement of an existing structure and more the construction of a new one. The Staff Commentary to Regulation C, however, does not address this aspect, so the more reasonable approach is to regard a loan such as the one in question as a home improvement loan rather than a construction loan.
The loan will also be used to purchase the property on which the dwelling was erected. Under Regulation C, a “home purchase loan” is a home secured by and made for the purpose of purchasing a dwelling. While a portion of the proceeds will be used to renovate the property, HMDA prescribes an order of priority to multiple-category loans. If a loan is a home purchase loan as well as a home improvement loan, a financial institution reports the loan as a home purchase loan. 12 CFR §1003.2; Staff Commentary, ¶1003.2 (home purchase loan) – 7.
Temporary financing (such as bridge or construction loans). 12 CFR §1003.4(d)(3).
Construction and bridge loans are illustrative, not exclusive examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because the term is short. FFIEC, HMDA Frequently Asked Questions.
Therefore, temporary financing is not HMDA-reportable, with the exception of when there is a commitment for permanent financing from the same lender. In the case of construction/permanent financing, the Staff Commentary states that this would be coded as a home purchase loan. Staff Commentary, ¶1003.2 (home purchase) – 2.
Neither the regulation nor its commentary address situations other than construction/permanent financing. Nevertheless, a commentator in the Federal Reserve Bank of Philadelphia’s “Consumer Compliance Outlook” (Second Quarter, 2011) was of the opinion that a temporary loan used for home improvement but with a documented take-out should be reported just as a construction/permanent loan would be; that is, as a home purchase loan.
Where does this leave us, then? The loan will be used for the purchase and renovation of a property. As the property is being renovated, that portion of the loan proceeds will be used for home improvement rather than construction. As the loan proceeds will also be used for the purchase of the property, however, such will be given priority under HMDA in determining the purpose of the loan. Because the financing is temporary and intended to be replaced with permanent financing, it would be reportable as a home purchase loan only if the Bank made a commitment for the permanent financing. If no such commitment is made, the loan will be considered temporary financing, which is not HMDA-reportable.

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