Summer is in full swing and it comes with the HEAT - that heat has not bypassed compliance. Compliance topics such as Flood, TRID, MLA and HMDA are all reminders that the heat is on for compliance staff. The Temenos Compliance Advisory Team wants to help you cool off with a bit of good ole' South Louisiana Lagniappe by sharing some of our answers to customer questions addressing those topics. So grab a glass of iced tea, your beach umbrella, a hand fan - don't forget your sunglasses - and settle down by the pool to read through the following Q&As.
Q: Will a loan secured by an Airbnb be reported as a HMDA loan?
A: It would depend on the use of the property. If the property will be utilized primarily as a second home and will occasionally be rented out, then it would meet the definition of a dwelling and be HMDA reportable. Alternatively, if the property will be rented through a website like Airbnb, then it would not be HMDA reportable as it would be considered a "transitory" residence. Renters of an Airbnb typically have a primary residence elsewhere and rent the property on a temporary basis, which makes the property transitory. A transitory residence is excluded from the definition of a dwelling; therefore, a property rented solely through Airbnb would not be HMDA reportable.
Q: Can you explain when contents coverage is required?
A: If an institution takes both the building and the contents within the building for collateral, and that building is located within a specially designated flood hazard area, then flood insurance will be required for both the building and the contents. Determining how much coverage to allocate to the contents is a judgment call on the institution's part. Once you determine how much total coverage is required, then you will need to make a determination on how much to allocate to each, taking into consideration the value of the collateral. When making this determination, remember that you cannot require the borrower to obtain more insurance than the value of the collateral.
Private Flood Insurance
Q: Can an institution charge a fee for the review of the private flood policy?
A: While the final rule does not expressly prohibit this, you must look at this from a fair lending perspective. In our experience, lenders do not charge a fee if they are presented with an NFIP policy, nor do they charge a fee when reviewing any other type of insurance policies, such as hazard insurance. We would have concerns that charging a fee that only applies to private flood insurance could cause some fair lending issues, and at the very least will cause the need to monitor for disparate impact based on this review fee. You'll also want to be sure you verify that the fee is allowed under your state law.
Q: The loan purpose was not correctly communicated to the lender and the LE was issued for a refinancing instead of a purchase. After obtaining the title work, we determined this was a purchase. Is this considered a valid change in circumstance that requires a revised LE?
A: The only time you are required to document a valid change in circumstance and issue a revised LE within three days of learning of the change is when you are locking the rate or attempting to increase fees beyond their previously disclosed tolerances. If you aren't doing one of those two things, then you simply update any subsequently issued disclosures with any new information you receive. A change in loan purpose would not trigger a revised LE to be issued within three days, unless that change resulted in fees being increased beyond their tolerance.
If no fee increased based on the loan purpose change, then simply make the change on any subsequently issued disclosure to reflect the changed loan purpose.
Q: Would I need to do a search in the Military Lending Act page for guarantors that have a U.S. social security number for a U.S. corporation?
A: If the corporation is the borrower, this is exempt from the MLA as business purpose credit. But even if it were a consumer loan, you do not need to check guarantors because they are not primarily liable.
Thank you for joining us this week. I hope these Q&A's help cool your concerns on the latest compliance "hot" topics.