A: Assuming the rentals are owned free and clear, then this would be a “home equity loan.” A “construction loan” must be for the purpose of the initial construction of a dwelling and be secured by that dwelling. Since the bank will not hold a mortgage in the new residence, this would be a “home equity loan” (since it also is not a “purchase” or a “refinance”). RESPA. Q: We have a loan that is delinquent and has a surplus in its related escrow account. This account just went through the annual escrow account analysis and has a sizable surplus. Can the bank apply the surplus to the delinquent loan? A: No, the bank may not. If the borrower is current, the surplus (> $50) must be refunded to the borrower. If the borrower is not current at the time the surplus is determined, the surplus may be retained in the escrow account. No provision is made to allow the lender to take the surplus to satisfy delinquent amounts, late fees or similar loan charges. CRA/HMDA. Q: We are an HMDA reporter and eligible for the partial exemption. I am thinking of switching our loan software to support the exempt fields. What considerations do I need to be aware of for CRA reporting if I make these changes? Currently, we are a small intermediate reporter for CRA. A: There is probably no real CRA impact in taking advantage of the partial exemption. Looking over the exempt data points, there do not seem to be any that would affect the bank’s chances of a CRA “satisfactory.” Flood Insurance. Q: We have a property securing a loan that was not in a flood zone when the loan was originated, but the map has since changed, and the property is now in a flood zone. Since this happened after the loan was originated, does the bank have to escrow for flood insurance? A: This is not one of the “triggering events” — making, increasing, renewing or extending (MIRE) — a loan, so starting escrow of flood premiums is not mandated. However, remapping is one of those situations in which the lender may have the right (depending on their loan documents) but not the obligation (by regulation) to escrow flood insurance premiums. It becomes a bank decision about whether to protect its security property. SAFE Act. Q: Are bank employees who are “mortgage loan originators” (MLOs) with NMLS numbers required to take continuing education training each year, as required for state-licensed MLOs? A: No, MLOs who are registered on the federal registry because they serve as MLOs for federally insured financial institutions are not subject to any continuing education requirements to maintain their NMLS numbers and registration status. SCRA. Q: We have an applicant for a vehicle loan who is a member of the military and is on active-duty status. Are we allowed to charge our going vehicle loan rate, even if it is in excess of six percent (6%)? A: Yes, since your borrower is already on active-duty status, they are not covered by the Servicemembers Civil Relief Act (SCRA) interest rate limit. That is a protection that applies only to pre-active-duty debt. Young & Associates provides banks and thrifts with support for their compliance programs, independent reviews and in‑bank training, as well as a full menu of management consulting, loan review, IT consulting and policy systems. Community Banker 23
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