ABA Banking Journal - February 2008 - (Page 59)

MIB X AL O Investment homes secured by borrower home: HMDA or not? We are making a new loan to a consumer to purchase rental houses. This loan will be set up as revolving line of credit, secured by the customer’s principal dwelling. Is this HMDA-reportable? Home equity lines of credit, as defined by Regulation Z, may be reported at the institution’s option. (You can find more about this in the regulators’ manual, HMDA: A Guide to Getting It Right). Depending on how you structure the credit line, however, subsequent home purchases may or may not be HMDAreportable. For example, let’s say you approve the customer for a $500,000 line. The customer then uses the money to purchase and re-sell property. If your bank does not report HELOCs, then no HMDA reporting is required, because your bank does not report lines of credit and you are not placing a lien on the properties the borrower is purchasing. However, in some cases a financial institution structures these types of credit requests as a “guidance line,” whereby a business or individual is pre-approved to borrow up to a certain limit, pending presentation of satisfactory collateral in the subject properties. The borrower requests a “draw” to purchase a property, and secures each draw with the property being purchased, thus creating a loan acting as a sub-note to the “guidance line” that becomes available again when the sub-note is paid off. In other words, you need to determine if the loan you are asking about is this truly a revolving line of credit or whether each sub-note is creating a separate loan. If your situation is the latter, those loans could be reportable. Q. A. names against OFAC’s list of targets upon account opening or can it wait for 24 hours to receive a report from its software vendor on whether or not there is a hit?” To this, OFAC responded: “There is no legal or regulatory requirement to use software or to scan. There is a requirement, however, not to violate the law by doing business with a target or failing to block property. OFAC realizes that financial institutions use software that does not always provide an instantaneous response and may require some analysis to determine if a customer is indeed an SDN [Specially Designated National]. The important thing is not to conclude transactions before the analysis is completed.” http://www.treasury.gov/offices/enforcement/ofac/faq/answer.shtml#24 Can regs bar use of negative credit history? We have a borrower with a low credit score and previous bankruptcy to whom we made a small car loan earlier this year. He is currently past due. Recently we received the same borrower’s application for a refinance of his personal residence. The bank wants to deny this application because of the borrower’s credit score and bankruptcy. He actually had this score and the bankruptcy at the time of the first loan, but we made it anyway because of his relationship with the bank and because the amount was small. The loan officer believes that he cannot use any adverse credit knowledge that the bank had at the time of the first loan for a denial for any subsequent loans, because the bank made the first loan with that same knowledge. Is that true? This is more of a loan policy decision than a regulatory one. Your bank’s loan policy should address its underwriting guidelines and when an exception is permitted. The bank apparently made an exception when making the first loan, and now is presented with a second request. Your experience with this borrower tells you that another loan is not in the best interest of the bank. According to Regulation B, §202.2(f), “application” means an oral or written request for an extension of credit that is made in accord with procedures used by a creditor for the type of credit requested. Your loan policy should state what your bank considers an application to be and what your underwriting guidelines require. Even though you made a loan for the customer previously, this new application allows you to make a new evaluation of the applicant’s credit, or simply deny the request based on what you already know. Generally speaking, relying on old information to approve or deny a new loan application is not a “best practice.” However, your evaluation of the customer’s current creditworthiness need not rely on the customer’s credit report, but may rely on your own experience with the customer. Obviously, the customer’s Q. When must OFAC checks be done? We have been cited by our examiner for not performing Office of Foreign Asset Controls checks on account signers prior to opening the account. Our system screens new customers and accounts against the OFAC list overnight, and if we get any “hits,” we act accordingly, and do not allow access to the funds until we make a determination about whether or not the “hit” is legitimate. We are being told that this is not an acceptable practice. On Sept. 10, 2002, OFAC answered a question on this exact topic: “Does a financial institution need to scan A. Q. A. Leslie Callaway, CRCM, contributing editor, works with ABA experts to answer member questions. Submit questions to lcallawa@aba.com ABA BANKING JOURNAL/FEBRUARY 2008 59 http://www.ffiec.gov/Hmda/guide.htm http://www.ffiec.gov/Hmda/guide.htm http://www.treasury.gov/offices/enforcement/ofac/faq/answer.shtml#24 http://www.treasury.gov/offices/enforcement/ofac/faq/answer.shtml#24

Table of Contents Feed for the Digital Edition of ABA Banking Journal - February 2008

ABA Banking Journal - February 2008 Contents On ABABJ.COM: Have You Visited Our Brand-New Website? Editor's Column "That's Edutainment" Snapshot: Tier 1 Ratios Stable so Far 100th Anniversary: Then and Now ABA Resources ABA Chairman's Position Don't Despair Pass the Aspirin Cover Story: Socially Responsible Banking Profitably - Incoming America's Community Bankers Council Chairwoman, Dorothy Bridges Demonstrates the Way A True "Rags-to-Banker" Story Retail Banking: On the Money Hunt Community Bank Management: The Ugly Truth About Board Relations Does Core Really Matter? Security 2.0: Not Just a New Kettle of Phish A Personal Case of Mal-Serendipity DOD Credit Regs Demand Attention Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - February 2008

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