ABA Regulatory and Compliance Inbox: Can We Base Mortgage Credit Decisions on the Assets of the Borrower?

By Leslie Callaway, CRCM, CAFP; Mark Kruhm, CRCM, CAFP; and Rhonda Castaneda, CRCM

Q: My bank made a home loan topic to reporting under the Home Mortgage Disclosure Act. Regulation C (12 CFR 1003), which executes HMDA, needs that it report the earnings trusted in making the credit choice. What would my bank report if rather of earnings it based the credit choice on the properties of the customer?

A: Per Comment 4 to §4(a)(10)(iii), a bank “does not include as income amounts considered in making a credit decision based on factors that [it]relies on in addition to income, such as amounts derived from underwriting calculations of the potential annuitization or depletion of an applicant’s remaining assets.” Therefore, presuming the bank did not count on any other earnings, it would report “NA.”

Q: My bank’s core service provider notified us it would no longer produce voucher brochures for property home loan, as allowed by §1026.41(e)(3) of Regulation Z. Instead of sending out regular declarations monthly, as recommended, might the bank print on perforated paper a slip that customers might return with their payment? If so, might the bank send out these on a quarterly or semiannual basis, or must it offer slips covering a whole year?

A: Yes, the bank might offer such slips for customers to return with their payment. Comment 2 to §1026.41(e)(3) states: “A coupon book is a booklet provided to the consumer with a page for each billing cycle during a set period of time (often covering one year). These pages are designed to be torn off and returned to the servicer with a payment for each billing cycle.” It would not appear to matter whether the customer tears pages from a “booklet” (i.e., pages/slips stacked one on top of another) or a single sheet of paper. Additionally, while the policy shows that voucher brochures frequently cover one year it does not need it.

Q: A charge card client wants to update to a various charge card item (for example, from a standard card to a gold card). May the cardholder keep the exact same charge card number? If so, may the bank offer a change-in-terms notification or would it need brand-new disclosures under Regulation Z?

A: There is no legal factor that the account number should alter. But whether it alters might be a consider what notifications should be supplied. Comment 6.i to §1026.5(b)(1)(i) mentions:

When a card company replaces or changes an existing charge card account with another charge card account, the card companies should either offer notification of the regards to the brand-new account . . . or notification of the modifications in the regards to the existing account. . . . Whether an alternative or replacement lead to the opening of a brand-new account or a modification in the regards to an existing account . . . is figured out because of all the pertinent realities and scenarios.

Comment 6.ii.B to that area notes realities and scenarios to think about in the decision, amongst them offering a brand-new account number. See that remark for extra realities and scenarios to think about. There might be functional or other problems to think about, such as whether a card type needs a different bank recognition number or “BIN.”

Q: My bank is sending by mail letters to its charge card clients with excellent payment histories and the “ability to repay,” notifying them that the bank is increasing their credit line. Because the clients did not ask for a boost, should the letter offer the client the alternative of pulling out or declining the boost? 

A: Nothing in Regulation Z restricts card companies from instantly increasing a customer’s credit line so long as the client fulfills the policy’s “ability to repay” requirement. While there might be advantages to automated credit line boosts, some customers might not desire a greater limitation, to prevent over-spending, for instance. Thus, it makes good sense for the bank to honor a demand not to increase the limitation—or to reduce the limitation. However, there is no commitment to offer the alternative in composing to the customer.

Q: Does Regulation B need banks to have a secondary evaluation prior to rejecting a loan? If not needed, exist any “best practices” the bank should think about?

A: Regulation B does not need a secondary evaluation of unfavorable credit choices. In reality, some unfavorable choices are created without any human intervention. That is not to state a bank might not set up such a procedure must the bank consider it proper, and numerous banks do. Whether there is an evaluation might depend upon the loan type.

In addition, some banks evaluate last unfavorable choices and unfavorable action notifications for functions of examining bank compliance with Regulation B’s technical and substantive requirements (such as reasonable financing).

The technical evaluation guarantees the notification was finished properly. The reasonable financing evaluation or file contrast examines whether the loan may have been made with specific changes or whether another lending institution may have made the loan utilizing various unbiased requirements. The objective of this evaluation is to decrease the danger of diverse treatment.

Answers are supplied by ABA Regulatory Policy and Compliance employee Leslie T. Callaway, CRCM, CAFP, senior director, compliance outreach and advancement; Mark Kruhm, CRCM, CAFP, senior compliance expert; and Rhonda Castaneda, CRCM, senior compliance expert. Answers do not offer, nor are they replacements for, expert legal recommendations. Answers are existing as September 2021.


A news media journalist always on the go, I've been published in major publications including VICE, The Atlantic, and TIME.

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