Article By: Ben Giumarra, Spillane Consulting Associates, Inc.

Let’s build off of last week’s newsletter and discuss the significance of identifying a loan as business-purpose.

So last week we discussed how the new HMDA rules require us to report whether every single loan is “business-purpose” (thus exempt from Regulation Z) or “consumer-purpose.” This is one of a couple of ways for a loan to be exempt from Reg Z.

Exemptions for Business-Purpose Loans

I wanted to provide a convenient list of things that are reported differently when a loan is exempt from Reg Z.  I’m imagining last week’s newsletter as Section 1 in your Commercial HMDA procedures and today’s newsletter can be Section 2. 

Here goes! The following items are not required to be reported on HMDA LAR for loans exempt from Regulation Z (whether they are commercial loans, or for another reason). 

Rate Spread

This is the difference between the covered loan’s annual percentage rate and the average prime offer rate for a comparable transaction as of the date the interest rate is set. This does not apply for loans exempt from Reg. Z. Citation: 1003.4(a)(12).

HOEPA Status

New HMDA rules require us to report whether the loan is a high-cost mortgage under HOEPA rule 1026.32. But this does NOT apply to loans exempt from Reg. Z. Citation: 1003.4(a)(13).

Borrower-Paid Loan Costs

For all other loans, we’ll have to report the total of all itemized amounts that are designated borrower-paid at or before closing. Another bullet dodged!  Citation: 1003.4(a)(18). 

Discount Points

These are the points paid to the creditor to reduce the interest rate, expressed in dollars. Calculating them for HMDA (at least in the way regulations require us) will be a bear for residential loans. Yet another thing avoided by commercial!  Citation: 1003.4(a)(19). 

Lender Credits

You guessed it. Citation: 1003.4(a)(2). 

Prepayment Penalty

Expressed in months. But not expressed at all if the loan is exempt from Reg. Z. Citation: 1003.4(a)(22). 

Automated Underwriting System

This is the new HMDA requirement to report the AUS used to underwrite a loan. Technically, it applies to all HMDA-reportable loans, even on commercial loans. But if, as a practical matter, you manually underwrite commercial loans, then this will be another field to input as “not applicable.” Citation: 1003.4(a)(35). 

NMLSR Identifier

This is also technically required for all loans. But if your commercial originators don’t have NMLS identfiers, then this will be another HMDA item that should be added to this list of exemptions. Citation: 1003.4(a)(34). 

Total Loan Costs      **Trick Question (NOT exempt)

Commercial loans are not actually exempt from the requirement to report the total amount of loan costs. And yes- this is actually the total amount of loan costs as Reg. Z would require it to be calculated – even for loans exempt from Reg. Z.  This is a trick question because the rule has two sections: The first says this is exempt. But the second section adds it back in for all loans except loans that are both exempt from Reg. Z and were purchased from another institution. So I predict a good number of people miss that nuance when pouring over the thousands of pages of new HMDA regulations. Citation: 1003.4(a)(17). 

In Other News

• Not planning to attend SCA’s free technology lunch & learn (2nd annual) on October 5th in Canton, MA? Are you crazy!! Click hereor call Bill Dolan @ 781-356-2772 for more information.

• The NFL and Patriots being sued by Aaron Hernandez’s family – somehow linking them to his brain damage and thus his murdering people? Hate to go all “Get off my lawn” on you, but this lawyer should be disbarred for signing his name on the paperwork to file this lawsuit. I’m sorry – I’m sure CTE is a real problem, and I have no opinion on the NFL’s responsibility for that brain damage. But there’s nothing anyone can say to convince me they should be legally responsible for the people Hernandez murdered. That a lawyer could bring such an action without fear of any negative consequences is incredible to me.  What happened to self-regulation pushing legal ethics to the highest standard?  

On My Mind …

Do you have a colleague that is “highly sensitive” (as opposed to “hyper-sensitive”, which this is commonly confused with)? Do you know what that means?  

“Hyper-Sensitive”

• Hurt feelings easy

• “Plain old emotional fragility”

“Highly Sensitive Person”

• Nothing to do with feelings

• Can actually have a very thick skin

• Being more sensitive to environmental stimuli than others

• Can be light, sound, movement, etc. (or multiple or just one – can be sensitive to one thing but not others)

Since we love acronyms, let’s call them “HSPs” – these are people who are especially sensitive to stimuli that many people wouldn’t even notice. Maybe they’re bothered by overhead lighting. Maybe a phone ringing disrupts them more than someone else? Maybe they go on a crusade to have deodorant included as an employment benefit (and maybe job requirement for nearby colleagues). Maybe they struggle to be productive unless they can set their physical workplace up in JUST THE RIGHT manner.

Research shows that 15-20% of our population could fall into this category. And that a larger number than you’d think are extroverts. 

Coming from someone who spends as much time as possible in a dim office with noise-canceling headphones, it was interesting to discover that there is actually a psychological explanation behind these inclinations.

“If you don’t like what you have become, it is because of the thousands of small decisions that you have made over the course of the years. If you like what you have become and are becoming, it is because you have made several hundred thousand seemingly small, moment-by-moment decisions in a very wise manner. You are the sum of your life’s decisions.”  – James Garlow

Thanks so much for reading our weekly newsletters. We’re not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we’re always going to be trustworthy. Your calls and e-mails are very helpful – please keep contributing.

**These are our opinions. We’re not authorized, or willing, to express those of others.**

Thank you to Ben Giumarra, Spillane Consulting Associates, Inc., a member of our Education Committee, who with the support of other experts at SCA have put together this newsletter.