Caution: Investment Property Loans Not Exempt from All Regulations.

Just a word of caution, you may be able to classify a loan as "exempt" for some purposes, but make sure it's for all!

As we've discussed before in this newsletter, so-called "business-purpose" loans (most prolifically non-owner occupied investment properties) are exempt from several regulations that we often worry about. Ability-to-Repay. LO Compensation. TRID.

Let's put aside the problem that some secondary market investors require compliance with these regulations as an overlay. Let's also put aside the fact that some lenders find it easier just to process these loans the same without regard to a possible exemption.

And, therefore, let's assume you have a loan that is definitely "business- purpose" and exempt from those major regulations. Are you in the free and clear?

Appraisal Rules Still Apply Under ECOA

No, you're not entirely out of the woods.

ECOA requires lenders to provide an Appraisal Disclosure that essentially says that the borrower has a right to receive any appraisal or written valuation used with the loan. Sec. 1002.14.

And that's true even with business purpose loans. There's no exemption under this particular ECOA rule for business purpose loans.

So, for example, even on an investment property loan, you still must:

1. Provide a copy of any appraisal or written valuation

2. Disclose to the borrower their right to receive said appraisal/valuation

Appraisal or Written Valuation

Whether it be formal appraisal, broker price opinion, AVM (automated valuation model), or a screenshot of Zillow with some notes scribbled on it - a copy must be provided to the borrower if developed in connection with the loan transaction. We call it the ECOA Appraisal Notice, but it's broader than that. (Note that it does not include publicly available valuations, such as tax assessments).

Disclosure of Right to Receive (even if none exist)

Do you still need a disclosure if no appraisal or valuation is developed? Yes. So you're not off the hook if there's no such document created. A disclosure is still needed telling the borrower about their right to receive any one, hypothetically speaking, of course.

And Note: I'm sure you're aware that the borrower can waive some rights under this Rule. Just be careful to note that the borrower can only waive their right to receive the appraisal/valuation three days before closing (not that this matters too much now that TRID is effective)--the borrower cannot waive their right to receive this disclosure.

In Other News:

• Some upcoming events:

• Tomorrow the 12th. I'll be giving a presentation for the SNECG in Middleboro. Sign up here if you want to come talk TRID and hear what we think best practices have developed since 10/3.

• Are you located instead in the Rhode Island area? Well, you're in luck! Sign up here for RIMBA's annual dinner on November 18th where I've been asked to give a presentation on how mortgage lenders can succeed despite (or, in my opinion, because of) regulatory reform.

• Maybe you're more of a North Shore kind of person - if so, I'm very pleased to be giving a presentation along with CATIC's very own Rich Hogan for the NSCCA on November 19th. We've cherry-picked some of our favorite issues that have arisen since TRID took effect and will be sharing our thoughts on them. Sign up here for the dinner meeting.

• Did you see this prison in Indonesia plans to replace prison guards with saltwater crocodiles? I wonder where the CFPB gets its inspiration for new requirements ... Whenever someone asks me to explain the penalties under TRID, I should just send them this link.

• Did you see the story out of Michigan where the owner fired the coaching staff just to have the entire team (including more than a handful of players with realistic NHL aspirations) walk out with them? The coaches were rehired and given extensions. All for one, right?

How important is to understand your neighbors, your colleagues? Of course, when different members of an organization understand the job functions (and challenges facing) their colleagues, there are many benefits. Have a closer taking an unexpected leave? It'd be nice if a processor understood the closing process and could fill that void, at least temporarily. But I think it goes deeper than that. Peter F. Drucker writes in his book Managing Oneself that:

"Whenever I, or any other consultant, start to work with an organization, the first thing I hear about are all the personality conflicts. Many of these arise from the fact that people do not know what other people are doing or how they do their work, or what contribution the other people are concentrating on and what results they expect. And the reason they do not know is that they have not asked and therefore have not been told."

"Good people never think they've reached the top of their game. But they're dying to get there!"

- Jack Welch

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.**

#InvestmentProperty #ECOA #RegulatoryGuidlines