per diem interest - cmba · ∗what is per diem interest? ∗interest payment made by a borrower(s)...

Per Diem Interest COMPLYING WITH

CALIFORNIA FINANCIAL CODE § 50204(o) and CALIFORNIA CIVIL CODE § 2948.5

∗ What is per diem interest? ∗ Interest payment made by a borrower(s) on the money

loaned for the period prior to the borrower(s) otherwise paying interest by way of the promissory note.

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Per Diem Interest

∗ Financial Code section 50204, subdivision (o): A licensee may not do any of the following: (o) Commit an act in violation of Section 2948.5 of

the Civil Code. Evidence of compliance with Section 2948.5 may be evidenced by (1) a certification executed by the licensee, at no cost to the borrower, pursuant to Section 2015.5 of the Code of Civil Procedure, or other evidence in the loan file acceptable to the commissioner.

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California Per Diem Statutes

∗ Civil Code section 2948.5: (a) A borrower shall not be required to pay interest on a principal

obligation under a promissory note secured by a mortgage or deed of trust on real property improved with between one to four residential dwelling units for any period that meets any of the following requirements:

(1) Is more than one day prior to the date that the loan proceeds are disbursed from escrow.

(2) In the event of no escrow, if a request for recording is made in connection with the disbursement, is more than one day prior to the date the loan proceeds are disbursed to the borrower, to a third party on behalf of the borrower, or to the lender to satisfy an existing obligation of the borrower.

(3) In all other circumstances where there is no escrow and no request for recording, is prior to the date funds are disbursed to the borrower, to a third party on behalf of the borrower, or to the lender to satisfy an existing obligation of the borrower.

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California Per Diem Statutes

Civil Code section 2948.5 con’t: (b) Interest may commence to accrue on the business day immediately preceding the day of disbursement, for obligations described in paragraphs (1) and (2) of subdivision (a) if both of the following occur: (1) The borrower affirmatively requests, and the lender agrees, that the disbursement will occur on Monday, or a day immediately following a bank holiday. (2) The following information is disclosed to the borrower in writing: (A) the amount of additional per diem interest charged to facilitate disbursement on Monday or the day following a holiday, as the case may be, and (B) that it may be possible to avoid the additional per diem interest charge by disbursing the loan proceeds on a day immediately following a business day. This disclosure shall be provided to the borrower and acknowledged by the borrower by signing a copy of the disclosure document prior to placing funds in escrow. (c) This section does not apply to a loan that is subject to subdivision (c) of Section 10242 of the Business and Professions Code.

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California Per Diem Statutes

CALIFORNIA CIVIL CODE § 2948.5 ∗ Focus:

∗ One day prior to disbursement from escrow, except for special circumstances.

∗ Special circumstances: ∗ Disbursement will occur on a Monday or after a bank holiday.

∗ Requirements under special circumstances: ∗ Borrower agrees to the additional interest charge. ∗ Disclosure details the charge amount and informs the

borrower of the option of avoiding this additional charge. ∗ Disclosure must be signed by borrower.

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PER DIEM INTEREST ALLOWED

∗ Main challenges of accurately calculating per diem interest:

∗ Disbursement date ∗ Provisions related to weekend and holiday closings

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CHALLENGES OF COMPLIANCE

∗ Documents Reviewed: ∗ Note ∗ Settlement Statement ∗ Additional Per Diem Disclosure (if applicable) ∗ Document Evidencing Disbursement Date (if not identifiable on settlement statement or unreliable)

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Reviewing Loans for Overcharges

1. Compute daily interest (daily interest) 2. Determine number of days that interest was actually

charged or credited at closing (# of days, actual) 3. Determine date interest may commence (interest

commence date) 4. Determine number of days that interest may be charged

or must be credited at closing (# of days, per audit) 5. Determine interest overcharge (overcharge)

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DBO Steps in Reviewing Per Diem

* Daily Interest = (loan amount x interest rate) / 365 or 360 days

For example: Loan amount =$810,312 Interest rate = 2.75% Daily interest calculated at 365: ($810,312 * 2.75%) / 365 = $61.05 Daily interest calculated at 360: ($810,312 * 2.75%) / 360 = $61.90 DBO uses the basis (365 or 360) the licensee uses; the licensee must apply the same basis it used at closing when it is issuing an interest refund.

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1. Compute daily interest

# of days = Amount of interest charged or credited at closing / daily interest

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2. Determine number of days that interest was actually charged or credited at closing

Interest may commence on the following dates: 1. On disbursement date 2. One day before disbursement date

• Per 2948.5(a), interest may not be charged more than one day prior to disbursement date

3. On the business day immediately preceding disbursement date IF two requirements are met

• Per 2948.5(b), interest may commence to accrue more than one day prior to disbursement - on the business day immediately preceding the disbursement date if 1. Borrower affirmatively requests and lender agrees that disbursement will occur on a Monday or after a bank holiday; and 2. Certain information is disclosed to borrower. ∗ Disclosure provides the additional amount of interest and informs the

borrower of the option of avoiding this additional charge. Disclosure must be signed by borrower.

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3. Determine date interest may commence

1. If the disbursement date is a Monday or a day after a bank holiday: Per Diem Interest Disclosure must be provided. If not provided, no additional days of interest may be charged If provided, it must contain the required information and signature.

If missing information or unsigned, no additional days of interest may be charged. See Slide 6 for required information.

2. If disbursement is not on a Monday or a day after a bank holiday: Per-diem interest disclosure is not applicable. Please note this is not a routine form to provide to the borrower(s). Only applicable when borrower(s) affirmatively requests to that the disbursement occur on a Monday or after a bank holiday.

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Disbursement on a Monday or after a Bank Holiday

The DBO will reject a per-diem interest disclosure if: 1. Signed blank 2. Not filled out completely 3. Provided to all borrowers by default 4. Wrong amount is disclosed 5. No amount is disclosed

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DBO Rejection of Per Diem Disclosure

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3.1 Establish Disbursement Date

Release No. 58-FS, issued August 1, 2007: • DISBURSEMENT DATE Defined” “‘Disbursement date’ refers to the date on which the majority of loan proceeds are disbursed to the borrower, to a third party on behalf of the borrower, or to the licensee to satisfy an existing obligation of the borrower.”

Compliance with Civil Code section 2948.5 may be evidenced by:

1) A certification executed by the licensee, at no cost to the borrower. 2) Other evidence in the loan file acceptable to the Commissioner. Other Evidence – See Release 58-FS ∗ Disbursement date reflected on the settlement statement issued by the

settlement agent pursuant to Section 2603 of Title 12 of the United State Code

Final Hud-1 (pre-TRID) – Closing Disclosure (post-TRID) ∗ Written or electronic records reflecting communications between the

licensee and the settlement agent verifying the disbursement date of loan proceeds and identifying the name of the settlement agent providing the information and the electronic or business address used to contact the settlement agent

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EVIDENCE OF DISBURSEMENT DATE

∗ Contemporaneous written or electronic records memorializing oral communications between the licensee and the settlement agent verifying the disbursement date of loan proceeds and identifying the name and telephone number of the settlement agent.

∗ When the Commissioner believes compliance is uncertain or unclear from a review of the above information provided by the licensee, the Commissioner may request additional information to demonstrate compliance with Section 2948.5.

Example: disbursement ledger

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EVIDENCE OF DISBURSEMENT DATE

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EVIDENCE OF DISBURSEMENT DATE Acceptable Evidence of Disbursement Date Per: PRE-TRID POST-TRID

1. Certification, executed by the licensee under penalty of perjury, at no cost to the borrower.

FC 50204(o), clarified in Release 58-FS

Acceptable Acceptable

2. Other evidence in the loan file acceptable to the Commissioner. FC 50204(o), clarified in Release 58-FS

Acceptable Acceptable

3. Disbursement date reflected on the settlement statement or Closing Disclosure issued by the settlement agent.

Release 58-FS Acceptable Acceptable

4. Written or electronic records reflecting communications between the licensee and the settlement agent verifying the disbursement date of loan proceeds and identifying the name of the settlement agent providing the information and the electronic or business address used to contact the settlement agent.

Release 58-FS Acceptable Acceptable

5. Contemporaneous written or electronic records memorializing oral communications between the licensee and the settlement agent verifying the disbursement date of loan proceeds and identifying the name and telephone number of the settlement agent providing the information.

Release 58-FS Acceptable Acceptable

6. Additional information requested by DBO when it is believed compliance is uncertain or unclear from a review of the above information provided by the licensee Example: Disbursement ledger

Release 58-FS Acceptable Acceptable

∗ Concerns: ∗ Estimated Disclosure Date

∗ The licensee should maintain a written record, that was prepared contemporaneously with the disbursement of funds, which documents the actual date of disbursement, in the event the date of disbursement is different than represented on the Closing Disclosure. This could be a written statement by the licensee.

∗ The DBO will consider the disbursement date on the Closing Statement inaccurate if the estimated disbursement date on the Closing Statement pre-dates the date of the signature(s) of the borrower(s) on the promissory note in the loan file, and will require other evidence of disbursement date. A contemporaneous statement could suffice, but would not preclude the DBO from requesting evidence of actual disbursement in another form.

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Disbursement Date and TRID Closing Disclosure

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Common errors/non-compliance with Disbursement Date

1. Evidence of disbursement date is not in file 2. Issues when requesting evidence of disbursement date

- not provided - not provided promptly - had to be requested multiple times

3. Evidence of disbursement date was not for ‘majority of funds’

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When May Interest Commence?

Disbursed On Monday or Bank Holiday

Not Disbursed On Monday Or Bank

Holiday

One Day Before Disbursement

Did borrower affirmatively request and lender agree to

disbursement on Monday or after bank

holiday?

No

Disclosure is properly signed and contains all

information under 2948.5

No

One Business Day Prior to Disbursement

Yes Yes Yes

No Additional

Day of Interest May Be Charged

No Additional

Day of Interest May Be Charged

Summary by Scenarios:

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3. Determine date that interest may commence (cont.)

Legend:Key: Interest may be charged based on: Disbursement date Allowed 1-day interest, per 2948.5(a) Allowed extra days of interest, if requirements are met, per 2948.5(b)

* Date interest may commence

WED THU FRIBusiness day Disbursement

dateInterest may be charged on these days:

Interest may commence on Thursday *

Scenario#1: Disbursed on a Friday; Thursday is a business day

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3. Determine date that interest may commence (cont.)

FRI SAT SUN MONBusiness day Weekend Weekend Disbursement

dateInterest may be charged on these days:

Interest may commence on Sunday *

Scenario#3. Disbursed on a Monday; Friday is a business day; Per diem disclosure is not acceptable or not provided

FRI SAT SUN MONBusiness day Weekend Weekend Disbursement

dateInterest may be charged on these days:

Interest may commence on Friday *

Scenario#2. Disbursed on a Monday; Friday is a business day; Per diem disclosure is acceptable

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3. Determine date that interest may commence (cont.)

WED THU FRIBusiness day Holiday Disbursement

dateInterest may be charged on these days:

Interest may commence on Thursday *

Scenario#5. Disbursed on a Friday; Thursday is a holiday; Wednesday is a business day; Per diem disclosure is not acceptable or not provided

WED THU FRIBusiness day Holiday Disbursement

dateInterest may be charged on these days:

Interest may commence on Wednesday *

Scenario#4. Disbursed on a Friday; Thursday is a holiday; Wednesday is a business day; Per diem disclosure is acceptable

Detailed Steps*: 1. Identify 1st payment due date from the mortgage note 2. Determine 1st month that interest started accruing on the mortgage 3. Compare with “interest commenced date” determined at Step 3 ∗ If interest commenced date occurred before the 1st month of accrued interest, interest may be charged at closing. ∗ If interest commenced date occurred within the 1st month of accrued interest, interest must be credited at closing. 4. Count number of days interest may be charged or must be credited at closing. * This discussion pertains to 1st trust deed loans only

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4. Determine number of days interest may be charged or must be credited at closing

Detailed Steps: 5.1 Calculate number of days overcharged

Formula = number of days charged (credited)* minus number of days that may be charged (or must be credited) **

5.2 Calculate interest overcharge Overcharge = number of days overcharged*** x Daily interest**** 5.3 Check for accuracy of interest dates disclosed in settlement statement/closing disclosure

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5. Determine interest overcharge

* From Step 2 ** From Step 4 *** From Step 5.1 **** From Step 1

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Questions?

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