Member Conference: Charting Your Course. Presented by Denny Deischer, CRCM VP, Educational Services Missouri Bankers Association

Transcription

1 Member Conference: Charting Your Course Presented by Denny Deischer, CRCM VP, Educational Services Missouri Bankers Association

2 Interesting Facts & Statements Regarding Dodd-Frank Act Requirements o 280 of 398 (70%) of DFA rulemaking requirement deadlines missed o 121 (30%) requirements not yet been proposed Banker Testimony: Hard-dollar compliance costs for industry approaching $50 billion;...12% of total operating expenses Risk Management aspect of compliance stems from the challenge of achieving an adequate level of compliance performance while using a limited number of resources

3 Compliance Risks to be Managed Financial - Fines, penalties, reimbursements, legal fees, settlements and judgments Operational - Correcting noncompliance costs 3 times as much to correct than to prevent Reputation - Damage to reputation in the marketplace due to noncompliance; trust Competitive Noncompetitive posture in industry due to noncompliance consequences

4 Necessary Steps Enterprise Risk Program Compliance is risk comparable to CAMELS, but historically way back in cost outlay CO must have AUTHORITY to develop, implement and manage the Compliance Program Implement strong compliance monitoring program o Enables bank to build on-going formal program now o Prevents paying more later to fix serious problems Fram Oil Filter: Pay me now, or Pay me later CO/department must be viewed and function as an asset of the bank

5 What Regulatory Issues Ahead; Existing and Coming Up?

6 HPML facts Triggered if APR o > 1.5% above APOR for first lien loans o > 3.5% above APOR for subordinate lien Documented Ability to Repay verification required Required escrow for minimum of five years

7 HPML - issue Not offering HPML.. Fair Lending issue?? CRA concerns??

8 Posting/Crediting Payments facts credit payment date of receipt Provide conforming notice; reasonable cut-off time May post after receipt if no penalties assessed

9 Posting/Crediting Payments issues... Explain/justify cut-off earlier than lobby close/5:00 Customer notification; note, coupon, closing docs Receipt of payments at drive-ups; After lobby closing and Weekends Online payments; Disclose when posted? CFPB: Posting delay cannot harm customer

10 SCRA facts GAO recommends agencies increase loan testing for SCRA Honoring America s Veterans Act o Effective o Increase time limit to 1 yr. after service regarding limiting foreclosure or seizure of property o Applicable only to obligations consummated prior to military service Interest reduction: re-cast payment and amortization

11 SCRA issues Counseling letter goes to all delinquent borrowers Inadequate SCRA policy/procedures: o Determine service status prior to action o Review military status periodically o File documentation o Employee training

12 Flood Insurance - facts NO FORCE-PLACEMENT before 45 th day after notice FDIC: Reasonable time from determination and closing (10 days less if commitment sooner) May (should) notify of upcoming expiration of flood policy, but no mention of force-placing no value to customer not valid for no coverage

13 Flood Insurance issues Biggert-Waters Flood Insurance and Modernization Act of 2012: penalty $2,000 per violation with no annual cap Most premium subsidies eliminated; premium to as much as triple in next 3 years o Renewal premiums increasing 25%/year o Replacement/new policy toes to full risk rated premium Agencies want banks to inform borrowers of future premium increases

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15 Escrow Accounts for Higher-Priced Mortgage Loans Effective June 1, 2013

16 General Rule A bank may not extend a: higher-priced mortgage loan secured by a first lien on a consumer s principal dwelling unless an escrow account is established before consummation for payment of: property taxes premiums for mortgage-related insurance required by the bank

17 Mortgage-related insurance Insurance: required by the bank against loss of or damage to property (hazard insurance) against liability arising out of the ownership or use of the property protecting the bank against the consumer s default or other credit loss

18 Insurance Exclusions Insurance premiums need not be included in escrow accounts for loans secured by dwellings in: condominiums planned unit developments other common interest communities in which dwelling ownership requires participation in a governing association, where the governing association has an obligation to the dwelling owners to maintain a master policy insuring all dwellings however escrow of taxes would still be required

19 Cancellation Provisions A bank (or servicer) may cancel a required escrow account only upon the earlier of: termination of the underlying debt obligation; or receipt no earlier than five years (previously one year) after consummation of a consumer s request to cancel the escrow account

20 Cancellation Provisions However, a bank (or servicer) cannot cancel an escrow account pursuant to a consumer s request unless the following conditions are satisfied: the unpaid principal balance is less than 80% of the original value of the property securing the underlying debt obligation; and the consumer currently is not delinquent or in default on the underlying debt obligation

21 Exemptions for Certain Banks Escrow accounts need not be established for a transaction if, at the time of consummation, four conditions are met by the lending bank.

22 Exemptions for Certain Banks First condition: As of the end of the preceding calendar year, the bank had total assets of less than $2 billion (this asset size threshold will adjust every year)

23 Exemptions for Certain Banks Second condition: During the preceding calendar year, the bank and its affiliates together originated 500 or fewer covered transactions, secured by a first lien

24 Exemptions for Certain Banks Third condition: During any of the preceding three (3) calendar years, the bank extended more than 50% of its total covered transactions, secured by a first lien, on properties that are located in counties designated either rural or underserved as defined by the CFPB

25 Exemptions for Certain Banks Fourth condition: Neither the bank nor its affiliate maintains an escrow account for any extension of consumer credit secured by real property or a dwelling that the bank or its affiliate currently services, other than escrow accounts established: for first-lien HPMLs on or after 4/1/10 and before 1/1/14; or after consummation as an accommodation to distressed consumers to assist them in avoiding default or foreclosure

26 ECOA Valuation Rule Effective January 18, 2014

27 Coverage Applies to credit to be secured by a first lien on a dwelling Applies to business-purpose credit as well as consumer credit Does not have to be principal dwelling

28 Providing Appraisals and Other Valuations Bank must provide applicant copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling Bank must provide copy promptly upon completion or 3 business days prior to consummation, whichever is earlier (can be waived under certain circumstances)

29 Promptly Upon Completion Upon receipt and/or approval/acceptance, promptly means within a few days Completion occurs when the last version of appraisal is received, or when the bank has reviewed and accepted the appraisal, WHICHEVER IS LATER For Example: o Receipt/approval on 20 th day after application, copy provided/delivered on 25 th day after application with closing scheduled for 45 th day after application RIGHT! o Receipt/approval on 20 th day after application, copy provided/delivered on 36 th day after application with closing scheduled for 45 th day after application WRONG!

30 Disclosure: Notice of Appraisal Bank must mail or deliver disclosure no later than 3 rd business day after application received If multiple applicants, disclosure and appraisal copy need only be given to one Model Form C-9 in Appendix C of Reg. B We may order an appraisal to determine the property s value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.

31 Reimbursement Bank cannot charge applicant for copy Bank may require applicant to pay a reasonable fee for the cost of the appraisal/valuation May not increase reimbursement fee to cover costs of providing copy

32 Providing Copies Requirements apply to whether credit extended, denied or if application is incomplete or withdrawn Copies may be provided in electronic form, subject to E-Sign Act

33 Effective January 18, 2014

34 Appraisals Required Bank cannot extend HPML to consumer without obtaining a written appraisal of the property Appraisal must be performed by certified or licensed appraiser Appraiser must conduct physical visit of property interior

35 Additional Appraisal for Certain HPMLs Two appraisals required, if seller acquired property: o 90 or fewer days prior to buyer s acquisition agreement and price exceeds seller s acquisition price by more than 10%; or o 91 to 180 days prior to buyer s acquisition agreement and price exceeds seller s acquisition price by more than 20%

36 Additional Appraisal for Certain HPMLs Two appraisals may not be performed by the same certified or licensed appraiser Bank may charge consumer for only one of the appraisals; no up-charging One of the appraisals must include an analysis of the pricing differences, changes in market conditions, and improvements to the property

37 Additional appraisal not required if consumer acquires property: from government agency from holder of defaulted mortgage from non-profit entity from person who acquired title by inheritance or through court order (divorce, etc.) in connection with employee relocation from servicemember - deploying or PCS order located in federal disaster area located in rural county

38 Required Disclosure Required language in regulation Bank may comply with disclosure requirement by using Regulation B language Disclosure must be delivered or placed in mail no later than third business day after application received

39 Copy of Appraisal(s) Bank must provide copy of written appraisal(s) Copy must be provided no later than 3 business days prior to consummation (NLT 30 days after determining loan will not consummate Customer cannot waive timing Bank may not charge consumer for copy Electronic copies under E-Sign Act

40 Ability-to-Repay and Qualified Mortgage Rules Effective January 10, 2014

41 Coverage Closed-end consumer credit secured by a dwelling o Including real property attached to the dwelling o 1-4 family, condos and co-ops o First or subordinate lien loans o Not limited to principal residences Excluded o HELOC o Timeshare plans o Reverse mortgages o Temporary or bridge loans with <12 month terms o Construction phase of < 12 months of construction-topermanent loans o Loans secured by vacant land

42 Repayment Ability (c)(1) Banks/creditors may not make a loan secured by a dwelling unless that bank/creditor makes a reasonable and good faith determination at or before consummation that the consumer will have the ability-to-repay (ATR) the loan, according to the terms and conditions ATR Rule creates new legal standards governing underwriting residential mortgage loans; o Minimum of eight (8) specific underwriting guidelines to be followed to determine borrower ATR o Third-party records must be used to verify information used to evaluate the underwriting factors

43 Minimum of 1. Current or reasonably expected income or assets 2. Current employment status 3. Monthly payment on the covered transaction 4. Monthly payment on any simultaneous loan 5. Monthly payment for mortgage-related obligations 6. Current debt obligations, alimony, and child support 7. Monthly debt-to-income ratio or residual income 8. Credit history

44 ATR Compliance UNDERSTAND: Policies, procedures, controls must be adopted, implemented, and documented Banks have options to reach ATR compliance; each options carries different liability risks: o Non-Qualified Mortgage (QM) Loans o Qualified Mortgage Loans QM Safe Harbor Loans QM Rebuttable Presumption Loans QM Government Related Loans Small Creditor QM Loans Small Creditor QM Balloon Loans

45 Non-QM Loans ATR Rule does not mandate any specific underwriting standards, i.e. no maximum DTI prescribed as with QM Loans ATR Rules for Non-QM Loans provide no extraordinary legal defenses to lenders Whether ATR determination is reasonable and in good faith depends on: o Underwriting standards o Facts and circumstances of a particular loan o How creditor s standards were applied to facts and circumstances Baseline requirement is that banks must determine consumer s ATR

46 (i) of (viii): Current or reasonable expected income or assets Verify income using a tax-return transcript from IRS Other records may be used [ (c)(4)] o Copies of returns consumer filed with IRS or State authority o Form W-2s or other forms used to report wages or tax withholding o Payroll statements/stubs including military earnings statements o Financial institution records o Employer-provided records o Federal, State or local governments agency records of benefits or entitlement income o Check cashing service receipts o Funds transfer service receipts

47 (ii) of (viii): Current Employment Status If relying on employment income, employment status must be verified and documented Employment status may be full-time, part-time, seasonal, irregular, military, or self-employment, so long as the creditor considers those characteristics

48 (iii) of (viii): Monthly payment on Covered Transaction [ (c)(5)] For other than balloon-payment, interest-only and negative amortization loans; Calculated using o Greater of the fully indexed rate or any introductory rate; and o Monthly, fully amortizing payments that are substantially equal For a balloon-payment loan; Calculated using o Maximum payment scheduled during the first five (5) years for loan that s not a HPML o Maximum payments in payment schedule, including any balloon payment for a HPML For an interest-only loan and negative amortization loan; Calculated using o Greater of the fully indexed rate or any introductory interest rate; and o Substantially equal, monthly payments of P & I that will repay loan over the term remaining as of the date the loan is recast

49 (iv) of (viii): Monthly payment on any Simultaneous Loan [ (c)(6)] If the simultaneous loan is a covered transaction, the monthly payment is to be calculated using: o The greater of the fully indexed rate or any introductory interest rate; and o Monthly, fully amortizing payments that are substantially equal ( (c)(5) If the simultaneous loan is a HELOC, the payment is calculated using the periodic payment required under the terms of the plan and the amount of credit to be drawn at or before consummation of the covered transaction

50 (v) of (viii): Monthly payment for mortgage-related obligations Calculated considering property taxes; premiums and similar charges that are required by the creditor; fees and special assessments imposed by a condominium, cooperative, or homeowners association; ground rent; and leasehold payments that are recurring o One-time fees not considered o Annual, semi-annual, quarterly fees considered by computing total

51 (vi) of (viii): Current debt obligations, alimony, and child support Current debt obligations include student loans, automobile loans, revolving debt, and existing mortgages that will not be paid off at or before consummation Should include debt obligations in forbearance or deferral at the time of underwriting if the forbearance or deferral period will expire

52 (vii) of (viii): Monthly debt-to-income (DTI) ratio or residual income [ (c)(7)] If considering DTI Ratio Must consider the ratio of the total monthly debt obligations to total monthly income If considering residual income Must consider the remaining income after subtracting total monthly debt obligations from total monthly income

53 (viii) of (viii) The consumer s credit history ATR Requirement does not mandate specific underwriting standards THEREFORE.. No maximum DTI ratio requirement as with QM Loans as discussed.. shortly

54 CFPB Guidance on ATR Requirement In many instances appropriate, prudent loans will not meet Qualified Mortgage (QM) requirements in the ATR rules, and CFPB encourages creditors to make non-qm loans

55 Qualified Mortgages [ (e)(1)] Safe harbor of compliance with ATR Requirements for QM that is not a higher-priced covered transaction Presumption of compliance with ATR Requirements o For higher-priced covered transaction that is a QM o Presumption is rebuttable if proven that creditor did not make reasonable and good faith determination of consumer s ATR

56 QM Safe Harbor Loan (e)(2) Interest rate not exceeding APOR by 1.5% or more for first lien loan (or 3.5% or more for subordinate lien loan) Regular, substantially equal periodic payments No negative amortization No interest-only payments (deferral of principal) No balloon final payment Points & fees within established limits under (e)(3) No terms exceeding 30 years Underwritten based on maximum interest rate for first five years Based on verified current/reasonably expected income or assets and current debt obligations, alimony and child support DTI not exceeding 43%

57 QM Rebuttable Presumption (e)(1) Loan meets QM Requirements It s an HPML; Interest rate exceeds APOR by 1.5% or more on first lien loan (or 3.5% or more for subordinate lien loan)

58 QM Government Related Loan (e)(4)(ii) Eligible to be purchased, guaranteed, or insured by o HUD o VA o Department of Agriculture o RHS o Fannie Mae or Freddie Mac (as long as they remain in conservatorship) AND Meets requirements: o Substantially equal, regular periodic payments o No negative amortization o No deferral of principal o No balloon payments o Points and fees do not exceed limitations of (e)(3) o Term not exceeding 30 years o 43% DTI NOT Applicable Provisions end earlier of end of receivership status or January 10, 2021

59 Small Creditor Small Creditor QM Loan (e)(5) o Bank with less than $2 billion in assets o Bank made 500 or fewer first-lien mortgages prior calendar year o Bank does not operate predominantly in a rural or underserved area Loan o Meets all QM Requirements, other than 43% maximum DTI ratio o Rate does not exceed APOR by 3.5% or more on first or subordinate lien loan (>3.5% of APOR = QM Rebuttable Presumption treatment) o Held in portfolio for at least three years

60 Small Creditor QM Balloon Loan (f)(1) Small Creditor o Bank with less than $2 billion in assets o Bank and all affiliates made 500 or fewer first-lien mortgages prior calendar year o Bank made more than 50% of total mortgages on properties in a rural or underserved area in prior calendar year Loan o Term of at least 5 years o Meets all QM Requirements, other than 43% maximum DTI ratio o First or subordinate lien with interest rate that does not exceed APOR by 3.5% for comparable transactions o Held in portfolio for at least three years Two Year Transition: QM Balloon Loan treatment available for small creditors not operating in rural or underserved area for loans made on or before January 10, 2016

61 Effective January 10, 2014

62 Coverage Applies to any open- or closed-end consumer credit transaction secured by principal dwelling EXCEPT: Reverse mortgage Initial construction (only construction phase) Loans originated & financed by a Housing Finance Agency Loans originated through USDA s Rural Development Section 502 program

63 HOEPA Changes will now include purchasemoney loans & HELOC loans Not applicable to second or vacation homes

64 HOEPA Triggers APR trigger if APR exceeds APOR by: o 6.5% or more on first-lien loans o 8.5% or more on: subordinate-lien loans, or loans under $50,000 secured by personal property

65 HOEPA - Triggers Points & Fees: o o o 5% of total loan amount for loans of $20,000 and higher Lesser of $1,000 or 8% of total loan amount for loan amounts less than $20,000 Dollar amounts will be adjusted annually for inflation Prepayment Penalty: o o Penalty more than 2% of amount prepaid, or Penalty can be imposed more than 36 months after consummation

66 Requirements Disclosures: o Provided 3 days prior to consummation o Explanation of default consequences o APR, amount borrowed & monthly payment o Maximum payment under variable-rate program Restrictions: o Balloon payments generally banned (9/13/13 final rule: HOEPA balloon payment loans allowed provided meet QM requirements of (e)(6) or (f) [>50% loans in rural/underserved in any of previous 3 years]) o Prepayment penalties prohibited o Restricted due-on-sale provisions o Modification, renewal, extension fees prohibited o Late fees restricted to 4% of past due amount o Cannot finance Points/Fees o No negative amortization o Limitations on payment schedules o No default interest rates

67 Closed-end: o o o ATR Requirements Same requirements as ATR/QM rule HOEPA could be Qualified Mortgage if meets other QM criteria Cannot receive presumption of compliance if QM criteria not met Open-end: o ATR/QM rule does not apply to HELOCs o Still must consider/verify: Income/assets Current obligations

68 Homeownership Counseling Regulation X RESPA o Within 3 days of receiving application provide list of homeownership counseling organizations WHETHER HIGH- COST LOAN OR NOT!!! o Listing available through CFPB/HUD o List must not be more than 30 days old o Excludes reverse mortgages/time-share loans Reg. Z Negative Amortization Requirement o If negative amortization allowable, first-time borrower must receive homeownership counseling prior to consummation o Borrower cannot be steered to particular counselor/agency o Bank must receive counselor documentation prior to consummation o Counselor must be HUD-certified or approved

69 Homeownership Counseling HOEPA loans: o o o o o o HOEPA Loans Must receive written certification from counselor in retainable format Counselor/agency cannot be affiliated with bank Counselor must confirm RESPA/HOEPA disclosures before certification Counseling does not need to be in-person Payment of counseling fee cannot be condition before closing loan Fee may be paid by bank or financed

70 What Stressful Pressure!?!?

71 Questions? Concerns? Thanks for the Opportunity!!