NAFCU Compliance Blog

Grab Bag

Posted by Anthony Demangone

Here are a few items of interest.

• HUD has issued a number of civil money penalties against financial institutions.  In addition, HUD has settled allegations of non-compliance with several others.   The number of items in this notice makes me wonder whether HUD's enforcement office has been pressed to kick it up a notch.
• Speaking of HUD, NAFCU is hosting a webcast this Thursday.  Barton Shapiro, Deputy Director for RESPA and Interstate Land Sales from HUD will be one of the speakers. If you have concerns with the looming compliance deadline, this might be right up your alley.  Sign up here.
• NAFCU Members: Don't forget about our "Year-End Review," a NAFCU member-only conference call on Thursday, Nov. 19, from 4-5 p.m. EST. NAFCU President Fred Becker and the association's senior staff will report on the latest developments in Washington affecting credit unions. Our Call-In is free, but you must register to participate. Call our Member Service Center at (800) 344-5580 or (703) 522-4770; or you may register online at http://www.nafcu-training.org/callin.
• NCUA has issued Regulatory Alert 09-RA-12 to highlight recent changes to Regulation D regarding reserve requirements.
• NCUA has issued Regulatory Alert 09-RA-11 to remind us about recent changes to Reg Z closed end lending brought about by MDIA.  Old news, right?  Not quite. The Reg Alert also contains the new questionnaire that NCUA examiners will use to measure your compliance.   
• Finally, this caught my eye when reviewing the Reg Z open end proposal.  File this one under: paternalism.

As you may recall, credit card lenders will have to make disclosures regarding the cost if consumers only make the minimum payment on their balance.  If the estimated payoff time is less than two years, it can be disclosed in months.  If it is more than two years it must be disclosed in years AND rounded to the nearest year.  But, here is what caught my eye.

“The Board believes that disclosing the estimated minimum payment repayment period in years (if the estimated payoff period is 2 years or more) allows consumers to better comprehend longer repayment periods without having to convert the repayment periods themselves from months to years.”

There are so many things I want to type right now.  But I won't. (Sigh.)

Organizing the Compliance Information Flow; Webcasts

Posted by Steve Van Beek

Wow.  It has been a whirlwind of a year.  The speed and complexity of the regulatory changes has been maddening.   

I utilize a few unique tools to help obtain and organize compliance information to make my life easier and less stressful.  At last year's Compliance Seminar in San Francisco, I presented on "Organizing the Compliance Information Flow" and I believe these tools could be very useful to compliance officers looking to sift through information during compressed implementation periods.  I created a powerpoint slideshow as well as a user's guide to detail some of the tools I use to stay organized.  Hopefully some of these resources are useful and can help save you time.  

***

On Thursday, November 12, NAFCU will host a webcast on Essential Updates on FHA Lending Programs and RESPA.  Assistant Secretary of Housing - FHA Commissioner, David H. Stevens will discuss updates and changes to FHA Lending Programs.  The webcast will also address implementation of RESPA - scheduled to be effective January 1, 2010.  This webcast is a great opportunity to hear directly from FHA Commissioner Stevens on FHA lending and RESPA.  NAFCU's President and CEO, Fred Becker, will moderate the webcast.  Please note: Due to Veteran's Day, this webcast will be on Thursday rather the customary Wednesday timeslot.  

Additionally, NAFCU will be offering a unlimited webcast subscription for 2010.  This is your opportunity to sign-up for all of NAFCU's webcast at one price for the year.  There are a minimum of 18 webcasts planned for 2010.  Given the rapidly changing regulatory environment, this subscription allows you to ensure you are able to attend and view all of NAFCU's webcasts.  Remember, even if you are unable to attend the live webcast - all of NAFCU's webcasts are archived for 6 months for later viewing.   

Grab Bag

Posted by Anthony Demangone

Please let me pause our Regulation Z discussion to touch upon some things that have been bouncing around my in-box.  I understand how important Reg Z is, but other things continue to happen.

• HUD has updated its RESPA FAQs again.
• The FTC settled charges against an apparel company for alleged violations of COPPA.  You don't see these very often, so the settlement serves as a nice reminder that COPPA is alive and well.  And yes, it applies to credit unions.  The announcement also provides background information on COPPA.
• Earlier this month, the Fed announced its annual adjustments to the Regulation D reserve tranches.  I like this update each year, because it is the only time get to use the word tranche.
• NCUA issued Letter to Credit Unions 09-CU-21to remind credit unions about how to properly use the NCUA official sign.  This would be a good piece of guidance to share with marketing.

• HOEPA's higher-priced mortgage loans will affect HMDA reporting.  The OTS has updated its exam procedures, and they do a great job of highlighting these changes.

• The free go-to-webinar that will discuss our on-line training program will take place next Tuesday from 1 until 2 p.m. EST.  I had the wrong time in yesterday's blog posting.  Register here.

***

The Saturday after our Regulatory Compliance Seminar, I had the pleasure of watching Penn State play Michigan with my colleague, Steve.  Steve is a big Michigan fan, and I went to Penn State.  I didn't watch all of it, as I was distracted by a couple of brand new Penn State fans who joined us to watch the game.  Kate was so excited to wear her Penn State shirt that she couldn't sit still for the photo.

Grab Bag

Posted by Anthony Demangone

While the proposed changes to Regulation Z have grabbed our attention, other compliance issues continue to come up.  With that in mind, here are a few things that have happened recently that I wanted to mention.  We'll get back to Reg Z tomorrow.

• Everyone continues to ask HUD to delay implementation of its RESPA rule, due to take affect January 1, 2010.  RESPA keeps saying, thanks, but no thanks.

• The CFPA debate continues to rage on the Hill.  The latest development?  An amendment that would exempt credit unions under $1.5 billion in assets.  Stay tuned.

• The Fed continues its check processing restructuring.  Yesterday, the Fed issued a final rule to implement recent changes.  In this notice, I saw something of note.  The Fed gave us a heads up that they'll need to tinker with Reg CC's rules.  I'm not sure what those changes will look like, but here's why they'll need the changes.  Due to the consolidation of check processing centers, next year at some point...all checks will be considered local. 

• OTS issued a CEO memorandum that does a great job of summarizing how the recently enacted HOEPA rules affect HMDA reporting.  In short, OTS has amended their HMDA examination procedures, and this CEO memo addresses those changes.  It is a concise, clear overview.

• The revised model privacy form is coming. Soon.

• FinCEN has released the latest issue of its SAR Activity Review, Trends, Tips and Issues.   This document is a BSA goldmine.  In this issue, there's an article on SAR completion tips from law enforcement and another on how to avoid errors in SAR filings.

• Also, we hear that FinCEN is planning to release its rule to put stored value cards under its BSA requirements in February.

There. That's more than enough for a Monday.

21-Day Fix?; RESPA FAQ Updated Again...

Posted by Anthony Demangone

We'll take a break from our march through the Fed's Reg Z proposal to discuss a major development on the 21-day issue.

Congressman Peter Welch (D-VT) has introduced a bill that would create a "technical fix" for the 21-day issue by amending the Truth in Lending Act to limit the reach of the controversial "21-day provision" to credit cards.  We hear that the the bill, H.R. 3606, is scheduled to be considered very soon - if not today.  But keep this in mind: should it pass the House, the Senate will have to act on the issue before it could become law.  Our lobbyists, as well as others, have been working this issue non-stop for months.  Stay tuned.

***

HUD has updated its RESPA Q and A guidance document again.  For those in charge of mortgage lending, I'd take a fresh look at this Q and A document. It is now 43-pages long, and there's a good table of contents that organizes the guidance.

RESPA: 3500.7(g) and (i); HUD Happenings

Posted by Anthony Demangone

Let's wrap up the GFE portion of the new RESPA rules today.  There's not much more to 3500.7.  However, stay focused, as the last two sections are very important.

3500.7(g)

This section reminds us that the GFE is not a loan commitment.  Specifically, HUD states "(t)he loan originator is not required to provide a GFE if the loan originator does not have available a loan for which the borrower is eligible."

There is a HUD FAQ Q and A that might confuse you. Here's GFE General FAQs, #1.

Q: What happens if a GFE is not provided to a borrower?

A: In a transaction involving a federally related mortgage, the loan originator is required to provide a GFE to the borrower. Failure to provide a GFE as required is a violation of Section 5 of RESPA.

Hmmm.  The reg says no GFE is required if the borrower is not eligible for a loan.  This FAQ says you always need to provide it.  Here's my take.  I think HUD's Q and A simply means that when you are required to provide a GFE, failure to provide it is a violation.  But if the applicant isn't eligible for any of your loan products, there's no requirement.  And just in case you were unclear, even the issuance of a GFE is not a loan commitment.

Q: Is a GFE a loan commitment?

A: No, the GFE is not a loan commitment. A GFE is an estimate of settlement charges a borrower is likely to incur to obtain a specific loan.   GFE General FAQs, #9.

3500.7(i)

Cure, baby, cure.  A violation of section 3500.7 is deemed to have violated section 5 of RESPA.  There is hope, though.  If any charges at settlement exceed the charges listed on the GFE by more than any allowed tolerances, can can cure the mistake!  Simply reimburse the borrower the amount by which the tolerance was exceeded.  You can do this at settlement of within 30 calendar days after settlement.  You'll be OK if you deliver or place the payment in the mail within 30 calendar days after settlement.

There are a number of "cure" Q and A's within HUD's FAQ document.  Here's one that caught my eye:

Q: Does the settlement agent have to stop the closing if a tolerance would be violated?

A: No, the settlement agent does not need to stop the closing. While HUD recommends that the lender cure the tolerance violation at closing, the lender has 30 calendar days to cure.   HUD RESPA FAQ, Right to Cure and Tolerance Violations #3.

***

HUD has been busy lately.

• HUD issued a number of mortgagee letters. Letters 09-28,29 and 30 address appraisal standards for FHA mortgages.  If your credit union does those, I'd familiarize yourself with the guidance documents.
• HUD also issued Letter 09-35 to discuss loan mitigation issues surrounding FHA loans.
• Also, you may want to keep the mortgagee letter link handy if you are responsible for HUD issues at your credit union.  From it, you can access any mortgagee letter dating back to 1976.

RESPA: Section 3500.7(e) and (f).

Posted by Anthony Demangone

Let us continue the march through RESPA.  I apologize in advance for the length and density of this post.  But what could I do?  This is RESPA, after all.

3500.7(e)  Tolerances

There are three types of fees under the new RESPA rules.  First, the actual charges at closing may not exceed the amounts listed on the GFE for the following charges: origination charges, charges related to the locking of interest rates and transfer taxes. The rationale for these makes sense.  The credit union should know what it's own fees are, and transfer taxes should be known at the time the GFE is provided.  But there is some flexibility, in that creditors can issue revised GFEs  if changed circumstances result in higher costs for the creditor.  In addition, if information that was not know or was not relied upon becomes available, that too can form the basis for a revised GFE.  We'll discuss this a bit more later.

The second category of charges at settlement may not be greater than 10 percent above the sum of the amounts included on the GFE.  These are lender-required settlement services where the lender selects the third party settlement service provide.  Also included are lender-required services, title services and required title insurance and owners title insurance when the borrower uses a settlement service provided identified by the loan originator, and government recording charges.

The third category?  Everything else on your GFE.  Those fees may change at settlement.

3500.7(f) Binding GFE

This section clarifies that the lender is bound (within the applicable tolerances) to the GFE, unless a new GFE is given before settlement according to RESPA's requirements.  When creditors issue revised GFEs, they must document the reason and maintain this record for no less than 3 years after settlement.  The following situations permit a revised GFE.

• Changed circumstances affecting settlement costs.  If such changes increase costs beyond the tolerances, the originator may provide a revised GFE within 3 days of receiving information to establish the changed circumstances. Here's some interesting guidance found within the Preamble:

None of the information collected by the originator prior to issuing the GFE may later become the basis for a ‘‘changed circumstance’’ upon which a loan originator may offer a revised GFE, unless the loan originator can demonstrate that there was a change in the particular information or that it was inaccurate, or that the loan originator did not rely on that particular information in issuing the GFE.A loan originator would have the burden of demonstrating nonreliance on the collected information, but may do so by various means, including through, for example, a documented record in the underwriting file or an established policy of relying on a more limited set of information in providing GFEs. If a loan originator issues a revised GFE based on information previously collected in issuing the original GFE and ‘‘changed circumstances,’’ it must document the reasons for issuing the revised GFE, including, for example, its nonreliance on that information or the inaccuracy of the information, and retain that documentation for at least 3 years. (Emphasis added.) 73 Fed. Reg. 68212.

• Changed circumstances affecting the loan.  These would be changes that affect the borrower's eligibility for the specific loan terms identified in the GFE.

• If the borrower requests changes to the loan that changes settlement charges or the terms of the loan.

• Expiration of the GFE.  If the borrower doesn't express an intent to continue within 10 days after the GFE is issued, or longer if you provide it, you are no longer bound by the GFE.

• Interest rate dependent charges and terms.  If the rate was not locked by the borrower, or a locked interest rate expired, the associated charges and terms may change.  If the borrower later locks the rate, a new GFE must be provided showing the revised rate charges and terms.  All other charges and terms must remain the same, except as otherwise possible under this section.

• New home purchases. In transactions involving new home purchases where settlement is expected to occur more than 60 calendar days from the time a GFE is provided, the originator may provide the GFE to the borrower with a clear and conspicuous disclosure stating that at any time up until 60 calendar days before closing, the originator may issue a revised GFE.  If no such separate disclosure is provided, the loan originate cannot issue a revised GFE, except as otherwise possible under this section.

Again - I aplogize for the length and density of this post.  Perhaps I was just cranky as I wrote this, as PSU was trounced by Iowa this weekend.  Grrrr.

CARD Act Deadlines to Move Up?!?; RESPA: Section 3500.7(c) and (d)

Posted by Anthony Demangone

Yesterday, Reps. Barney Frank (D-MA) and Carolyn Maloney (D-NY) introduced legislation that would move up the compliance deadline for the remaining provisions of the Credit CARD Act to December 1, 2009.

Read the Financial Services Committee press release here.
Download the legislation here.
Here's a link to the original Credit CARD Act.

The legislation is deceptively short.  It basically says this: Anything that was effective 9 months after the Credit CARD Act was enacted is now effective December 1, 2009.  And it added additional provisions to move up the effective dates concerning gift cards, reasonable fees and the "look-back provision" concerning increased APRs to December 1, 2009 as well.

OK, you can pick up your jaw now.  Before we hit the panic button, this legislation must pass numerous hurdles before it could become law.  NAFCU's lobbyists are actively communicating with all the necessary parties to let them know the enormous compliance burdens this would cause.  Not to mention the fact that it would pretty much ruin my birthday and Thanksgiving, which fall on the same day this year.

Personally, I see this as Reps. Frank and Maloney voicing their displeasure (loudly) with the financial institution industry.  This comes from the press release.

“Pew Charitable Trust reports that interest rates have spiked by an average of 20% on credit cards representing more than 91% of the $864 billion in outstanding credit card balances. It’s clear that credit card companies are taking advantage of this period between the signing of my bill and the current effective date,” Rep. Maloney said. “The breadth and depth of the rate hikes happening now point to the need for faster consumer protections. Americans need relief now.”

Stay tuned, but don't panic yet.

***

Let's move on to our RESPA overview.  Let's continue with the GFE requirements, shall we?

Section 3500.7(c).

GFE Expiration. A credit union's estimates of the charges and terms on the GFE must be available for at least 10 business days.  But you can extend that time period if you wish.  This requirement does not apply to everything, thank goodness.  It doesn't apply to the interest rate, charges and terms related to the interest rate, and per diem interest.

It could have been worse.  Consumer groups wanted 30 days.

I again underscore the fact that the 10-day period doesn't apply to interest rates.  If you don't believe me, here's HUD's take on this issue from the preamble to the final rule:

Accordingly, the final rule provides that the interest rate stated on the GFE will be available until a date set by the loan originator for the loan. HUD is not requiring the interest rate to be available for any specific length of time.The final rule provides that the loan originator indicate on the GFE the period during which the interest rate is available. After that time period, the interest rate, the interest rate related charges, and loan terms, including some of the loan originator charges, the per diem interest, and the monthly payment estimate for the loan could change until the interest rate is locked.  (Emphasis added.) 73 Fed. Reg. 68,216.

There was only one question and answer on HUD's FAQ document that addressed this:

Q: When does a GFE expire?

A: If a borrower does not express an intent to continue with an application within ten business days after the GFE is provided (or such longer time period specified by the loan originator), the loan originator is no longer bound by the GFE.

Section 3500.7(d).

This section gets to content and form of the GFE.  Rather than go through all f that here, I think you'd be best served to review this post, where I highlight the fact that Appendix C of the final rule will answer most questions concerning how to complete the GFE.

***

Have a great weekend, everyone.  Even you Hawkeye fans.

RESPA: Section 3500.7(a)

Posted by Anthony Demangone

Section 3500.7 of RESPA discusses Good Faith Estimates (GFEs), so we're going to walk our way slowly through the material. Very slowly.  In fact, today, we're just going to hammer 3500.7(a).  This little subsection is more than enough for a Wednesday.  Believe me.

Section 3500.7(a)

GFE timing. Credit unions making loans subject to RESPA must provide the borrower a GFE no later than three business days after it receives an application, or information sufficient to complete an application.  Note that I bolded "terms of art."  Both "application" and "business days" are defined terms.  As I noted in an earlier post, an application must contain at least six required pieces of data.  And business day?  You won't find that in the final rule, as HUD didn't change the definition.  It continues to mean any "day on which the offices of the business entity are open to the public for carrying on substantially all of the entity’s business functions."  If you mail the GFE, the borrower is considered to have received it three calendar days after it was mailed, not including Sundays and legal holidays.

Exceptions. You are not required to provide the applicant a GFE before the end of the 3-day period if you: deny the application or the application is withdrawn.  There's another exception, which has not changed, although it has been renumbered.  The GFE requirement does not apply to HELOCs, assuming that you provide the disclosures required by Regulation Z.  This will now be found within section 3500.7(h).

Fees.  You are not permitted to charge as a condition of receiving a GFE any fee for an appraisal, inspection or other similar settlement service.  You can charge a fee for the cost of a credit report.  No other fees can be charged until the member has received the GFE.  But note: HUD's frequently asked questions guidance document adds another layer to this.  

 Q: At what point can a loan originator charge a loan applicant fees for services other than the cost of obtaining a credit report?

A: After a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE, the loan originator may collect fees beyond the cost of a credit report for origination-related services.

Supplemental information.  You can collect any information that you require in addition to the required application information.  But you are not permitted to require, as a condition for providing a GFE, that an applicant submit additional information to verify information provided on an application.

Editor's note: HUD's RESPA FAQ document has been updated again.  This time on September 18, 2009. 

RESPA - Sections 3500.1 and .2

Posted by Anthony Demangone

First things first.  Here's a link again to the final RESPA rule.  "Ugh," you may say.  "It is 86 pages long.  And not just 86 pages - 86 "Federal Register" pages!  Who has the time!?"

Ah, but most of the 86 pages will be useless fluff when it comes to your specific questions.  So, don't worry about the forest.  Focus on the trees you care about.  If you were to cut out the pages that contain the new regulatory text, those 86 pages turn into five pages.  That's right.  There are five pages of new regulation, and 81 pages of explanation, model forms, new appendixes, etc.

Here are those five pages. 

So, if you have a question, you may want to see if the new changes address it.  You may need to look at the existing regs for a while as well, as the new RESPA that take affect January 1, 2010 do not completely replace the existing regs. So here's a link to the existing RESPA rule.

Let's begin, shall we?

24 C.F.R. 5300.1: Designation and Applicability

There's not too much here.  This is the section that created the two different compliance deadlines within the new RESPA rules.  Some requirements took affect January 16, 2009.  Those were sections addressing "required use," the use of actual charges on settlement statements, escrow accounts, the servicing disclosure statement, and E-SIGN applicability, and a "severability" section.  Remember that HUD withdrew the "required use" provision after an avalanche of criticism crashed into the Agency.  Those changes were not earth-shattering, and they went into affect a long time ago.

24 C.F.R 5300.2: Definitions

HUD tweaked or created 12 new definitions in its new RESPA rule.  One of those was "required use," so perhaps a more accurate count is 11.  Regulatory definitions are like...well, potatoes.  You take the potato for granted.  But take away the potato, and you have problems.  No french fries.  No mashed potatoes.  No Mr. Potato Head.  You get the idea.  Definition sections are like that.  They are in every regulation, but many fail to consult them.   You might think you know what terms such as prepayment penalty, balloon payment, changed circumstances, or application mean.  But do you know what they mean in the context of RESPA?  When you are doing research, always look for defined terms.    For example, can one of your employees be viewed as a mortgage broker?  No.  The definition of "mortgage broker" specifically excludes employees of the lender.

Of note, the term "application" is interesting.  What constitutes an application?  It has to have at least 6 pieces of information.  (Name, monthly income, SSN, property address, estimate of property's value, and the mortgage amount sought."  Here's what HUD had to say:

The final rule now defines ‘‘application’’ to include at least these six items of information. Therefore, under this single application process, a loan originator may ask for, or a borrower may choose to submit, more information than the loan originator intends to use to process the GFE, for example the information on a standard 1003 mortgage loan application form, but beyond the six items of information, the loan originator will determine what it needs to issue a GFE. HUD strongly urges loan originators to develop consistent policies or procedures concerning what information it will require to minimize delays in issuing GFEs.

Can you issue a GFE without the property's address?  HUD's RESPA FAQ guidance says yes.  But it clarifies that the subsequent submission of an address does not allow the lender to establish a "changed circumstance" pursuant to section 3500.7.  (We'll get to that later.)