NAFCU Compliance Blog

NCUA Issues Temporary Exemption on Appraisals for Disaster Zones

By Reginald Watson, Regulatory Compliance Counsel

Greetings compliance friends! In the wake of excessive flooding brought about by the many recent tragic hurricanes, NCUA together with several other agencies have granted temporary exceptions to the current appraisal requirements in major disaster zones. Since we've received quite a few questions on this, I figured it would be a good opportunity to review the NCUA appraisal requirements and un-package this temporary exemption.

NCUA's appraisal requirements depend on the loan value and its terms. NCUA’s Rules and Regulations do not require a formal appraisal if the transaction is 250k or less. Generally, any loan with a transactional value of $25,500 or less requires only a “written valuation” that meets FIRREA requirements. A loan with a transactional value between $25,501 and $250,000 only requires a formal appraisal if it is a "higher-priced" mortgage loan; and all loans of $250,001 or more require an appraisal.

For transactions requiring an appraisal, the central requirement is that the appraisal must be "performed by a state certified or licensed appraiser." For transactions requiring a written valuation, it must "be performed by an individual having no direct or indirect interest in the property, and qualified and experienced to perform such estimates of value for the type and amount of credit being considered."  12 C.F.R. §722.3(d). The minimum requirements for written estimates of market value are addressed in Appendix B of the Interagency Appraisal and Evaluation Guidelines.

In addition to the transaction threshold issue, §722.3 outlines the other exceptions to the general requirement to seek an appraisal, including situations in which:

• A lien has been taken out on the property as collateral only through an abundance of caution, and the transaction terms are no more favorable than they would have been in the absence of a lien;
• A lien has been taken out on the property for purposes other than the real estate's value;
• A lease of real estate is entered into, unless the lease is the economic equivalent of a purchase or sale of the leased real estate;
• The transaction involves an existing extension of credit at the lending credit union provided that there is no advancement of new monies and no obvious or material changes to market conditions;
• The transaction involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan or interest in a loan, pooled loans, or interests in real property, including mortgage-backed securities;
• The transaction is wholly or partially insured or guaranteed by a United States government agency or United States government sponsored agency;
• The transaction either: 
  • Qualifies for sale to a United States government agency or United States government sponsored agency; or
  • Involves a residential real estate transaction in which the appraisal conforms to the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation appraisal standards applicable to that category of real estate; or
• The regional director has granted a waiver from the appraisal requirement for a category of loans meeting the definition of a member business loan.

Appendix A to the Interagency Appraisal and Evaluation Guidelines, provides additional guidance on these exemptions and describes how institutions can comply with Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).The guidance was joined by NCUA, and was attached to Letter to Credit Unions 2010-23.

Higher Priced Mortgages

As referenced in §722.3(f), if a loan is a second mortgage that is closed-end consumer credit secured by the consumer’s principal dwelling and qualifies as a higher-priced mortgage loan (HPML), it may require an appraisal under Regulation Z. §1026.35(c). An HPML is a closed-end secured residential loan "with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction by a certain number of percentage points. §1026.35(c)(2) also provides an appraisal threshold exemption which is currently $25,500, along with additional exemptions to the appraisal rule for HPMLs. The threshold is set to increase to $26,000 on January 1, 2018. The CFPB official commentary discusses all these exemptions in further detail and emphasizes that although these types of transactions may be exempt from the CFPB's appraisal rule, the requirements under FIRREA and §722.3 still apply. Thus, an appraisal would be required for HPMLs between $25,500 and $250,000, and a written valuation conforming to the Interagency Appraisal and Evaluation Guidelines would be required for loans that do not require an appraisal under NCUA. An additional written appraisal for HPMLs may be required for recently acquired properties subject to certain conditions found in §1026.35(c)(4).

In summary, it appears any loan with a transactional value of $25,500 or less requires only a written valuation that conforms to Appendix B of the interagency guidance. A loan with a transactional value between $25,500 and $250,000 only requires a formal appraisal if it is a HPML. All loans carrying a value of $250,001 or more require an appraisal.

Loans in Disaster Areas

On October 16, 2017, NCUA, together with several other agencies, released a Letter to Credit Unions (17-CU-06) granting a temporary exemption to the FIRREA appraisal requirements in major disaster areas, as defined by the President. The exemption provides flexibility to credit unions with loans secured by real estate and located in the affected areas, including parts of Florida, Georgia, Puerto Rico, Texas, and the U.S. Virgin Islands. The exemptions will remain in effect for a three-year period from the date of the declaration.

The order specifically requires that the property involved was located within the major disaster area, there is a binding commitment to fund the transaction, the value of the real property supports the institution's decision to enter into the transaction, and the transaction must continue to be subject to review by management in the course of examinations of the institution.

This waiver is an attempt to ensure that any shortage of appraisers would not further delay the recovery process for these regions. We at NAFCU have been saddened to see the extent of the damage and loss of life and have compiled a list of resources to help credit unions in these disaster areas. Our thoughts and prayers go out to all those who have been affected.

Appraiser Shortage?: NCUA Reminds Credit Unions of Their Options

Written by Jennifer Aguilar, Regulatory Compliance Counsel

Last week, NCUA joined an Interagency Advisory on the Availability of Appraisers. While the Advisory does not provide any additional guidance, it does seek to alert credit unions to existing potential solutions to problems with appraiser availability.

Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) requires NCUA to establish appraisal standards for all federally related transactions. Part 722 of NCUA's regulations provides these standards. Generally, the rules require the appraisal to be performed by a state-certified or state-licensed appraiser. Whether the appraiser needs to be certified or licensed depends on the type of transaction involved. The Interagency Appraisal and Evaluation Guidelines provide an overview of the applicable rules and guidance on developing an appraisal program, choosing an appraiser, and obtaining and reviewing appraisals.

As part of the Economic Growth and Regulatory Paperwork Reduction Act review, commenters raised concerns with the timeliness of obtaining an appraisal. The commenters attributed the issue to problems with the availability of state-certified and state-licensed appraisers. This seemed to be of particular concern in rural areas. The recent Advisory explains a credit union's options in the event a certified or licensed appraiser is not available. In certain situations, the FIRREA permits credit unions to use appraisers who have obtained a temporary practice permit or a temporary waiver instead of a state certificate or license. The Advisory explains both the permit and the waiver.

Temporary Practice Permits

Temporary practice permits can allow an appraiser who is certified or licensed in State A to practice in State B without having to become certified or licensed in State B. Under 12 U.S.C. § 3351, each state appraiser certifying or licensing agency must temporarily recognize the certificate or license of another state in certain circumstances. The rule states that an agency in State B must temporarily recognize the certificate or license of State A if the property involved is part of a federally related transaction, the appraiser's activity in State B is temporary, and the appraiser registers with State B's certifying or licensing agency. Generally, appraisers are able to apply for a temporary practice permit through State B's agency. Each state's agency will determine the requirements for obtaining a temporary practice permit and any fees associated with doing so, but the rule prohibits the agency from imposing "excessive fees or burdensome requirements."

The rule also requires each state certifying or licensing agency to have a reciprocity policy in place. Under this policy, State B's agency will issue a certificate or license to an appraiser from State A if the licensing and certification program of State A complies with the rules of the FFIEC Appraisal Subcommittee, State A's certifying or licensing requirements meet or exceed the requirements of State B, and the appraiser holds a valid certification from State A.

Temporary Waivers

Under 12 U.S.C. 3348(b), the Appraisal Subcommittee (ASC) may waive any certification or licensing requirement if a written determination is made that appraisals are being significantly delayed because of a shortage of state certified or licensed appraisers. The Advisory explains that a temporary waiver request can be made by a state appraiser certifying or licensing agency, a regulated credit union, or any other persons with a demonstrable interest in appraiser regulation. The FFIEC's regulations govern the process for requesting and obtaining a temporary waiver.

Section 1102.2 provides the following requirements for a temporary waiver request:

• The written determination described under 12 U.S.C. 3348(b) or a request that the ASC provide such a determination;
• The requirements of state law the ASC should waive;
• A description of all significant problems currently being encountered;
• Documentation of the nature of the scarcity of certified or licensed appraisers and the extent of the delays anticipated or experienced;
• The reasons why the requester believes that the requirements are causing the scarcity and delays; and
• If the requester is a state agency, a specific plan for expeditiously alleviating the scarcity and delays.

The request can be to waive the requirements across the entire state or for a geographical political subdivision. The ASC will review the request and make a determination within forty-five days. The FFIEC must approve any determination to grant the waiver. If the waiver is granted, it will apply to all federally related transactions within the state or subdivision. The waiver will be effective only for the period specified by the ASC, however, the regulations permit the ASC to extend the period if needed. The ASC may also terminate the waiver before the end of the period if the delays cease to exist or the terms and conditions of the waiver are not being met.

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NCUA Board Meeting; Regulatory Compliance School; A Little Taste of Vienna

Written by Shari R. Pogach, Regulatory Paralegal

The agenda for the National Credit Union Administration’s (NCUA’s) board meeting last week was a relatively short one with just three items:

1.  Final Rule, Parts 701 and 722 of NCUA’s Rules and Regulations, Appraisals.
2. Notice and Request for Comment, Economic Growth and Regulatory Paperwork Reduction Act      Review.
3. 2015 Corporate Stabilization Fund Quarterly Report.

Here we’ll just briefly discuss the new final rule regarding appraisals. The NCUA Board approved a new final rule to revise two of the agency’s regulations concerning appraisals. What’s changed? The final rule eliminates the now duplicative requirement for federal credit unions to make available a copy of the appraisal used in connection with a member’s application for a loan secured by a first lien on a dwelling to any requesting member/applicant. It also expands the current exemption for certain transactions involving an existing extension of credit. Under the expanded exemption, a federally insured credit union will be permitted to refinance or modify a real estate-related loan held by that federally insured credit union in a declining housing market, without having to obtain another appraisal, if there is no advancement of new monies or if there is adequate collateral protection even with the advancement of new monies. Finally, the rule also makes a minor technical amendment to the definition of the term “application.” The rule becomes effective 30 days after its publication in the Federal Register. 

Chairman Matz welcomed the final rule as credit unions will be able to more easily refinance loans without encountering unnecessary administrative burden. She also noted that these changes will bring NCUA’s rules into parity with the other banking regulators.

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Vienna. Here are a few photos from my recent vacation.  Although it gets dark earlier in the day and is a little chilly and damp, Vienna is full of Christmas markets this time of year and with the lights, it is quite a charming city.  I thoroughly enjoyed Vienna and thought I’d share a little of my experience there with you. 

New Vienna and Gothic Vienna on Kärnterstrasse Shopping Street

The Reisenrad (ferris wheel) at Prater from Stephansdom’s North Tower – so cold!

Riding the Resisenrad – It’s only about 4:30 in the afternoon!

 
Rauthauspark (town hall) Christmas Market – where you drink Gluhwein to keep warm!

Christmas yummies

 
Saturday Christmas shopping on Mariahilfer Strasse

My Sachertorte and Melange – vacationing is such hard work!

NCUA’s Proposed Amendments Regarding Appraisals; NCUA Launches Interest Rate Risk Webpage

Written by Brandy Bruyere, Regulatory Compliance Counsel

Last week, we blogged about the NCUA Board’s June meeting and promised to provide some more in-depth information regarding some of the proposed rules that the Board approved. Today, we will review the proposed changes to NCUA’s rules relating to appraisals, specifically those at 722.3(a)(5), Section 701.31(a)(1) & (c)(5) which are a result of NCUA’s annual review of one-third of its rules for possible regulatory modernization.

Section 722.3(a)(5)—Providing Appraisals for Transactions Involving Existing Extensions of Credit

Under the current version of the rule, a credit union must have an appraisal performed by a State certified or licensed appraiser on transactions involving existing extensions of credit except where two conditions are met:

• There is no advancement of new monies other than those necessary to cover reasonable closing costs; and
• There have been no obvious and material changes in market conditions or the property’s physical attributes which would threaten the property’s adequacy as collateral for the loan.

NCUA received many comments noting that this requirement created a lack of parity between the rules credit unions had to follow as compared analogous provisions that apply to other financial institutions. This is because other financial regulators allow this exception if only one of these conditions is met rather than both. NCUA’s proposal is intended to provide parity between NCUA’s rule by changing the conditions to an “or” rather than a conjunctive requirement. However, Section 722.3(d) would still require that these transactions be supported by a valuation that is a “written estimate of market value.”

Section 701.31(c)(5)—Availability of a Copy of the Appraisal to Requesting Members

Currently, Section 701.31(c)(5) requires credit unions to provide a copy of the appraisal produced in connection with a “real estate-related loan application” upon a member’s request.  However, Section 1002.14 of Regulation B requires credit unions to automatically provide an appraisal developed in connection with an application for a first-lien loan on a dwelling. NCUA’s proposal would amend Section 701.31(c)(5) to remove the requirement to provide an appraisal created in relation to a first-lien loan application as this is now duplicative in light of Regulation B. The proposed rule reads as follows:

“§701.31   Nondiscrimination requirements.

…

(c) Nondiscrimination in appraisals.

…

(5) Each Federal credit union shall make available, to any requesting member/applicant, a copy of the appraisal used in connection with that member’s application for a loan to be secured by a subordinate lien on a dwelling. The appraisal shall be available for a period of 25 months after the applicant has received notice from the Federal credit union of the action taken by the Federal credit union on the application for a loan to be secured by a subordinate lien on a dwelling.” (Emphasis added.)

Finally, as we noted last week, NCUA proposed to amend the definition of “application” in Section 701.31(a)(1) to simply cross-reference the definition in Regulation B.

NCUA Launches Interest Rate Risk Resource Page. Interest rate risk is a high priority at NCUA these days, and this topic is one of NCUA’s 2014 Supervisory Focus for exams. Last week, NCUA announced the creation of a webpage that aggregates the agency’s resources relating to interest rate risk.  This includes a video as well as links to specific rules and Letters to Credit Unions.

 
I Don’t Like Mondays. Actually, I don’t know many people who think Mondays are great, but mine was particularly special! I started off at jury duty, but was not selected and sent home early. I was off to a good start! A large segment of a tree spontaneously fell onto our house this past weekend, so we arranged to have the entire tree removed. The tree removers came on Monday, and for the first time in the owner’s 15+ years of experience, the crane fell onto our house with its brand new roof! Luckily, no one was hurt and the tree remover had my roof repaired, good as new, within 24 hours.

 

NCUA Tackles Packed Agenda at June Board Meeting

Yesterday, the NCUA Board held its June meeting. The agenda for the open meeting included the following action items:

1. Final Rule, Part 710 of NCUA’s Rules and Regulations, Voluntary Liquidations;
2. Proposed Rule, Part 721 of NCUA’s Rules and Regulations, Asset Securitization;
3. Proposed Rule, Part 709 of NCUA’s Rules and Regulations, Safe Harbor;
4. Proposed Rule, Parts 701 and 722 of NCUA’s Rules and Regulations, Appraisals;
5. Request to Convert Charter, Mainstreet Credit Union (Lenexa, Kansas).

Final Rule on Voluntary Liquidations. The Board approved a final rule which, through some technical changes, aims to “reduc[e] administrative burdens on voluntarily liquidating federal credit unions (FCUs) and recognizes technical advances…” Specifically, the final rule will allow those FCUs who voluntarily liquidate to publish required notices to creditors using electronic media instead of only “newspapers of general circulation.” The rule also increases the asset-size thresholds that dictate the number of notices a liquidating credit union must publish under 12 C.F.R. 710.5(a)(1)-(3). Finally, this rule limits preliminary partial distributions to members to the amount the share account is covered by share insurance and allows credit unions the flexibility to make these distributions by wire or electronically.

Proposed Rule on Asset Securitization. The Board also approved the issue of a proposed rule which would allow credit unions to securitize their own loans “as an activity incidental to the business for which an FCU is chartered…” The proposed rule includes multiple requirements credit unions would have to meet to be eligible for such asset securitizations:

• The FCU must have originated the loans;
• The FCU must create a “special purpose vehicle” or “special purpose entity” to hold the assets that serve as the collateral backing the security. The special purpose vehicle/entity must be structured such that its assets cannot be reached by the FCU’s creditors in the case of bankruptcy;
• The FCU must comply with all federal and state laws relating to securitizing transactions;
• The FCU must establish independent risk management and controls related to its asset securitizations;
• The FCU must audit its securitization transactions annually;
• The FCU’s board must have a general understanding of the asset securitization activities and their relation to the credit union’s overall business plan and strategy;
• The FCU’s senior management that oversees the asset securitization program must have expertise in these kinds of transactions and facilitate oversight of third-parties involved in the program;
• The FCU’s board must approve the policy using particularized information and criteria;
• The FCU must utilize effective internal controls to detect errors and ensure compliance with contractual obligations.

The proposal imposes a limit on carried residual interests and retained interests to 25 percent of the credit union's net worth. The Board also approved a proposed rule on Part 709 of NCUA’s Rules and Regulations, Safe Harbor. This directly relates to the asset securitization proposal and addresses the treatment of securitized assets that are transferred to NCUA in the case of the Board acting as liquidating agent or conservator of a FCU.

Proposed Rule on Appraisals. The Board also approved a proposed rule amending three of NCUA’s appraisal provisions. First, the proposal would make a “technical amendment” to 12 C.F.R. 701.31(a)(1) by changing the definition of the term “application.” The rule currently cross-references and quotes the definitions section of Regulation B. The proposal would amend the quotation to reflect the current Regulation B definition.

The proposed rule would also eliminate the requirement at 12 C.F.R. 701.31(c)(5) to give members a copy of an appraisal upon request for first lien loans secured by a dwelling. The reasoning is that this provision is now duplicative given Regulation B’s appraisal requirements. However, members may still request a copy of the appraisal for subordinate loans secured by real estate. Finally, the proposed rule would amend 12 C.F.R. 722.3(a)(5), which relates to appraiser independence, by expanding an exemption. Specifically, the amendment would allow credit unions to refinance or modify existing loans without obtaining a new appraisal, “if there is no advancement of new monies or if there is adequate collateral protection, even with the advancement of new monies.”

Overall, the final and proposed rules are positive for credit unions as the changes either reduce regulatory burden or provide credit unions with additional flexibility in managing their assets. In addition to more detailed blogs, NAFCU’s Regulatory Affairs team will also issue Regulatory Alerts and a Final Regulation on these issues for NAFCU members which will provide particular details on these items.

Still Works for Treats. While we’re sharing positive news, my husband and I discovered this weekend that Lemmy does not like balloons when we used him to help announce some news of our own! We are expecting a baby boy in October, and while Lemmy does appear concerned about this new development, it’s really just the balloons. He was heavily rewarded with his favorite treats for his patience and modeling skills!

NCUA Reveals Regulatory Review Report; NAFCU's 2014 Technology and Security Conference; BSA Blast

Written by Alicia Nealon, Regulatory Compliance Counsel

Last week, NCUA’s Office of General Counsel released  its 2013 Regulatory Review report, concluding its annual review of one-third of  NCUA’s rules and regulations, which this year included CUSOs, appraisals, member business lending and the Central Liquidity Facility. The report confirms that NCUA will be addressing a number of issues that NAFCU continues to fight for to ease regulatory burden on credit unions. Particularly, the Office of General Counsel recommended that the NCUA Board consider eliminating or amending several of the regulations raised in NAFCU’s “Dirty Dozen.” 

For those of you who haven’t had a chance to see it, NAFCU prepared a list of twelve regulations- the “dirty dozen”-  that regulators need to eliminate or amend because they are unnecessary, outdated, or overly burdensome on credit unions. This Regulatory Review report affirms that NCUA is considering a number of recommendations included on the "dirty dozen" list as it reviews possible changes in rules on incidental powers, member business lending and appraisals.

The first of NAFCU’s “Dirty Dozen” is a call to expand credit union investment authority to include permissible investments in derivatives, securitization and mortgage servicing rights. The review notes that the NCUA Board may look into expanding credit unions’ incidental powers in allowing them to securitize their own loans. The agency is also expected to issue a rule on derivatives at the board meeting on Jan. 23.

The report mentions possible updates to the agency’s MBL rule, a change NAFCU pushed for as the fifth of its “Dirty Dozen.” These proposed updates would “reflect the current business climate” and address issues such as calculating market value in construction-related business loans and valuation-related issues. The report also raised the prospect of changes to the MBL rule’s personal guarantee requirement and its two-year direct experience requirement.

Addressing the final recommendation of the “Dirty Dozen,” the report recommends that the Board amend Section 722 to eliminate redundant NCUA requirements on credit unions to provide copies of appraisals upon request. 

Finally, the report acknowledges that the Dodd-Frank Act transferred the Fair Credit Reporting regulation to the CFPB and advises that Section 717 should be transferred to the CFPB. It also gives hope that NCUA may tackle other issues including modernizing advertising rules, and rules on notification of credit unions’ insurance status. 

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NAFCU's 2014 Technology and Security Conference.  NAFCU’s 2014 Technology and Security Conference, which will be held February 11-13 in Las Vegas, is a great place to discover the latest credit union security and technology trends. Conference topics include fraud trends, core processing issues, big data and credit union crisis management.  Check out more information about the conference and register here.

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BSA Blast – The January 2014 edition of NAFCU’s BSA Blast is now available (a NAFCU member login is needed).  This issue is all about enforcement – from FinCEN’s enhanced focus on holding financial institutions responsible for Bank Secrecy Act (BSA) violations and its enforcement action against JP Morgan Chase in connection with the Madoff scandal to recent OFAC enforcement actions against three banks. In addition the issue contains a new BSA quiz for use in staff training.

NCUA December Board Meeting Results; HPML Appraisal Supplementary Rule Finalized; NAFCU Webcast – Managing Third Party Fair Lending Risk.

Written by JiJi Bahhur, Director of Regulatory Compliance

NCUA December Board Meeting Results.  This past Thursday, the NCUA Board held its December Board meeting.  The agenda for the open meeting included the following action items:

1. Board Briefing, Supplemental Interagency Rule, Appraisals for Higher-Priced Mortgage Loans;
2. 2014 Temporary Corporate Credit Union Stabilization Fund Oversight Budget;
3. Final Rule, Part 700, 701, and 704, Technical Amendments, Corporate Credit Union Rating System;
4. Proposed Rule, Part 701, Requirements for Federal Credit Union Examination Sites; and
5. Final Rule, Parts 703 and 721, Charitable Donation Accounts.

All actions were approved.  I won’t go into detail on each of these actions in this blog post, but you can find the details here in NCUA’s Board Action Bulletin.   

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HPML Appraisal Supplementary Rule Finalized.  During NCUA’s December Board Meeting, the last of the lingering mortgage rule amendments finalized.  More specifically, the Interagency Proposed Supplemental Rule on the HPML Appraisal Requirements finalized.  This supplements the HPML Final Rule that was issued in January, 2013, and goes into effect at the same time as the original final rule on January 18, 2014.

As background, under the January 2013 final rule, credit unions extending higher-priced mortgage loans must obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals and give applicants a copy of the written appraisals used for certain mortgages with an annual percentage rate that exceeds the average prime offer rate by a specified percentage. 

The supplemental final rule provides exemptions from the requirements to:  (1) transactions secured by existing manufactured homes and not land; (2) certain streamlined refinancings; and (3) transactions of $25,000 or less. 

Also, the rule requires credit unions to provide notice to the borrower within three business days after receiving application that states, generally, that the credit union may order an appraisal for which the borrower may be charged.  The proposal defined “business day” to only exclude Sundays and legal holidays, but NCUA heeded the advice of NAFCU and finalized the supplemental rule to also exclude Saturdays from the “business day” definition for the purpose of providing the notice required after receiving an application.  NAFCU is appreciative of this outcome as it will provide added flexibility to those credit unions whose back office operations are not open on Saturdays.

You can view the final HPML Appraisal Interagency Supplemental Rule here.

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NAFCU Webcast – Managing Third Party Fair Lending Risk.  You may be following the fair lending regulations “to the letter,” but what about your vendors?  If you utilize vendors for indirect lending, mortgage services, marketing or other services, you won’t want to miss NAFCU’s webcast – Managing Third Party Fair Lending Risk: Don’t Let Your Vendors Let You Down.  The webcast will take place on January 13, 2013 at 2:00pm Eastern time.  Register by January 6, 2014 and receive $100 off.  For details on this webcast, click here.

Supplemental Proposal on Appraisals for Higher-Priced Mortgage Loans

Written by JiJi Bahhur, Regulatory Compliance Counsel

Earlier this week, several agencies (Agencies) – including the Consumer Financial Protection Bureau (CFPB) and the National Credit Union Administration (NCUA) – released a supplemental proposal on appraisals for higher-priced mortgage loans (Supplemental Proposal). 

The proposal relates to the 2013 Interagency Appraisals final rule (Final Rule), which goes into effect on January 18, 2014.  Among other requirements, the Final Rule requires creditors to obtain an appraisal or appraisals for certain mortgages that meet the definition of a higher-priced mortgage.  In part, the Supplemental Proposal would amend the Final Rule to include exemptions from the appraisal rules in the following instances: transactions secured by existing manufactured homes and not land; certain “streamlined” refinancings; and transactions of $25,000 or less (indexed for inflation). 

For more information on these exemptions and what other amendments are contained within the proposal, you can access the Supplemental Proposal here.  Also, NAFCU’s Regulatory Affairs team will be releasing a Regulatory Alert (NAFCU Member log-in required) on the proposal very soon, so keep an eye out for that. 

If the proposal is finalized, the intent of the Agencies is for these exemptions to become effective on January 18, 2014, the same date on which the Final Rule will become effective. 

NCUA’s Regulatory Alert on Regulation B Appraisal Disclosure and Delivery Requirements; Regulatory Relief Continued

Written by Bernadette Clair, Regulatory Compliance Counsel

Earlier this week, Steve mentioned NCUA’s Regulatory Alert on the Regulation B Appraisal Disclosure and Delivery Requirements. The alert summarizes requirements under the CFPB’s Equal Credit Opportunity Act (ECOA) Valuations Rule (effective January 18, 2014).

Some of the areas highlighted by the alert include the types loans covered by the rule, what is or isn’t considered a “valuation” and sending valuation copies promptly upon completion. The alert also provides the following steps for complying with the rule:

• You must notify the applicant in writing within three business days of application of the right to receive a copy of any appraisal developed in connection with the application. Appendix C to the rule includes sample text for this disclosure.

• If you have an application that was not originally going to be secured by a first lien on a dwelling and you later determine that it will be secured by a first lien on a dwelling, then you have three business days after you determine the change has occurred to notify the applicant about the right to receive appraisals.

• When processing an application for a closed-end loan, you must deliver copies of appraisals and other written valuations “promptly upon completion,” or three business days before consummation, whichever is earlier.

• When processing an application for an open-end loan, you must deliver copies of appraisals and other written valuations “promptly upon completion,” or three business days before account opening, whichever is earlier.

• You cannot charge the applicant for fees for photocopying or to cover the cost of postage to mail copies of appraisals or other written valuations you provide. However, you can charge a reasonable fee to reimburse the cost of developing an appraisal or other written valuation, unless applicable federal⁵ or state law prohibits or otherwise restricts it. You cannot condition providing copies on payment of this fee.

• For applicants who waive the right to receive the required copies at least three business days before consummation or account opening, you must provide the copies either at, or prior to, consummation or account opening. (Footnote omitted)

Refer to the alert  for complete details.

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Regulatory Relief. In a letter sent to NCUA on Monday regarding the agency’s 2013 regulatory review, NAFCU General Counsel and Vice President of Regulatory Affairs Carrie Hunt raised numerous issues that deserve the agency’s immediate attention.

Related to today's blog post, one area addressed is the need for NCUA to update its appraisal regulations in light of the CFPB’s ECOA Valuations Rule.  Currently, federal credit unions are exempt from the appraisal requirements of Regulation B, as current section 1002.14 contains an exemption from these requirements for credit unions subject to NCUA’s regulation section 701.31(c)(5) regarding the provision of appraisal copies.

The ECOA Valuations Rule removes this exemption. Here is from the letter:

"Starting on January 18, 2014, credit unions will be required by Regulation B to provide an applicant a 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. Unless NCUA section 701.31(c)(5) is amended, credit unions will also have a duty to make, at the request of the member, copies of appraisals used for that member’s real-estate related loan application available for up to 25 months, regardless of whether the credit is secured by a first lien on a dwelling.

...

In order to update NCUA regulations to reflect a new world where credit unions are under the rule of Regulation B starting January 18, 2014, NCUA should, at a minimum, change the scope of 701.31(c)(5) to include only subordinate lien loans that fall outside the scope of Regulation B's requirements. This would ensure that for all first lien loans on a dwelling, a member would receive an appraisal provided by the credit union pursuant to section 1002.14 as amended. For all subordinate lien loans, the member would still be able to request a copy of the appraisal from the credit union."

Click here to download NAFCU's comment letter.

Metsger Confirmed for NCUA Board; ATM Fee Disclosure in NY; NCUA Reg Alert on Reg B

Written by Steve Van Beek

NCUA Board. Late Thursday, the Senate confirmed, in action taken by unanimous consent, Rick Metsger for the National Credit Union Administration Board. Metsger, a Democrat, succeeds Gigi Hyland who left the Board in October of 2012. Metsger's term will run until August 2, 2017.

Current Board Member Michael Fryzel, the lone Republican on the Board, recently announced his decision to remain on the NCUA Board until his successor is confirmed. Fryzel's term officially ended on Friday but NCUA Board Members have the ability to remain until a successor is confirmed.  

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ATM Fee Disclosures - New York. On December 20, 2012, President Obama signed the ATM Fee Disclosure Bill which removed the federal requirement for an "on the machine" fee notice for ATMs (the CFPB officially amended Reg E in March). However, there are still state laws that could require this "on the machine" notice. New York was one of those states until action Thursday by Governor Andrew Cuomo to remove the requirement from New York law.   

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NCUA Regulatory Alert. Last Tuesday, Bernadette blogged about NCUA's recent Regulatory Alerts on Remittances, Garnishments and Escrow Requirements for HPMLs. Well, NCUA hasn't slowed down and they recently issued a Regulatory Alert on the Regulation B Appraisal Disclosure & Delivery Requirements (effective January 18, 2014). 

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Programming Note: Just a quick reminder that we'll be blogging on Mondays, Wednesdays and Fridays in August. 

Ding! Ding! Ding! Round One in Effect

Written by JiJi Bahhur, Regulatory Compliance Counsel

In case it slipped your mind, I thought I’d throw it out there that a few requirements from the Consumer Financial Protection Bureau’s (CFPB) mortgage rules – what I like to call Round One – became effective as of June 1, 2013.  Of note are the final TILA Escrow Rule and its recent amendments/clarifications – located at 12 C.F.R. 1026.35(b) – and the final Prohibition on Mandatory Arbitration – located at 12 C.F.R. 1026.36(h).

Escrow Requirements for HPMLs. The final TILA Escrow Rule lengthens from one year to at least five years the required minimum period most creditors must maintain an escrow account for first-lien higher-priced mortgage loans (HPMLs) secured by a consumer’s principal dwelling.  A creditor or servicer must either maintain the escrow account until the underlying debt obligation is terminated, or after the five-year period the consumer requests that the escrow account be cancelled.  If the consumer requests cancellation, the creditor or servicer is only permitted to cancel the escrow account if the loan’s unpaid principal balance is less than 80 percent of the original value of the property securing the underlying debt obligation and the consumer is not currently delinquent or in default on the underlying obligation. The new escrow requirements for HPMLs took effect as of June 1, 2013, and apply to applications received on or after June 1, 2013. 

Arbitration Clauses. The prohibitions on mandatory arbitration for mortgage loans – also effective as of June 1, 2013 – prohibits credit unions from including contractual or agreement terms that require mandatory arbitration or any other non-judicial procedure to resolve disputes arising out of consumer credit transactions secured by a dwelling.  This prohibition also applies to home equity lines of credit (HELOCs) secured by a consumer’s principal dwelling.  Although such a practice was never too prominent in the credit union industry – since Fannie Mae and Freddie Mac already prohibited it – loan agreements should be reviewed to ensure that a mandatory arbitration clause does not exist. 

Financing Credit Insurance. And the last CFPB mortgage requirement I wanted to mention was the prohibition on financing single-premium credit insurance.  I won’t get into details, but just wanted to mention that the original June 1, 2013 effective date has been delayed until January, 2014.  The delay will give the CFPB the ability to clarify, before the provision takes effect, its applicability to transactions other than those in which a lump-sum premium is added to the loan amount at closing.  We’ll have more on that at a later date. 

In the meantime, credit unions should prepare themselves for Round Two, which includes heftier players such as Ability to Repay and Qualified Mortgages, Regulation Z’s High-Cost Mortgage and Homeownership Counseling Amendments, Regulation X’s Homeownership Counseling Amendments, the Mortgage Servicing rules, Appraisal rules, etc. To see the list of regulations and their effective dates, view NAFCU’s Compliance Calendar, open to all.   

CFPB Issues Guides on HPML Appraisals, ECOA Valuations, and HOEPA Rule

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the CFPB issued Small Entity Compliance Guides for the TILA Higher-Priced Mortgage Loans Appraisal Rule (HPML Appraisal Rule), Equal Credit Opportunity Act (ECOA) Valuations Rule, and 2013 Home Ownership and Equity Protection Act (HOEPA) Rule.

Today I want to highlight an excerpt from Section 3 of the HPML Appraisal Rule Guide which discusses when the disclosure requirements of the HPML Appraisal Rule and ECOA Valuations Rule overlap and provides guidance on how to comply with the disclosure and timing requirements when both rules apply to a transaction.  From the guide:

“III. How do the Appraisals for Higher-Price Mortgage Loans Rule and the Equal Opportunity Credit Act Valuations Rule overlap?

For first-lien HPMLs that are covered by the HPML Appraisal Rule, the disclosure requirements overlap with the ECOA Valuations Rule. The ECOA Valuations Rule implements Dodd-Frank Act amendments to ECOA, which require you to provide consumer disclosures and free copies of appraisals and other written valuations.

You can use the disclosure under the ECOA Valuations Rule to satisfy the requirements of this rule. The ECOA guide and the ECOA Valuations Rule are online at http://www.consumerfinance.gov/regulations/disclosure-and-delivery-requirements-for-copies-of-appraisals-and-other-written-valuations-under-the-equal-credit-opportunity-act-regulation-b/.

The ECOA Valuations Rule imposes a different deadline structure for providing copies of appraisals to consumers. Under the ECOA Valuations Rule, the copies of appraisals must be provided “promptly upon completion” or three business days before closing, whichever is earlier.

As a result, if the appraisal is completed early in the application process, then the “promptly upon completion” deadline will come first, since it will be earlier than the three-business-days-before-closing deadline under this rule.

In addition, the applicant can waive the deadline under the ECOA Valuations Rule and elect to receive the copies at closing, whereas the applicant cannot waive the three-business-days-before-closing deadline under the HPML Appraisal Rule. 

If the transaction is subject to both rules, then comply with the earlier deadline. The HPML Appraisal Rule deadline will be earlier if the applicant provides a waiver under the ECOA Valuations Rule.

For example, if an applicant waives the deadline under the ECOA Valuations Rule, you will still need to comply with the three-business-day-before-closing requirement in this rule.

If the applicant does not waive the three-business-days-before-closing deadline, generally the ECOA Valuations Rule “promptly upon completion” deadline will be earlier.

 

IV. What text do I use in my disclosure to consumers?

Use this text in your disclosure to consumers:

“We may order an appraisal to determine the property’s value and charge you for this appraisal. We will 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.”

For a first-lien transaction, you can also add the word “promptly” to the disclosure, telling the consumers you will “promptly” give them the copy. Then you will have the same disclosure used to comply with the ECOA Valuation Rule. (Regulation B, 12 CFR 1002.14(a)(2))”

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NAFCU Members: Check out this month’s Compliance Monitor (available for download here) which features an in-depth discussion of these disclosure and timing requirements in the article entitled New Appraisal Disclosure Requirements: Regulation B and Higher-Priced Mortgage Loans (NAFCU login required).

NAFCU's Regulatory Compliance School Just Got Better - Regulatory Update Day

Written by Steve Van Beek

We've heard you!  For the past couple of years, we've received the following feedback about NAFCU's Regulatory Compliance School (paraphrased, of course):

"School is great and provided a solid foundation for understanding the regulatory requirements credit unions face on a daily basis.  BUT, the rules are changing so fast that it would be great to receive updates on what has just changed and what is changing next."

With this in mind, we've created Regulatory Update Day at NAFCU's 2013 Regulatory Compliance School (March 18-23 in National Harbor, Maryland).  

Regulatory Update Day (Thursday, March 21st) will provide:

• A clear understanding of what changes NCUA has in store for 2013 – including their Exam Focus

• An overview of the scope and applicability of the CFPB’s seven new mortgage regulations*

• A detailed look at the CFPB’s Qualified Mortgage/Ability-to-Repay requirements*

• Answers to Frequently Asked Questions on the mortgage rules from NAFCU’s compliance team*

• Insight from credit union attorneys and practitioners on how best to set up your implementation strategy

You can find more information on Regulatory Update Day here.  The three sessions with the "*" are sessions that are also part of NAFCU's Mortgage Reform Webcast Series.

The other 4 days of Compliance School will remain the same as will the opportunity to take the NAFCU Certified Compliance Officer (NCCO) exams.  Good luck!  

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And, all attendees at NAFCU's 2013 Regulatory Compliance School will receive NAFCU's 2013 GPS (coming soon!) as well as NAFCU's Scope & Applicability Charts.

Remember:  You do not need to be a NAFCU member credit union to attend NAFCU's conferences or webcasts.  In fact, you don't even need to work at a credit union.  Each School usually features a handful of consultants, vendors and other credit union "peeps" who support credit unions - in one way or another - on a daily basis.      

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Appraisal Disclosure Model Language; Confused Members

Written by Steve Van Beek

During last week's webcast we received numerous great questions from credit unions - including one on the model language of appraisal disclosure requirement under Regulation B.  Below is the Q&A that we've drafted on the question.  Note: Attendees of the webcast should receive the Q&As in the next day or two.  

Question:  The model language for the appraisal disclosures tells the member “You can pay for an additional appraisal for your own use at your own cost.”  Isn’t this going to lead to member confusion because it implies a lender might consider the member’s own appraisal (which we cannot do)?

Answer:  You are exactly right – the model language has the potential to cause confusion.  This was brought to the Consumer Financial Protection Bureau’s attention during the rulemaking process but there were no changes in the final language of the disclosure.  However, the CFPB did include a comment to official staff commentary indicating that the disclosure does not alter any existing prohibitions on using a borrower-ordered appraisal:

“14(a)(2) Disclosure.

1. Appraisal independence requirements not affected.  Nothing in the text of the disclosure required by § 1002.14(a)(2) should be construed to affect, modify, limit, or supersede the operation of any legal, regulatory, or other requirements or standards relating to independence in the conduct of appraisers or the use of applicant-ordered appraisals by creditors.”

Of course, the comment in the staff commentary does nothing to prevent member confusion. 

Thus, we have the potential for applicants to infer - from the required notice - that they can obtain their own appraisal and provide it to their lender for consideration.

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Confused Members.  So, here is one way this could play out.  

• Credit union provides the appraisal disclosure to the applicant.

• Applicant reads "You can for an additional appraisal for your own use at your own cost" and reasons that "for your own use" obviously means to help them get a loan from the institution who provided the notice.

• Applicant obtains an additional appraisal.

• Applicant brings the appraisal to the credit union for use in connection with their application.

• Credit union informs the applicant that it is not allowed to use borrower-provided appraisals.

• Applicant is furious and waives the credit union's disclosure in front of the loan originator.

• The credit union explains that the notice is required by the Consumer Financial Protection Bureau and the credit union cannot modify the language.

• Applicant is not satisfied.

• Applicant calls the Consumer Financial Protection Bureau to file a complaint.

Of course, this won't happen often - but it will happen.  Hopefully, the CFPB's implementation plans include educating consumers on the appraisal process.  And, credit unions and other commenters brought this up to the CFPB and they declined to address this in the model language.

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If you are curious, the industry's concerns are located here in the Federal Register and the CFPB's decision is here.

NAFCU's Scope & Applicability Charts for the New Mortgage Rules; NAFCU Calls for CU Reg Relief

Written by Steve Van Beek

The CFPB's 3507 pages of new mortgage regulations has everyone wondering where to start and how to best handle the new requirements.  One of the best first steps is to determine which requirements apply to which types of mortgage loans.  To help with this, NAFCU has put together the following Scope & Applicability Charts:

• Regulation Z (TILA) Mortgage Servicing Requirements

• Regulation X (RESPA) Mortgage Servicing Requirements

• Loan Originator Compensation, Qualifications, Training and Disclosure Requirements

• Regulation B Appraisal Requirements

• Appraisal Disclosure Requirement for Higher-Priced Mortgage Loans

• Appraisal Requirements for Higher-Priced Mortgage Loans

• New Escrow Requirements for Higher-Priced Mortgage Loans

• New Requirements for High-Cost Mortgage Loans

• New Homeownership Counseling Disclosure Requirement

• Ability-to-Repay Requirements and Qualified Mortgage Standards 

Now, you might be wondering how you gain access to those charts.  There are Five Ways:

• NAFCU members have access directly via NAFCU's CFPB Mortgage Rules webpage.

• Registrants for today's webcast on The CFPB's Final Mortgage Regulations (registration is still open) will be able to download the charts during the webcast.

• Attendees at NAFCU's Regulatory Compliance School will hear a similar presentation to today's webcast and will receive access to the charts at School in March (of course, NAFCU members can access the charts here).

• Purchasers of NAFCU's Credit Union Compliance GPS will receive access in mid-March when the 2013 GPS is available.

• Non-NAFCU member registrants of NAFCU's Regulatory Compliance Seminar will receive access in the next week.  If you sign-up for Seminar after today, we'll get the charts to you within a week of your registration.   

A Note on Sharing of Charts.  We put a ton of time and effort into researching and creating these charts.  And, we've made the accessible - in one way or another - to any credit union or organization that is interested.  Please do not share these outside of your credit union.  Of course, if you have any questions - just shoot me an email.  

Hope to see you on today's Mortgage Rules Webcast.

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NAFCU Calls for Regulatory Relief.  Yesterday morning, NAFCU sent a letter to Senate and House leaders calling for a five-point plan on providing regulatory relief for credit unions through administrative, capital, structural, operational and data security reforms.  You can find the letter here.  For additional details, check out the NAFCU Today.

Effective Dates for New Mortgage Regulations: The CFPB and "Issue Dates"

Written by Steve Van Beek

With all the new regulations, I thought it would be useful to list the effective date of each new regulation along with a link to the corresponding regulation page on the CFPB's website.

• June 1, 2013 - Escrow Requirements for Higher-Priced Mortgage Loans

• June 1, 2013 - Prohibition on Mandatory Arbitration and Financing of Credit Insurance Premiums (from MLO Compensation Regulation)

• January 10, 2014 - Qualified Mortgage and Ability-to-Repay Requirements

• January 10, 2014 - Mortgage Servicing Requirements - Reg Z (TILA) and Reg X (RESPA)

• January 10, 2014 - Loan Originator Compensation and Training, Certification and Identifier Disclosure

• January 10, 2014 - High-Cost/HOEPA Mortgage Loans and Homeownership Counseling Disclosures

• January 18, 2014  - Disclosure and Delivery of Free Copies of Appraisals - Regulation B

• January 18, 2014 - Appraisals for Higher-Priced Mortgage Loans

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CFPB and "Issue Date."  The CFPB likes to make up its own rules.  Including their recent announcement that their rules are considered "issued" when they are posted on the CFPB's website rather than the normal Administrative Procedure Act timeframe of when the rules are published in the Federal Register.  

Well, as chance would have it, the CFPB's mortgage rules are slated for publication in the Federal Register for the following dates:

• January 22nd for Escrow Final Rule (link goes to actual Federal Register document)

• January 30th for Qualified Mortgage/Ability-to-Repay Final Rule (link goes to Public Inspection Desk)

• January 30th for High-Cost/HOEPA and Homeownership Counseling Disclosures (link goes to Public Inspection Desk)

The other regulations will be in the Federal Register at an even later date.  

Why does this matter?  The CFPB gave 12 months (and sometimes less) from the "issue date" to implement the majority of the new requirements.  Because the CFPB considers the "issue date" as the date of publication on the CFPB's website - rather than publication in the Federal Register - your credit union will have less time to comply with the final rules.  

Summary.  If the CFPB would have followed the normal Administrative Procedures Act process, your credit union would have 12 months - from the date of publication in the Federal Register - to comply.  

Unfortunately, Dodd-Frank gave the CFPB very strict deadlines for issuing their final regulations and the CFPB chose to alter long-standing rulemaking practices instead of using its exemption authority (like it did for other Dodd-Frank requirements) to ease the impact of these regulations.    

Reg B Appraisal Final Out; CFPB Summary of Higher-Risk Appraisals; More on Mortgage Servicing Rules

Written by Steve Van Beek

A couple of additional items before the weekend.  Reminder: NAFCU's offices will be closing early today and will be closed until Tuesday.  

Regulation B Appraisal Finalized.  The CFPB released their final rule for free copies of appraisals under Regulation B.  The press release is here.  There is a consumer summary as well as a detailed summary.    

The special page for the Regulation B final rule is located here.   

Effective Date:  January 18, 2014.  

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Appraisals for Higher-Risk Mortgages.  As expected, the CFPB issued their own information regarding the interagency final rule on appraisals for higher-risk mortgages.  Their press release is here.  They also released a consumer summary as well as a detailed summary.  Effective Date: January 18, 2014.    

The special page for the Appraisals for Higher-Priced Mortgages* is located here.

*Note: The final rule adopts the term "higher-priced" for these loans to help align the rule with the existing "higher-priced" mortgage loan requirements (including escrows).  

NCUA also issued a press release and a link to the final rule on their website.  

So where will credit unions need to look for this requirement?  NCUA's rule or the CFPB's?

Here is from the final rule:

"The NCUA and FHFA adopt the rules as published in the Bureau’s Regulation Z at 12 CFR 1026.35(a) and (c), by cross-referencing these rules in 12 CFR 722.3 and 12 CFR Part 1222, respectively."

Thus, after the rules are in the Electronic Code of Federal Regulations, credit unions will need to use 12 CFR 1026 - Regulation Z - as NCUA's rule will simply tell them to go find the requirements in 12 CFR 1026.35. 

Just for fun, here is the wonderful legalese that will be located in 12 CFR 722.3(f):

"(f)  Higher-priced mortgage loans.  A credit union may not extend credit to a consumer in the form of a “higher-priced mortgage loan” as defined in 12 CFR 1026.35(a)(1), without meeting the requirements of section 129H of the Truth in Lending Act, 15 U.S.C. 1639h, and its implementing regulations in Regulation Z, 12 CFR 1026.35(c)."

Say that five times fast.  

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More on Mortgage Servicing.  There has been quite a bit of discussion in the news about the 5000 transaction exemption for mortgage servicing.  Unfortunately, some of it has the potential to cause confusion.  When you are reading news stories or summaries of the mortgage servicing rule, remember that the 5000 transaction exemption does not cover all the new requirements.  For example, the requirements for error resolution and information requests procedures will apply to all credit unions performing mortgage servicing.  And, it looks like the force-placed insurance requirements will apply as well.  

"The Bureau agrees that additional exemptions are appropriate for certain of the rulemakings.  As discussed in more detail below, the Bureau has determined not to implement these additional exemptions to those regulations that principally implement requirements set forth in the Dodd-Frank Act.  These include the requirements in §§ 1024.35 (Error Resolution Procedures), 1024.36 (Information Requests), and 1024.37 (Force-Placed Insurance).  With respect to error resolution procedures and information requests, those provisions build upon the existing Qualified Written Request procedures, which are currently applicable to the servicers discussed above.  Providing an exemption to these requirements would have removed a currently existing consumer protection."  Page 90-91 of the Reg X/RESPA Mortgage Servicing Final Rule.

There could be more.  For now, if a colleague starts celebrating that you are under 5000 transactions and not subject to the mortgage servicing rule - just remind them of these six words that compliance officers know too well: "the devil is in the details."

Note: NAFCU's Mortgage Reform Webcast Series will feature a May 15 webcast on the error resolution and information request requirements.  

What is a Transaction?  We'll have more on this in a future blog post, but the periodic statement requirement covers all closed-end loans secured by a dwelling.  This would include closed-end home equity loans.  Open-end loans (i.e., HELOCs) are excluded.  Again, expect additional information next week on this issue (I have a weekend reading date with the devil to discuss the details).  

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Final Rule for Mortgage Loan Originator Compensation?  I haven't seen it yet, but it is likely to come out today as well.  

The best place to check is the CFPB's main regulation page.  We'll also post the information on this blog post (yes, the one you are reading) after it is out.  Just click this link and you'll go to the compliance blog itself and will be able to see any updates.

Update at 4:30 p.m. on 01/18/2013.  Cordray's remarks on mortgage loan originator compensation are here.  Our NAFCU Today story is here.  Additional information on the rule - including the full regulatory text - is not expected until Sunday.    

Update at 6:45 a.m. on 01/19/2013.  The CFPB's press release is available as is their summary of the rule.  The full rule will come out Sunday, January 20th.  

Update at 2:00 p.m. on 01/20/2013.  The CFPB's special regulation page for the MLO rule is here.  The full MLO compensation rule is available here (541 pages).

Effective Date:  The press release indicates the effective date for the majority of the new requirements will also be January 10, 2014.  However, two provisions - prohibition on mandatory arbitration and the prohibition on financing credit insurance - will be effective June 1, 2013.

Have a great weekend!

NCUA Report - September 2012; Fraud Information Center

Written by Steve Van Beek

Welcome back - we'll keep this nice and easy on your return from the holiday weekend.  

NCUA Report.  NCUA issued their September 2012 NCUA Report a little while back and it is a very useful read.  The Report includes the following articles:

• NCUA Alerts 1,000 Credit Unions to Low-Income Designation Opportunity

• Chairman Matz's Corner: Dual Regulatory System Works Well for Troubled Credit Unions

• Office of General Counsel Report: Navigating Multi-Featured Open-End Lending

• Board Member Hyland:  Board Perspectives: A "Small" Change Would Get the Big Results

• Board Member Fryzel:  Board Perspectives: ZzZzZzZ

• Office of Consumer Protection Report: Unclaimed Deposits Website Draws Thousands of Hits

• Office of Minority and Women Inclusion Report: Dodd-Frank Act Requires Regulators to Develop Diversity Standards and Assessments

• Region I Report: Working Together on Fraud

• Office of General Counsel Report: Agencies Issue Higher-Risk Mortgage Appraisal Proposed Rule

Fraud Information Center.  I was excited when I saw this mentioned in the Region I Report regarding fraud as I thought NCUA had developed a new way to inform credit unions of potential fraud.  

"Take advantage of NCUA’s online Information Center (http://go.usa.gov/r9H4). This webpage includes an update of current fraudulent schemes being aimed at credit unions, contains details about the agency’s fraud hotline (all reports remain confidential), offers background on phishing schemes where email are purportedly coming from NCUA, links to suspicious activity report (SARs) forms and guidance, and connects credit unions with other resources readily available, including the FBI, U.S. Postal Service, and the President’s Identity Theft Task Force, to name a few."  (emphasis added).

Unfortunately, the bolded language looks to be a landing page with past Fraud Alerts and Letters to Credit Unions.  Hopefully, there is an update or futher enhancements going on behind the scenes as well.  

Tracking the Comment Deadlines for the CFPB's Mortgage Proposals

Written by Steve Van Beek

With all the various mortgage proposals from the CFPB, it can be quite hard to track the proposals - including the comment deadlines.  We've highlighted the actual Federal Register notices in a past blog post (now updated with the Mortgage Servicing proposals), but we also wanted to highlight the comment deadlines for you as it is extremely important that credit unions make their voices heard to the CFPB about the magnitude of these proposed changes and, more specifically, the costs and operational changes that the proposals would require.  

Comment Deadlines.  Below are the comment deadlines for submitting comments to the CFPB.  

• September 7, 2012:  High-Cost/HOEPA Proposal

• October 9, 2012:  Mortgage Servicing Proposals

• October 15, 2012:  Mortgage Loan Originator Proposal

• October 15, 2012:  Higher-Risk Appraisal Proposal

• October 15, 2012:  Regulation B Appraisal Proposal

• November 6, 2012:  TILA/RESPA Integrated Disclosure Proposal

• November 6, 2012:  Proposed Change to Definition of Finance Charge 

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NAFCU Regulatory Alerts.  NAFCU's regulatory affairs team has produced Regulatory Alerts for NAFCU members on each of these proposals.  You can view the Regulatory Alerts by clicking here (or download the PDFs directly from the links below):

• 12-EA-20: CFPB: Mortgage Disclosures (TILA/RESPA Integrated Disclosures)

• 12-EA-19: CFPB: Mortgage Disclosures (Finance Charge)

• 12-EA-21: CFPB: Proposed Rule to Amend HOEPA Regulations

• 12-EA-24: CFPB: Mortgage Servicing

• 12-EA-28: CFPB: MLO Compensation

• 12-EA-27: CFPB: Appraisals for Higher-Risk Mortgages

• 12-EA-26: CFPB: Free Access to Appraisals

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NAFCU Webcasts.  In addition to the alerts above, we are also explaining the proposed rules in webcasts.  Below are two that may be of interest:

• Inside the CFPB's Mortgage Proposals - On-Demand Webcast - Special 3-hour webcast which highlights the Mortgage Servicing proposals, the High-Cost/HOEPA proposal as well as the TILA/RESPA Integrated Disclosure proposal (including a thorough discussion of how the proposed change to the definition of "finance charge" will impact your credit union).

• The CFPB's Latest Mortgage Proposals - November 7, 2012 - NAFCU's compliance team will highlight the impacts from the mortgage loan originator proposal, the higher-risk appraisal proposal and the Regulation B appraisal proposal.  Sign up by October 31st and Save $100.

We'll also be discussing the TILA/RESPA Integrated Disclosures and the Mortgage Servicing Disclosures at our 2012 Regulatory Compliance Seminar in Seattle.  Remember, NAFCU's webcasts and conferences are open to everyone - regardless of NAFCU membership.    

Tracking the CFPB's Mortgage Proposals - Federal Register

Written by Steve Van Beek

With the various mortgage proposals from the CFPB, I thought a good Friday blog post would be one that linked to the various proposals in the Federal Register so that credit unions had the proposed rules in one place.

Initially, here is a link to the CFPB's section of the Federal Register.  Below are links to the CFPB's mortgage proposals.

• High-Cost Mortgages and Housing Counseling Amendments Note: The comment period for the finance charge portion has been extended until November 6th.  
• Equal Credit Opportunity Act (Regulation B) - Appraisals
• Integrated Mortgage Disclosures under TILA/RESPA Note:  The comment period for the finance charge portion was also extended until November 6th.
• Appraisals for Higher-Priced Mortgage Loans
• Loan Originator Compensation (Regulation Z)

Update (10/01): The Mortgage Servicing proposals can be found here (Reg Z) and here (Reg X).  It doesn't appear that the Mortgage Servicing proposed rules have been published in the Federal Register yet (the comment period ends October 7th for those proposals).  Those proposals can be found here:  Reg Z and Reg X.  Our August 23rd blog post also has a recap of our mortgage servicing blog posts to date.

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NAFCU Seminar.  We'll be discussing both of the Mortgage Servicing proposals as well as the TILA/RESPA Integrated Mortgage Disclosures in breakout sessions in Seattle (October 23-26th).  We'll also be discussing the other proposals in our CFPB Update sessions.  

On-Demand Webcast.  If you missed the 3-hour marathon webcast on Wednesday, you can still purchase the on-demand version in order to get a detailed update of the CFPB's proposals on mortgage servicing and high-cost mortgages (including the impact on HELOCs).  I also provided an overview of the proposed Integrated Disclosures.

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Football Season.  I'll admit we've been a little slow on the football talk lately.  With that being said:  Go Blue!

Have a great weekend!

Appraisals for Higher-Risk Mortgage Loans

Written by Bernadette Clair, Regulatory Compliance Counsel

Earlier this month, federal financial regulatory agencies including the CFPB and NCUA, issued a proposed rule to establish new appraisal requirements for higher-risk mortgage loans. The proposed revisions to Regulation Z would implement new TILA section 129H, added to TILA by Dodd-Frank section 1471.  The CFPB’s press release on the proposed rule is available here. 

Keep in mind that the CFPB has also issued a separate proposed rule on appraisals under Regulation B.  That proposal would require mortgage lenders to provide home loan applicants with copies of written appraisals and other home value estimates developed in connection with the application.  See our August 20th blog for more details on the Regulation B proposed rule on appraisals.

Under the Regulation Z proposed rule, creditors would have to comply with new appraisal requirements before making a higher-risk mortgage loan.  Here are some of the basics from the proposal:

“Higher-risk mortgage loan.”  Under the proposed rule, a “higher-risk mortgage loan” is generally defined as a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an APR exceeding certain statutory thresholds.  In general, loans would be “higher-risk mortgage loans” if the APR exceeds the average prime offer rate (APOR) by 1.5 percent for first-lien loans, 2.5 percent for first-lien jumbo loans, and 3.5 percent for subordinate lien loans.  Sound familiar? These rate thresholds are similar to the rate triggers currently in Regulation Z for “higher-priced mortgage loans,” a category of loans to which special consumer protections apply under section 1026.35. 

What new appraisal requirements are proposed for “higher-risk mortgage loans?”  Under the proposed rule, the following requirements must be met to make a higher-risk mortgage loan:

• The creditor obtains a written appraisal;
• The appraisal is performed by a certified or licensed appraiser;
• The appraiser conducts a physical property visit of the interior of the property;
• At application, the applicant is provided with a statement regarding the purpose of the appraisal, that the creditor will provide the applicant a copy of any written appraisal, and that the applicant may choose to have a separate appraisal conducted at the expense of the applicant; and
• The creditor provides the consumer with a free copy of any written appraisals obtained for the transaction at least three (3) business days before closing.

 In addition, the proposed rule would require a higher-risk mortgage loan creditor to obtain an additional written appraisal, at no cost to the borrower, under the following circumstances:

• The higher-risk mortgage loan will finance the acquisition of the consumer’s principal dwelling;
• The seller is selling what will become the consumer’s principal dwelling acquired the home within 180 days prior to the consumer’s purchase agreement (measured from the date of the consumer’s purchase agreement); and
• The consumer is acquiring the home for a higher price than the seller paid.

 The additional written appraisal, from a different licensed or certified appraiser, generally must include an analysis of the difference in sale prices (i.e., the sale price paid by the seller and the acquisition price of the property as set forth in the consumer’s purchase agreement), changes in market conditions, and any improvements made to the property between the date of the previous sale and the current sale. This requirement is designed to address fraudulent property flipping by seeking to ensure that the value of the property being used as collateral for the loan legitimately increased.

For complete details, the proposed rule is available here.

CFPB Issues Regulation B Appraisal Proposal

Written By JiJi Bahhur, Regulatory Compliance Counsel

Last Wednesday, the Consumer Financial Protection Bureau (CFPB) released a proposed rule that would amend the Equal Credit Opportunity Act (ECOA)’s Regulation B by requiring mortgage lenders to provide home loan applicants with copies of written appraisals and other home value estimates developed in connection with the application. The rule would ensure that consumers receive information prior to closing about how the property’s value was determined.

Under the proposal, consumers would receive disclosures of their right to receive a free copy of appraisal reports and home value estimates within three days of applying for a loan. Creditors would then be required to provide the reports to consumers as promptly as possible, but in no case later than three days before closing, regardless of whether credit is extended, denied, incomplete or withdrawn.

Also under the proposal, creditors could still charge reasonable fees associated with conducting appraisals and home value estimates.  However, the rule prohibits creditors from charging consumer fees for obtaining the reports.  This is a change from current practices where consumers must request an appraisal report from the creditor and may be charged a fee to obtain the report.   

The CFPB plans to finalize this rule in January 2013.  For more details on the proposal, you can view the proposal here and a summary of the CFPB’s proposal here. 

***

Importantly, the CFPB's proposal would remove the long-standing exemption from the appraisal requirements in Regulation B - 12 CFR 1002.14:

"(b) Credit unions. A creditor that is subject to the regulations of the National Credit Union Administration on making copies of appraisal reports available is not subject to this section."

Federal credit unions have historically been able to follow 12 CFR 701.31(c)(5) of NCUA's regulations but the CFPB's proposal would force CUs to comply with Regulation B for appraisals - including the new requirements.  

Is this What a Level Playing Field Looks Like?; 2996 Pages in Six Weeks

Written by Steve Van Beek

Proponents of Dodd-Frank and the Consumer Financial Protection Bureau tried to tell credit unions that Dodd-Frank and the CFPB would be good for credit unions.  The playing field would be leveled and the regulatory burden would be lowered on small institutions.

Here is a snippet from Elizabeth Warren's testimony before the House on May 24, 2011:

"A significant part of our mission will also be to help level the playing field for smaller lenders, such as community banks and credit unions. We recognize that the regulatory pressures on banks have increased substantially over time. While regulatory costs may be manageable on a per-account basis for the largest financial institutions, for smaller businesses, all the complicated rules, extensive paperwork, and expensive compliance reviews can be daunting. If we continue on our current regulatory trajectory, traditional banks and credit unions will be put at a further disadvantage that could push many out of business.

American consumers are best served by a strong and diversified financial services industry. Many community banks and credit unions embrace relationship lending, and they often work in partnership with the families they serve. Some smaller institutions provide a banking presence in otherwise-underserved communities, both in our cities and in rural areas. If community banks and credit unions continue to face competitive pressures triggered by a complex regulatory system, then those institutions will not be as able to serve American families. In that case, not only do the banks lose, but families lose as well.

The CFPB is committed to working with smaller institutions to reduce regulatory costs. We have already begun that work, and we are pleased to report to Congress that the spirit of openness and cooperation expressed by community banks and credit unions has been extraordinary. The mortgage disclosure integration project is one area in which we are seeking to reduce regulatory burdens, and we expect that it will serve as an excellent test case as we design our ongoing processes for how the consumer bureau and smaller institutions can work together to increase the ability of these institutions to spend less time on regulations and more time serving America’s families."  (Emphasis added).

Now, I want to ask a question to credit unions:  Does what is stated above match what the CFPB has done in the past 6 weeks as indicated below?  

• TILA/RESPA Proposed Rule (1099 Pages)
• HOEPA/High-Cost Mortgage Proposed Rule (293 Pages)
• August Final Rule on Remittances (168 Pages) which Amends the February Final Rule (417 pages)
• Mortgage Servicing Proposed Rules - TILA (313 Pages) - RESPA (442 Pages)
• Higher-Risk Appraisals Proposed Rule (211 Pages) - New!
• Regulation B Proposed Rule - Free Copies of Appraisals (53 Pages) - New!

So, here is my question to the CFPB:  Is proposing 2996 pages of new regulations - within a six week period - how you envisioned "working with smaller institutions to reduce regulatory costs"?

And now a question for proponents of Dodd-Frank and the CFPB:  Is this what a level playing field looks like? 

CFPB Releases Semiannual Regulatory Agenda - Spring 2012; Seminar in Seattle

Written by Steve Van Beek

CFPB Regulatory Agenda.  Yesterday, the CFPB posted its Semiannual Regulatory Agenda - for spring 2012.  The previous Semiannual Regulatory Agenda was released in February 2012.  The latest release follows the same format and includes a listing of regulations in the various rulemaking stages: prerule stage, proposed rule stage, final rule stage, long-term actions and completed actions.  

Below is a listing of the various future regulations - organized by rulemaking stage.  Keep in mind the agenda is current as of April 13, 2012 and the CFPB has taken numerous actions since putting this agenda together.    

Prerule Stage:

• Registration of Certain Nonbank Covered Persons
• Supervision of Larger Depository Institutions and Affiliates
• Home Mortgage Disclosure Act (Regulation C)
• Requirements for Prepaid Cards (Regulation E) 

Proposed Stage:

• Amendments to TILA and FIRREA Concerning Appraisals
• Disclosure Rules and Substantive Protection for Certain High Cost Mortgage Loans (Regulation Z)** (proposed on July 9th)
• Mortgage Originator Standards (Regulation Z)
• Mortgage Servicing (Regulation X; Regulation Z)
• TILA/RESPA Mortgage Disclosure Integration (Regulation X; Regulation Z)** (proposed on July 9th)
• Credit Card Pre-Opening Account Fees (Regulation Z)
• Procedural Rule To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination
• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets (LP 2) 
• Copies of Appraisals or Other Valuations To Be Furnished by Creditor (Regulation B)

Final Rule Stage:

• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets (LP 1)** (finalized on July 16th)
• Disclosure of Records and Information
• State Official Notification Rule
• Rules Relating to Investigations
• Rules of Practice for Adjudication Proceedings
• Restatement of Federal Consumer Financial Law Regulations
• Requirements for Escrow Accounts (Regulation Z)
• TILA Ability to Repay (Regulation Z)
• Confidential Treatment of Privileged Information
• Disclosure Rules for Remittance Transactions (Regulation E)

Long-Term Actions:

• Alternative Mortgage Transaction Parity (Regulation D)
• Business Lending Data (Regulation B)
• TILA Mortgage Amendments (Regulation Z) 

Completed Actions: 

• Disclosure Rules for Remittance Transactions (Regulation E)

***

Only 27 potential rulemakings!!  The Regulatory Agenda also includes a short summary of each rulemaking that is useful for providing a quick overview of what will be covered by the rulemaking.  However, as last Monday's proposed rules show - a short summary doesn't do much when the proposals are 1099 pages and 293 pages.  

***

NAFCU's 2012 Regulatory Compliance Seminar.  Luckily, you don't have to read and understand all 27 potential rulemakings on your own.  We'll be covering quite a few of them at our 2012 Regulatory Compliance Seminar in Seattle, Washington - October 23-26.

The program-at-a-glance is available here (and we'll be including additional sessions as the proposals continue to flow).  We already have a session on the TILA/RESPA mortgage disclosures, the upcoming mortgage servicing proposal (including the periodic statement requirement) as well as a session on the remittances final rule.  Detailed session descriptions can be found here.

Remember - you do not need to be a NAFCU member to attend.  And, Save $100 if you Register by August 31st!

Overdraft Extension; NLRB Notice Delay; MBL Appraisal Opinion Letter

Written by Steve Van Beek

A pretty eventful Spring so far as the CFPB seems to be hitting their stride.  Apologies for politely asking the CFPB to start issuing guidance - who knew they'd begin blasting out Bulletins left and right?  I guess that does show how complex and confusing the existing regulatory environment has become.

Below are a couple of quick items.  Additionally, if you didn't catch yesterday's free webcast with CFPB Director Cordray you can still view the on-demand version (just register first and then view).  

***

Overdraft Comment Period Extended.  The CFPB issued a notice in today's Federal Register that it would be extending the comment period for its Overdraft Inquiry until June 29, 2012.  If your CU hasn't submitted comments yet, be sure to take this additional time to do so.  NAFCU's Regulatory Alert is here (12-EA-07) but feel free to send your comments directly to the CFPB as well.  

NLRB Notice.  The deadline for the National Labor Relations Board (NLRB) poster was scheduled for April 30th, 2012.  However, a recent court decision has delayed this requirement until further notice.  Here is from the NLRB's website:

"Important note: The DC Circuit Court of Appeals has temporarily enjoined the NLRB’s rule requiring the posting of employee rights under the National Labor Relations Act. The rule, which had been scheduled to take effect on April 30, 2012, will not take effect until the legal issues are resolved. There is no new deadline for the posting requirement at this time."   

Prior blog postings on this issue can be found here and here.  

NCUA Opinion Letter.  NCUA recently issued their third opinion letter of 2012 - this one on appraisals when selling a participation interest in a member business loan.  If your CU is involved in these types of issues it is best to review the full letter - 11-1126.    

Know Before You Owe; Appraisal Forms

Written by Steve Van Beek

In late June, we blogged about the CFPB's second round of the Know Before You Owe project to combine the TILA and RESPA disclosures.  If you didn't have a chance to look at the prototypes at that time, you can still review the disclosures and send NAFCU any comments that you might have.  This could be design-related or actual disclosure issues that the new forms don't address.  Kick the tires, as they say, and send us your comments (send them to Dillon Shea - [email protected]).  

We will share them with the CFPB in the hopes that this will not be a repeat of the 2010 RESPA changes (too soon?)  

***

Yesterday, Fannie Mae released a reminder about upcoming changes to their appraisal forms.  The notice also discusses various training options available.  If your credit union sells mortgages on the secondary market, be sure to take a look at these changes.  A broader discussion of the Uniform Collateral Data Portal (UCDP) is here.    

Mortgages; Happy Birthday Kate and Briggs!

Posted by Anthony Demangone

A few of us were chatting around the office the other day, and the subject of mortgages came up.  We quickly began shaking our heads.  On one hand, many people are chewing out financial institutions for not making enough loans.  And the government has spent the last few years doing what it can to prop up the U.S. housing market.  All the while, credit unions and other mortgage lenders are getting pounded from every conceivable direction.  Just think about the following.

Regulation Z.  MDIA disclosures were put in place.  Then there was the mortgage loan sale or transfer notice regulation..  In case that wasn't enough, along came a rule on mortgage loan originator compensation.  Those MDIA disclosures?  They were amended. Requirements regarding higher-priced mortgage loans were put in place.  And then new HPML loan requirements for jumbo mortgages were announced.  In that same announcement, the Fed issued a proposal that would amend the first set of HPML requirements. And don't tell me that they tweaked that MDIA disclosure again?  Oh, and the entire system of disclosures for closed end mortgages and HELOCs are in the process of being amended.  The CFPB will pick that process up sometime in the future. 

SAFE Act.  Need I say more? 

RESPA.  The GFE and HUD-1 were completely overhauled.  And the CFPB announced that they want to rework the disclosures as soon as they gain their official powers.

Appraisals.  First, a state Attorney General from New York manages to ink a deal with Fannie and Freddie that practically changed appraisal requirements for the entire country.  Then regulators, including NCUA, issued their interagency appraisal and evaluation guidelines, which completely overhauled just about every aspect of the appraisal process.  And the Fed has issued its appraisal regulation.  All of these requirements have mortgage lenders jumping through hoops - many of which appear to complicate the process without ensuring any benefit to the housing system. 

GSEs.  The future of GSEs are on the line. Congress and the Obama administration are trying to craft solutions to deal with these entities, all the while, leaving a great deal of uncertainty for credit unions that need access to some sort of secondary market for liquidity and interest rate risk management. 

Servicers.  Add to all of this a recent development.  State Attorney Generals crafted an agreement/settlement offer sheet for the largest mortgage lenders in America.  While this on the surface doesn't directly affect credit unions, many of the agreement's requirements may find their way into regulations and guidance documents or become industry servicing standards.  Some of those provisions are quite onerous, such as one that raises the issue of cram downs. 

Dodd-Frank. Provisions in Dodd-Frank will likely increase downpayment requirements for many mortgage loans. 

CFPB.  As noted above, Elizabeth Warren has indicated that one of the CFPB's first priorities will be to overhaul mortgage disclosures.  Combining TILA and RESPA disclosures is not necessarily a bad thing, but given everything we've gone through already, a break might be nice. 

Market Forces.  Oh, lest we forget.  Mortgage values are down, there is talk about a partial elimination of the mortgage interest deduction, and mortgage rates will likely increase in the not too distant future.

So, if you work with mortgages and someone wants to know how "work is going," feel free to send them this post. The pace and amount of change in this area has been practically unmanageable.  There is so much risk and uncertainty, I wonder if some lenders will simply decide to exit the mortgage market altogether.  All of this uncertainty and change also creates another problem - it tends to favor large organizations who can throw oodles of compliance and legal resources at the problem. Smaller shops may eventually leave the market or merge themselves out of existence.  Wasn't there a cry about ending "too big too fail?" 

Oh, and feel free to share this with your Congressman if he or she wants an example of regulatory burdens faced by credit unions. 

***

Speaking of the rapid pace of change, Kate and Briggs turned two today. Looking back on these two years, well, the words just escape me. It is hard to describe the effect they've had on my life. 

 

 

Appraisals

Posted by Anthony Demangone

Last week, all of the federal financial regulators, including NCUA, issued final appraisal and evaluation guidelines.   These guidelines replace the 1994 guidelines, and they represent the most up-to-date regulator expectations in this area. (Keep in mind though, that the new guidelines do not replace the 2005 Interagency FAQs on Residential Tract Development Lending and the 2005 Frequently Asked Questions on the Appraisal Regulations and the Interagency Statement on Independent Appraisal and Evaluation Functions.)

These documents usually look scarier than they really are.  The total document is 70 pages in length, but the first 15 pages are made up of historical texts, reactions to comments, etc.  The new guidelines start on page 16.  They did a nice job of organizing the guidelines, including a handy-dandy table of contents.  

So, when you do appraisal related research, here appears to be the universe of available regulatory "stuff."

1. NCUA's appraisal regulation. 
2. The new guidelines, which will eventually be published in The Federal Register.
3. The 2005 Interagency FAQs on Residential Tract Development Lending.
4. 2005 Frequently Asked Questions on the Appraisal Regulations and the Interagency Statement on Independent Appraisal and Evaluation Functions
5. There's also the recent interim final rule that amends Regulation Z concerning appraisals. 

I think that's more than enough appraisal information for a Monday.

This and That...

Posted by Anthony Demangone

My inbox still runneth over. Here are some more items of note.

Da Fed.  The Fed just released two rule-makings.  I'll get into more details later in the week, but for now...

• They released this interim final rule (compliance deadline April 1, 2011), to address appraiser independence and compensation. The rule-making was required under Dodd-Frank.
• They released this proposal to close a few loopholes that popped up concerning Reg Z's rules on credit cards. 
• They also released a final rule that finalizes an interim final rule concerning the compliance date for gift cards. 

STS.  I guess that's the new acronym for NCUA's short-term, small amount loan regulation. NCUA recently released NCUA Regulatory Alert 10-RA-13, which is a FAQ document that addresses the recent changes. For example, the following question and answer addresses balloon payments in relation to STS loans. 

Must the loan be amortized, or can the borrower make a balloon payment at the end of the loan term?

The loan must be amortized in such a way that allows the borrower to repay the loan in the given term. FCUs must structure the payments so that the borrower is paying a portion of the principle and interest in equal or near-equal installments on a periodic basis over the course of the loan. While NCUA is not prescribing specific payment schedules (such as monthly or bi-weekly), FCUs should offer payment schedules that allow borrowers to easily repay the loan within the given term.

 FinCEN.  FinCEN was a busy beaver recently.

• FinCEN will reorganize its rules  next year in an effort to make the rules easier to understand.  Rules affecting a particular industry will be grouped together, for example.  Here's an index of the proposed reorganization.  Our rules will be under Part 1020.  Keep in mind that this will not change anything of substance.  But it will take some time to get used to, and all of our existing BSA citations will be dated once the changes go into affect.  Ugh.
• FinCEN published a study  that looked at SARs which reported identify theft.  There is a ton of information in there, and I would forward the study on to your fraud team.  Of note, credit card fraud continues to be the most common type reported on SARs.  And roughly 27 percent of fraud victims know the alleged suspect.  

FTC.  Speaking of identity theft, the FTC announced a bundling of consumer-oriented ID theft resources. You may be able to help consumers by pointing them toward these free resources.  (SHAMELESS PLUG ALERT!) In addition, NAFCU does sell a number of security and ID-related statement stuffers. 

HVCC Clarifications Issued; HOEPA Trigger Updated

Posted by Anthony Demangone

As those of you who deal with Fannie Mae and/or Freddie Mac know, Fannie and Freddie now require that lenders follow the Home Valuation Code of Conduct (HVCC) in order to deliver conventional, single-family loans originated on or after May 1, 2009 to them.  Many of you have told us about the difficulties you've had with the HVCC.   NAFCU continues to seek relief from HVCC-related burdens.   We also sent a letter to the Hill on this issue.  Download H R 3044 Comment Letter.

The Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie and is in charge of their conservatorship, issued a statement to try to clear up common misunderstandings related to the HVCC.   Fannie and Freddie themselves have also updated their respective "frequently asked questions" on the HVCC.Combined, these documents address, among other things, what loans are specifically covered by the HVCC and communication with appraisers and lender removal of appraisers. You can find these documents by clicking FHFA Notice or Fannie’s FAQ or Freddie’s FAQ.  (And know how I love my FAQs.)

For example, here's a Fannie FAQ that attempts to clarify a major area of confusion: providing borrowers a copy of their appraisal.

Question: Can you clarify the requirements around Section II of the Code requiring the borrower’s receipt of the appraisal?

Answer: The Code requires that a borrower be provided a copy of the appraisal no less than three days prior to the closing of the loan. The Code allows that the borrower may waive this three-day requirement. Situations where a borrower is unaware of his or her right to a copy of the appraisal prior to the three days and is then provided a waiver of that right at the closing table, would not be compliant with the intent of the Code. The time period of rescission in a refinancing situation does not constitute a valid three-day waiver period.     

    The Code does not specify what form the waiver must take or whether it be oral or written. In addition, the Code does not prohibit that a waiver, given in a timely manner, be recorded at some later point when the parties are available. Each lender must develop its own policies, procedures, and documentation. For example, a lender may obtain a waiver from a borrower through an email, phone call, or some other means, prior to the three-day period, and then have that waiver recorded in writing at the settlement table or at some other time.

    The three-day period begins on the day of the receipt of the appraisal. For example, in a non-waiver situation, where a borrower received an appraisal on Monday, the closing could be held on Wednesday. Saturday is included for purposes of counting the three-day period. Sundays and legal holidays are not included for counting the three-day period.

I would forward this to whomever at your credit union is tracking the HVCC issue. 

***

In other compliance happending, the Fed has updaded the dollar amount of its fee-based HOEPA trigger down to $579, effective January 1, 2010.  Read all about it here.

Independent Valuation Protection Institute; SAFE Act

The Home Valuation Code of Conduct required the creation of the IVPI (I wasn't going to spell that out twice).  This entity was to serve as a body that would accept referrals and complaints about noncompliance with the HVCC.  Fannie Mae issued a Lender Letter recently to note that the IVPI is not in place yet.  It is still being finalized.  A temporary process will be put in place until the IVPI starts rolling. Read all about it here.

Editor's Note: IVPI does look like a Roman Numeral, but it isn't.  The P won't work.  For anyone who wants to quickly convert Roman Numerals into normal numbers (and vice versa), go here.

***

Fannie Mae also issued Announcement 09-11, which discusses the Nationwide Mortgage Licensing System, as required by the S.A.F.E. Act.   Read all about it here.  Of note:

Q4. When will the federal banking agencies, Federal Financial Institutions Examination Council, and Farm Credit Administration have a system for registering employees of federally insured depository institutions and their subsidiaries?

A specific date has not been set, but Fannie Mae will communicate updates to lenders as more information becomes available. Lenders are expected to comply with their regulators’ requirements as systems and processes are established.

Home Valuation Code of Conduct; Whoops!

You may have heard about the Home Valuation Code of Conduct (HVCC).  For credit unions that do mortgage lending, this is a big deal.  Well, here's some help.

• Fannie Mae has put together a very nice HVCC resource page.  Access it here.  It has an FAQ, the HVCC itself, and some Fannie-related guidance.  (OK, that last phrase sounds funny.)  Seriously, though - this is a very good source of HVCC information.
• NAFCU is also offering an HVCC/Appraisal webcast later this month.  Read all about it here.   We put together a nice line-up.  We have someone from NCUA's Examination and Insurance side, a person from NCUA's Office of General Counsel, an expert from Fannie Mae, and an expert from the appraisal industry.  I can't imagine a better panel to address the changes.

***

Yesterday's post on preemption had a dead hyperlink.  Use this link to access NCUA's recent legal opinion letter, which indicates that NCUA's regulations preempt a New York State law that attempts to limit insurance-related activities at federal credit unions.  I apologize for any inconvenience.

FinCEN Annual Report; Valuation Code

I'm not sure if this is good or bad, but there just seems to be a bunch of different things to write about.  I hope you don't mind this mish-mash of information which has become the trend as of late...

• Yesterday, FinCEN issued its annual report for 2008.  Access it here.  If you need to do board or staff training, this document does a good job of giving you the history of FinCEN, basic information and definitions for the filings, and a broad overview of what happened this year at that Agency.
• Last week, Fannie Mae and Freddie Mac reached a new valuation agreement with New York Attorney General Andrew Cuomo.  Here's a NAFCU Today article that details the changes.  Effective date?  The new rules will be effective for single-family mortgage loans (except government-insured loans) that are originated on or after May 1, 2009.  Here's a link to the new code provided on Fannie Mae's website.  Look for more guidance in the next week or so.

Appraisals; Web 2.0 and your Reputation

FFIEC regulators, including NCUA, have issued proposed guidelines to address appraisals.  Read a NAFCU Today article about the proposal here.  (The article also contains a link to the actual proposal.)  If your credit union does real estate lending, make sure someone is aware of the proposal. 

***

Earlier, I posted about "Web 2.0" and your reputation.  In short, many consumers have blogs, use Twitter and post videos about...well, whatever they want.  The earlier post showed how Bank of America was taking a beating over some overdraft protection fees.

Well, be sure to read this post by Tim McAlpine of Currency Marketing.  He does a great job of showing how Motrin managed to anger many, many mothers.  And how their anger is surging through the Internet. 

My thoughts are this: to properly manage your credit union's reputation, you have to understand today's environment.  If you do something to anger a member, that member has many ways of venting their frustration on the World Wide Web.  Does your credit union have a mechanism to monitor what is being said about you in blogs, on Twitter or in Pod-casts?

Frequently Asked Questions; delicious

Anthony has mentioned the value of Frequently-Asked-Questions documents in past blog postings here and here.  These documents can help compliance officers weave through convoluted regulations and find answers to common issues.  Here are a few that I've found useful in the past: 

Bank Secrecy Act

Anti-Money Laundering Compliance FAQs

FinCEN Answers to FAQs on BSA

FAQs on Final CIP Rule - February 2004

FAQs on Final CIP Rule - May 2005

FAQs Relating to BSA and Hurricane Katrina

OFAC

OFAC Q&As Prepared by Treasury

Privacy

FAQs on the Privacy Regulation

Share Insurance

FAQs from NCUA's October 7, 2008 Webinar on Share Insurance Changes

NCUA's FAQs on NCUSIF and Share Insurance

HMDA

FAQs on Regulation C (HMDA Reporting)

RESPA

FAQs on RESPA for Industry

Appraisals

FAQs on Appraisal Regulation and Interagency Statement*

*Note:  The Agencies recently announced a proposal to replace this interagency statement.

Third Party Due Diligence

FAQs from NCUA's January 29, 2008 Webinar on Third-Party Relationships

Flood Insurance

2008 Proposal on Interagency Q&As on Flood Insurance (would replace 1997 Q&As)

1997 Interagency Q&As on Flood Insurance

Servicemembers Civil Relief Act (SCRA)

HUD's Q&As for Lenders Regarding SCRA

Judge's Guide to SCRA - including Q&As

Health Savings Accounts

Q&As on Health Savings Accounts - IRS Notice 2004-50

Q&As on Health Savings Accounts - IRS Notice 2008-59

Check 21 Act

Consumers FAQs on Check 21

FAQs for Financial Institutions on Check 21

Check 21 FAQs on Financial Institutions Requirements - from ABA

Accounting for Loan and Lease Losses (ALLL)

Questions and Answers on Accounting for Loan and Lease Losses

Online Banking

FFIEC Guidance on Authentication in an Internet Banking Environment

Savings Bonds

FAQs on Savings Bonds

***

You never know when these FAQ's will come in handy.  That is why I have mine bookmarked on my delicious page.

If you are wondering what delicious is, take a look at the user guide and slides I prepared for a talk on Organizing the Compliance Information Flow at NAFCU's 2008 Regulatory Seminar.

If you know of other valuable FAQ documents, please let us know by adding a comment to this post. 

Appraisals, and Such

You may have heard about a recent agreement involving Fannie Mae, the Office of Housing Enterprise and the New York Attorney General's Office that could change the way that credit unions do appraisals.  This snippet comes from NAFCU Regulatory Alert 08-EA-06 (NAFCU Members Only), which indicates:

(They agree) to adopt a Home Valuation Protection Code (Code)...Fannie Mae has requested comments from its customers and other market participants regarding the implementation and deployment of the Code.

The Code would apply to single-family mortgage loans (except government-insured loans) nationwide that are originated on or after January 1, 2009. Among other things, the Code would require credit unions to select appraisers and not use reports completed by appraisers selected by any other party, to establish a hotline and email address for appraisal related complaints and report improper conduct to the Institute, to report appraisers that the credit union reasonably believes is violating applicable laws to the Institute and certifying agency, and to the quality control test. It would also prohibit credit unions from influencing appraisers.

In short, this agreement would create a new appraisal system for anyone who wants to sell a mortgage to Fannie or Freddie.  Hmmm.  But don't we already have an appraisal reg? I wasn't the only one who thought so.  Here's a critical response to the agreement from OCC Comptroller John Dugan.  And here's NAFCU's response.  

Only time will tell what happens here.  The agreement would be one more thing for credit unions that do mortgage lending to monitor and follow.  But it has created a hail-storm of opposition from some pretty big players. 

Stay tuned.

NCUA Issues Appraisal Legal Opinion Letter

Yesterday, NCUA issued Legal Opinion Letter 08-0129 (February 8, 2008). You may access it here.  I find the letter interesting for a few reasons.

First, any legal opinion letter sheds light on an issue, and therefore should clarify some confusion.  This letter clarified that credit unions are not required to have a checklist or narrative to document its review of a real estate appraisal.   NCUA guidance issued in 2005 indicated that credit unions should do so.  NCUA's letter notes the practice of using a checklist or narrative "although not required,...is recommended in interagency guidance."

Second, this legal opinion letter sheds some light on agency recommendations.  The recommendation to use a checklist or narrative was issued via a Letter to Credit Unions in 2005.  NCUA's legal opinion letter clarifies that, if push comes to shove, credit unions do not have to follow that guidance.