Insured institutions that were participating in the TAG program can continue in the program through June 30, 2010.  Institutions that did not wish to continue in the program needed to submit an opt-out to the FDIC on or before November 2, 2009.  The election to opt out will take effect on January 1, 2010.

Although the Temporary Liquidity Guarantee Program does not fall under the "compliance" focus for Bankers Compliance Consulting, we do want to remind financial institutions currently participating in the TAG program to review your disclosures and modify them as necessary to ensure that they will be accurate after December 31, 2009.

Also, at the OTS website, they have provided a completed Good Faith Estimate and HUD-1 Settlement Statement.  I assume they'll use this in their training in November.  These forms can be downloaded in Adobe.  They are also forms that you can change and use as training examples.  You can click in applicable boxes and/or insert new information or delete the information provided by the OTS.  I appreciate the OTS offering this training on such a confusing regulation. 

Make sure you also read the HUD FAQs.  HUD is updating these FAQs frequently and providing much needed information (although much remains to be answered).  The FAQs now have a hyperlinked table of contents and new items are listed in bold so you can quickly scan the document and see what has been added since the last update.

I have briefly reviewed the OTS completed forms and found a few errors and notable items. 

Good Faith Estimate - page 1:

Dates #1 has a time.  You can do this "if necessary" it states in Appendix C.  The only time I see this happening is the applicant is sitting at the desk with the Loan Officer and they want to make sure they understand these rates can change quickly.  If you mail it to an applicant, the time seems like a moot issue.

Good Faith Estimate - page 2:

Block 3 has 2 services per line.  I think this is because they are limited on the expansion of the form at this time.  I believe software will expand this block as necessary.

Block 5 - The borrower is paying 100% of the Owner's Title Insurance. This is not "typical" in our area.  Just a note of interest.

Block 7 - The borrower is paying 50% of the Transfer Tax. This is typically a seller's fee.

Good Faith Estimate - page 3:

Shopping Chart.  This doesn't have to be completed, but if it is, it should be accurate.  This information indicates there is no prepayment penalty.  The first page of the Good Faith Estimate says there is a penalty.

HUD-1 - Page 1:

Block H - should have a phone number.

206 - shows a credit to the borrower for transfer taxes. Therefore, the borrower didn't pay any of this fee (see line 1203 too).

HUD-1 - Page 2:

Line 801 The origination charge was 6,750.  Now it's reduced to 6,250.  The bank fees must have come in at $500 less.

Line 802 should be a negative number.

Line 1007 has 2 negatives.

Line 1202 has both a Deed and Mortgage fee.  I would think it would be one or the other.

1300's:  1031 is the sum of 1302 and 1303.  1304 (home warranty) is something not required by the lender and therefore, not listed on the Good Faith Estimate.  This fee is also not listed in the tolerance boxes on page 3.  Everything else is.  This is correctly completed.

HUD -1 - Page 3:

I don't see anything wrong here. It would have been nice if they would have shown an example of being out of tolerance and shown us how to cure it.

We are also offering a 2 hour webinar for BankersOnline on November 10, 2009.  This may sound a little odd (what's new from me?!) but I'm very excited about this training.  We have put together a 100 page packet detailing line-by-line, how to complete the Good Faith Estimate, HUD-1 and HUD-1A.  We have incorporated the RESPA Q&As into the regulation and provided numerous mathematical examples.  We've taken snap shots of the disclosures and inserted them in the training packet.  You'll also get several Good Faith Estimate & HUD-1/1A examples completed under various scenarios.

The great thing about the BOL webinars is you get 30 days of unlimited playback so you can copy the material for all of your loan officers and have them listen to the training at their convenience (and over and over, if necessary!).  You also get a written response to every question asked during and after the webinar.  Click on the link in the above paragraph for more information and to register for the Banker's Compliance Consulting/BOL RESPA webinar.

My favorite part of the letter is found on page 2:

In light of the issues we describe in this letter, the undersigned organizations respectfully request that you postpone the implementation date of the rule and take the following steps to achieve effective implementation of the rule:

• Finish resolving all of the issues we describe in this letter.  (We believe many of the issues we discuss require revised FAQs to ensure consumers can receive clear disclosures and other important benefits.)
• Then provide the industry with a reasonable implementation period before compliance becomes mandatory.
• Notify the public, pursuant to §19 of RESPA, that beginning on January 1, 2010, and through the implementation period, use of the new or old forms will not constitute a violation of RESPA in transactions subject to the rule.

Without taking the steps recommended above, widespread consumer confusion, crippling market dysfunction, and a strong possibility of an imminent litigation morass are on the horizon.

I also wonder how loan software vendors are going to be able to prepare forms by January 1^st.  In our conversations with a HUD attorney, we learned that the new Good Faith Estimate, HUD-1 and HUD-1A have not received approval from the Office of Management and Budget (OMB).  This attorney also stated he knew of a few changes that needed to occur.  So how can software vendors create a program to produce these disclosures if they aren't "official" yet?

I'm looking into my crystal ball and it tells me the RESPA rules will be delayed, but they are inevitable.  If only we could have had this information 6 months ago!

So what do you do?  I don't believe you can wait and see.  You need to continue to train loan officers and personnel on the new changes and continue to plan on a January implementation.  IF they delay the effective date, the rules will likely be similar and the same "spirit", but hopefully we'll see many questions answered.

Also, be sure to continue to check HUD's website for updated FAQs.  The latest update was 10/7/09.  The FAQs now have an index that contains a hyperlink to the applicable page.  Changes are also in bold so you'll know what changed since the last update.

Stay tuned!

#6 - Flood:  Not completing a Standard Flood Hazard Determination Form

#7. - Flood:  Inadequate insurance. - the "biggy".  This can result in Civil Money Penalties being accessed!  Either no insurance (coming late), wrong amount or lapses in coverage.

#8. - RESPA:  accuracy of charges & not listing the ultimate recipient.

#9. - RESPA: Not providing the Good Faith Estimate within 3 days.  Warning:  the new definition of "application" will make this even more difficult.

#10. - RESPA: Required Provider (various issues).  Going away with new RESPA rules.

 

 

#1. - GMI collection:  Over and under collection is always in the top 10.  Often Loan Officers collect Ethnicity and sex, but not race or race and sex, but not ethnicity. You must get all 3.

#2. - Reg B - Joint Intent: Especially business loans where one spouse is not an officer.  Missing it particularly on renewals and extension.  Examiners are interviewing Loan Officers.  The examiners are OK with Loan Officers simply documenting in the file (it doesn't have to be completed by applicant - check boxes).

#3. - Reg B - Adverse Action Notice errors.  Mostly due to the regulator's address because of the recent change.  This is nit picky.  Make sure you have the right reasons and they are accurate.  This can lead to a file search of 6 months.

#4. - HMDA Errors:  loan purpose, loan amount, GMI, income and rate spread.  Best practices - use data input sheets, 2^nd reviews & training, training, training!

#5. - FACTA Credit Score Disclosure.  Failure to provide disclosure.   If you're not using the score, turn it off.  Have the disclosure automatically generated by the credit bureau, if possible.

The most common violations aren't necessarily the most serious.  Watch for the more substantive violations (computational errors, fair lending, Civil Money Penalty risks, reputational risks, etc.) 

Don't forget to look at previously noted violations.  What did you do to identify the root cause and what corrective actions did you take?

I'll post #6-10 in a future blog.

Don't forget to update your CRA file with this information. §345.43(b)(2) (the FDIC's version of the CRA rules - but all regulators have the same requirement) state:

"A bank required to report HMDA data shall include in its public file a copy of the HMDA Disclosure Statement provided by the Federal Financial Institutions Examination Council pertaining to the bank for each of the prior two calendar years.  In addition, a bank that elected to have the FDIC (Federal Reserve/OCC/OTS) consider the mortgage lending of an affiliate for any of these years shall include in its public file the affiliate's HMDA Disclosure Statement for those years.  The bank shall place the statement(s) in the public file within three business days after receipt."

§203.5 of Regulation C (HMDA) also states:

(2) An institution shall make its disclosure statement (prepared by the FFIEC) available to the public at its home office no later than three business days after receiving it from the FFIEC.

(3) In addition, an institution shall either:

(i) Make its disclosure statement available to the public, within ten business days of receiving it, in at least one branch office in each other MSA and each other Metropolitan Division where the institution has offices (the disclosure statement need only contain data relating to the MSA or Metropolitan Division where the branch is located); or

(ii) Post the address for sending written requests in the lobby of each branch office in other MSAs and Metropolitan Divisions where the institution has offices; and mail or deliver a copy of the disclosure statement within fifteen calendar days of receiving a written request (the disclosure statement need only contain data relating to the MSA or Metropolitan Division for which the request is made). Including the address in the general notice required under paragraph (e) of this section satisfies this requirement.

The disclosure statement at a branch office need only contain data relating to properties in the MSA where the branch office is located.  You do not need to print the HDMA data.  We recommend you burn it to a CD, DVD or USB stick and simply put this in the file.  When (or should we say "if") someone ever asks for it, you can print it for them at that time.

Have fun!

6.  Are corrected disclosures required when the APR is overstated on the early disclosures? What if this overstatement is the result of fees being waived at or near consummation?

The rule specifies that if the APR is inaccurate as determined under §226.22(a), a corrected disclosure is required and the three-business-day waiting period prior to consummation would apply. Sections 226.22(a)(2) and (a)(3) state that APRs are considered accurate if they are not more than one-eighth (for regular transactions) or one-quarter (for irregular transactions) of 1 percent, respectively, above or below the actual APR, as determined in accordance with §226.22(a)(1). Thus, some overstated APRs may require corrected disclosures just as understated APRs do.

However, paragraphs (a)(4) and (a)(5) contain additional tolerances for APR accuracy on mortgage loans. Specifically, for a mortgage loan, the disclosed APR is considered accurate under §226.22(a)(4) if the rate is overstated but results from the disclosed finance charge which is also overstated. Further, under §226.22(a)(5), a disclosed APR that is closer to the actual APR than the APR that would be considered accurate under §226.22(a)(4) is also considered accurate. Creditors should closely examine these two paragraphs when determining whether an APR that is overstated is inaccurate and thus requires corrected disclosures and a three-business-day waiting period.

Note that §226.17(f) may also require a corrected disclosure (but no three-business-day waiting period) before consummation. This requirement is triggered if any aspect of the earlier disclosure, as opposed to only the APR, has become inaccurate.

Note the second paragraph points us to an exception for real estate loans.  Most of the time, when an APR is overstated, it is because of the finance charge also being overstated.  If this is the case, re-disclosure is not required.

As the majority of our clients are located in the Midwest, we wanted to alert you and make sure you were aware of the following check processing region change:

On September 12, 2009, the Reserve Banks will transfer the check-processing operations of the head office of the Federal Reserve Bank of Chicago to the head office of the Federal Reserve Bank of Cleveland. As a result of this change, some checks that are drawn on and deposited at banks located in the Chicago and Cleveland check processing regions and that currently are nonlocal checks will become local checks subject to faster availability schedules.

According to the Fed's financial services website, the Dallas check processing region will transfer to Cleveland on October 19, 2009.  The transition dates for the Los Angeles, Philadelphia and Atlanta check processing regions have not been formally announced.

With all these changes coming up, things will be a little crazy for awhile!

So you say you just can't seem to get a grip these days.  Are you constantly in a tizzy trying to remember what compliance regulation is changing this month?  Do you wake up in a cold sweat because you forgot to file that CTR?  Does it seem like you can't get anything done?  You may well be suffering from Compliance Attention Deficit Disorder or Banking and Economy Stress Disorder.  While there is no known cure a good laugh may ease the pain!

One of the first things I was taught when I started as a Compliance Officer, by those overseeing from the ivory management tower, was to make sure lenders knew how to properly execute rescission.  The second was to ensure they were aware of the consequences of non-compliance.  Based on Management's tone and the manner it was presented, I understood it to mean "scare the you know what out of them (the lenders)"!  So I tried.

Many of you can just about guess how well that went.  To the lenders it had to sound as if I was crying wolf.  I heard many "yeah rights", "whatever" and the ever popular "nobody ever rescinds" grumbled amongst the masses.  However, today some of those same lenders may be thinking of my training sessions as prophetic.  That's right I just referred to myself as a compliance prophet (but merely for illustrative purposes).

The reason you see, isn't some sort of new requirement; but, the current economic conditions that have brought the consumer's rescission rights to the forefront.  When someone is about to lose their home, one of the first things reviewed by their attorney is the proper execution of rescission - or not.

I encourage you to take a few minutes and review a recent court case, Rand Corporation v. Moua.   This case illustrates the importance of properly executing the consumer's rescission rights in accordance with the regulation.  You can also read more about this case in the August edition of our "Banking on BCC" subscription newsletter.

By the way, that sound you hear is my wife letting the air out of my big head for that compliance prophet statement!