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COMPLIANCE ALERT UPDATE - April 2014

APRIL 2014 

Equal Credit Opportunity Act (Reg B) 

  • The new appraisal/valuation requirements for providing an appraisal at least 3 business days prior to loan consummation through Regulation B also cover commercial loans.  The following are requirements of the changes to Reg B:
    • Notice of the right to receive a copy delivered within 3 business days of the application date.
    • Verification of delivery of appraisal signed by the consumer for receipt of the appraisal.
    • As a convenience to the consumer, a financial can get a waiver signed and deliver the appraisal at consummation. 

Truth-in-Lending (Reg Z) Disclosure requirements regarding post-consummation events.

January 10, 2014 

  • Sets forth documented policy and procedure requirements.
  • Addresses error resolution and information requests.
  • Cannot force place hazard insurance without “reasonable basis”.
  • Loss mitigation procedures – early intervention with delinquent borrowers/contact with borrowers required. 

Secure and Fair Enforcement for Mortgage Licensing Act (SAFE) 

Institutions are required to post their NMLS Identifier number as well as the Mortgage Loan Officer (MLO) identifying numbers on the following documents:

  • Applications.
  • Mortgage.
  • Note.
  • Office or Desk where applications are taken. 

Home Mortgage Disclosure Act (HMDA)/Equal Credit Opportunity Act Changes on the horizon 

Dodd-Frank Changes to HMDA will include the following:

  • Several new fields are added to the HMDA Loan Application Register (LAR).
  • Collection of data in regard to women-or-minority-owned business.
  • Collection of data on small owned business.
  • Total Points and Fees.
  • Teaser rates, prepayment penalties.
  • Lender information including a unique identifier number.
  • Age and credit score. 

Consumer Financial Protection Bureau is also considering the following: 

  • Mandatory reporting of denial reasons.
  • Debt-to-Income (DTI) ratio.
  • Qualified Mortgage status of loan.
  • Combined loan-to-value (CLTV) ratio.
  • Automatic underwriting systems results.
  • Total origination charges.
  • Total discount points.
  • Risk-adjusted, pre-discounted interest rate.
  • Interest rate.
  • Credit score.
  • Any information the Bureau sees fit to include 

According to Dodd-Frank, the better data collection should cause the following:

  • Streamline reporting.
  • Standardize the threshold.
  • Improve data entry. 

The August 1, 2015 changes to HMDA and Reg Z - Combined Mortgage Forms (Loan Estimate and Loan Closing Disclosure):

  • Loan Estimate requirements
    • Designed to help consumers understand key features, costs and risks of mortgage.
    • Lender is ultimately responsible for providing to consumers within 3 business days after application.
    • Generally cannot charge consumers any fees until provided. 
  • Loan Closing disclosure requirements
    • Designed to help consumers understand the costs of a transaction
    • To be provided by lender 3 business days before consummation.
    • Allowances for changes made prior to closing. 

Prior to the 08/01/15 Institutions should prepare for Combined Mortgage Forms by completing the following:

  • Update existing policies with respect to integrated disclosure requirements.
  • Conduct training for the appropriate staff.
  • Board of Director training if appropriate.
  • This section will make substantial changes to content and format of HMDA reports. Information will include the points and fees payable at origination, the difference between the APR and a benchmark rate (APOR), and prepayment penalty information. 

The value of real property pledged as collateral, the term of any introductory period before an interest rate change, whether payments other than fully amortizing payments may be made, the channel through which the application was made, unique identifiers for the originator under the SAFE Act, a universal loan identifier, a property parcel number, a credit score and, in case that list wasn't enough, any other information that the bureau may require.

Other Important recent changes: 

Make sure you are delivering the following as required by the regulations, these are hot topics during examinations:

  • Servicemember Civil Relief Act Notice at application
  • Homeownership Counseling Act Notice within 3 business days of the application (New January 2014)
  • Right to receive a Copy of the Appraisal Notice with 3 business days of the application (New January 2014)
  • Copy of the appraisal within 3 business days “Prior to Loan Closing” (New January 2014)
  • Signed acknowledgment by the borrower of receipt of the Appraisal (New January 2014) 

Servicemember Civil Relief Act 

The biggest issue for financial institutions is to properly calculate the payment on servicemember loans that are entitled to an interest rate deduction. If the interest rate on a covered loan is greater than six percent, it must be reduced to six percent and the payment reduced accordingly. Also, remember that all fees are included in interest; so, no fees can be charged to the loan.  Check your institution's methodology for reducing servicemember interest rates and calculating payments on closed end loans. Refund any overpayments to the servicemember - before an examiner tells you to do so. 

Under the Act, all fees and charges are also considered interest; so, a lender may not impose any charges while the borrower is on active duty, including late charges, etc.  A lender also must account for any interest payments that have been made in excess of the six percent rate during the period in which the reduced rate applies. Any such excess payments should be provided to the servicemember as a refund, applied toward future monthly payments, or applied toward principal curtailment. If feasible, the servicemember should be given an opportunity to direct how such funds should be applied.

The other element of the Act that affects lenders is the protections from litigation and foreclosure that the Act provides servicemembers.