Posts filed under ‘Regulatory’
I had a great time the other night hanging out with the Association’s Young Professionals Commission. I even got to celebrate the birthday of one of their newest members. Regardless of age, one of the questions that always comes up at such gatherings is what issues are lurking out there to sneak up on the unsuspecting credit union. The one I keep coming back to is HMDA and yesterday Fannie and Freddie took a huge step to help those of you who have to comply with this data reporting regulation be ready when the expanded mandate becomes effective in January of 2018.
The uniform residential loan application which you may know as either Form 1003 or Freddie Mac Form 65 is a standardized document that has been around for 20 years. So many mortgages are connected in some way to Fannie and Freddie that the application is used by almost all lenders in the country. Yesterday, the GSEs announced that they have created a new, redesigned URLA form. Most importantly, for my purposes, the form includes the expanded data fields that impacted lenders will have to fill out to comply with the HMDA regulation. In addition, if the GSEs are correct, the new form will be easy to integrate into your existing lending systems and better suited for an online application process. For those of you dinosaurs who still rely on paper, the updated URLA will still be available in a hard copy.
Even though the form doesn’t become effective for over a year, you can use it as an easy way to cross reference the information you collect now against the information you will need to gather in the relatively near future. Don’t underestimate just how much more information you will have to collect. According to a summary provided by the CFPB, the new HMDA reporting requirements include data points for applicant or borrower age, credit score, automated underwriting system information, unique loan identifier, property value, application channel, points and fees, borrower-paid origination charges, discount points, lender credits, loan term, prepayment penalty, non-amortizing loan features, interest rate, and loan originator identifier as well as other data points. The HMDA Rule also modifies several existing data points.
The good news is that the CFPB narrows the scope of the institutions to which HMDA applies. Starting in 2018, if your institution didn’t originate 25 covered mortgage loans in each of the preceding two years, or at least 100 open-end lines of credit in each of the preceding two calendar years, HMDA doesn’t apply to you regardless of your asset size. Still, this is not the type of regulation you want to keep to the last second. The CFPB and Congress want this additional information for a reason and I doubt regulators are going to have much patience for those of you who aren’t prepared for this mandate. The new and approved application is a great way to get ready to comply.
Your faithful blogger goes away for a couple of days to have a great time in Cape Cod and all Hell breaks loose: Two overpaid underperforming relics of the Yankees announce they will “retire” and the CFPB promulgates yet more regulations.
I exaggerate slightly, but the CFPB did release final regulations late last week that will require the adoption of new procedures when dealing with successors in interest. The regulations also provide some guidance on disclosure requirements and bankruptcy.
Generally speaking a successor in interest is someone who obtains the right to real property automatically through the operation of law. For example, your mom and dad might provide in their will that their son gets the family home when they die. But just because someone is a successor in interest doesn’t mean they will necessary assume responsibility for the property. For example, let’s say mom and dad died with a mortgage on the property which comes with hefty property taxes. Consequently, a successor in interest isn’t responsible for the mortgage unless he legally assumes responsibility for the home.
Lenders have been understandably reluctant to treat a successor in interest the same as they did the deceased owner. As a result consumer groups have complained that heirs haven’t received adequate information about loss mitigation options.
The new regulations address this problem. Lenders are responsible for clarifying how a person can identify themselves as successors and to provide them with the same notices the previous owners were receiving As explained in the preamble “the Bureau believes that successors in interest will benefit from other protections of the Mortgage Servicing Rules even if they do not occupy or intend to occupy the property, just as non-occupant borrowers currently do. For example, successors in interest, whether occupants or non-occupants, often encounter difficulties accessing information about the mortgage account and making payments and will benefit from the ability to submit requests for information and request payoff statements once they are confirmed.”
This is important stuff. It means more procedures and more trip wires for lenders even with a partial exemption for smaller mortgage servicers.
This is just one example in a wide-ranging regulation that your compliance person or people should be delving into. It also further complicates the interplay between New York and federal law, something I will be talking about as the week goes on.
By the way, the volume and complexity of mortgage regulations-remember the CFPB released additional mortgage proposals last week-underscores that it is becoming impossible for all but the largest institutions to be cognizant of and implement new regulations. This is what I do for a living. Where Is the person for whom compliance is just one of several responsibilities supposed to find the time to understand implement another round nuanced requirements packages in nine hundred pages of nuanced explanations?
Perhaps Mark Teixeira, who graciously announced that he would be retiring at the end of the season when his eight year, $180 million contract comes to an end, even though the Yankees had no intention of resigning him or Álex Rodríguez who is “retiring” on Friday to spare himself the embarrassment of being release by the Yankees, who still owe him another $25 million on his guaranteed contract are looking for something to do with their free time.
The Bureau That Never Sleeps is at it again! On Friday, the Bureau released proposed amendments to its “know before you owe” TRID regulation, which took effect in October of 2015. I’m going to dub these proposed changes Death Wish classics because some of the amendments are so technical that the only way I am going to get through them is to drink Death Wish coffee, which for the uninitiated, makes Starbucks taste like your mother’s Chock full o’ Nuts.
At first glance, it doesn’t seem like there are any major changes. But there are several proposed amendments and clarifications including extending TRID’s coverage to all co-op units; clarifying the applicability of tolerances in early disclosures; and clarifying information that can be shared with third parties without violating a consumer’s privacy. According to this morning’s American Banker, this last one was put in at the urging of the National Association of Realtors. This is one to have your mortgage person take a look at.
Economic Growth Declines
Those of us of the opinion that the economic glass is half empty received further support for our negativity with the release of news on Friday from the Commerce Department that the U.S. economy grew at a seasonally adjusted annual rate of 1.2% in the second quarter. According to the WSJ, this means that economic growth is now at its weakest level since 2011.
The thing that really perplexes me is that business investment declined for the third straight quarter. American corporations are sitting on a record pile of cash. For years, optimists have been waiting for businesses to start spending some of this cushion and really jump start the economy. Wouldn’t it be something if business sits out an entire period of economic growth without making any sizable investments other than to buy back their shares?
On that note, grab your coffee and get to work.
I fully expected to tell you this morning that the CFPB was once again getting ready to wallop you with regulations by imposing new notice and collection restrictions on creditors with the audacity to collect debts from delinquent borrowers. The Fair Debt Collection Practices Act is a federal law that regulates the conduct of third-party debt collectors (i.e. not your frontline debt collector but the party you sell or outsource your debt collection efforts out to when you have given up all hope of collecting anything from your member).
This day still may come but, having just gone over the material, my first take is that credit unions received a stay of execution.
Today, when the CFPB outlines its proposals for enhanced regulation of debt collection, it won’t be seeking to make creditors subject to the FDCPA. In addition the Bureau is publishing an outline of its potential proposals instead of proposing a new regulation. It will take several more months before a regulation is even proposed. (A chart on page 12 outlines the major components of its proposal).
But not all is copasetic. Some of the Bureau’s proposals unveiled today would have an indirect impact on those of you who use third-party collectors.. More importantly, the Bureau signaled that it will most likely begin a separate regulatory process to address how best to regulate creditor collection activities In his prepared remarks the Director promises “ As part of our overhaul, we also plan to address first-party debt collectors soon, but on a separate track.”
I can hardly wait. It’s almost as exciting as seeing what hacked email Donald Trump coaxes Russia to release next. Still I’m extremely surprised that the CFPB has held its fire.
According to the CFPB it’s considering regulations that would Require debt collectors to “substantiate,” or possess a reasonable basis for, claims that a particular consumer owes a particular debt and impose higher standards for substantiating debts that are litigated; Mandate the transfer of information when a debt is transferred between debt collectors; and create a new and improved FDCPA validation notice and a Statement of Rights provided by debt collectors “to provide consumers with the most critical information needed to determine whether they owe a particular debt and to navigate the debt collection process more generally.”
After all no CFPB proposal would be complete without new and improved disclosures.
Last week I highlighted financial issues in the Republican platform and with the Democrats set to kick off their reality TV show called the National Convention, today here are some of the intriguing tidbits in their platform.
If you just arrived from another planet, you would think that post offices, not credit unions or community banks, are the key counterweight to a banking industry run amok. The financial service offerings of post offices were mentioned in two separate parts of the party’s platform. In one section the Democrats want to help save the Post Office by, among other things, allowing them to offer basic financial services such as check cashing.
In another section dedicated to reigning in Wall Street and fixing our financial system, the platform explains that “Democrats believe that we need to give Americans affordable banking options, including by empowering the United States Postal Service to facilitate the delivery of basic banking services.”
Now, there are some who believe that expanding the authority of Post Offices is a win-win for the American taxpayer. They argue that since all communities have a post office, by allowing the service to provide banking services, perhaps including small dollar alternatives to pay-day loans, all Americans would be assured access. They also argue that the Postal Service has to be preserved even as it is made increasingly anachronistic by technology. Either way, it looks as if credit unions will be competing for political oxygen not only against banks, but the mailman.
Other highlights of the Democratic platform include: calling for an updated version of Glass-Steagall and “breaking up” too big to fail financial institutions that pose a systemic risk to our economy. Democrats implicitly called for the preservation of an active public role in housing. For instance, they support preservation of the 30 year fixed mortgage, “modernizing credit scoring, expanding access to housing counseling, defending and strengthening the Fair Housing Act and ensuring that regulators have a clear direction” and authority to enforce rules effectively.
Finally, while Republicans support major reform of the CFPB, Democrats view defending its current structure as an important means of defending the housing rights of Americans in general and minority communities in particular.
High Priced Mortgage Loan Appraisal Exemption Clarified
Pursuant to the Dodd-Frank Act, special appraisal requirements are mandated for higher-priced mortgage loans. Starting in January of 2014, the banking agencies, including the NCUA, exempted mortgage loans of $25,000 or less from these requirements. Regulations have been introduced to clarify the method by which this threshold is adjusted for inflation.
My time for posting a blog today is running a little short, courtesy of Albany’s woefully inconsistent transportation system. For me, Uber can’t come soon enough. But I wanted to give you a heads-up on a Q&A guidance issued by FINCEN yesterday clarifying the Customer Due Diligence requirements obligations of financial institutions that open accounts for entities such as corporations and trusts with beneficial owners. The rule has taken effect but you have until May 11 , 2018 to comply.
To demystify this regulation it’s important to put it in context. There have been a series of articles in the New York Times reporting on how corporations often act as fronts for shall we say, individuals with questionable backgrounds. Setting up corporations to open up accounts where ill-gotten gains can be stored and from which a Manhattan penthouse can be purchased is a classic form of money laundering. After all, public pensions only go so far and any prudent dictator has to put aside funds for safe keeping in the event of an ill- timed coup. In addition, businesses can be controlled by persons not readily identifiable.
It didn’t get all that much attention in the compliance world but in May FINCen finalized regulations requiring credit unions and banks to extend account opening customer identification due diligence procedures to the beneficial owners of legal entities. The Q & A is intended to further clarify these obligations.
By the way, a beneficial owner is:
“each individual, if any, who, directly or indirectly, owns 25% or more of the equity interests of a legal entity customer (i.e., the ownership prong); and a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); or any other individual who regularly performs similar functions (i.e., the control prong). This list of positions is illustrative, not exclusive, as there is significant diversity in how legal entities are structured. ”
Hoping your journey to work was better than mine, your faithful blogger wishes you all a good day.
There were several foreclosures and transfers in May and June with one medallion going for as low as $405,000 and another selling for $610,000. Remember that this is an industry where, until a couple of years ago, foreclosures were as rare as a show of humility by Donald Trump.
Keith Leggett predicted in his Credit Union Watch blog that “These transactions indicate that credit unions with New York City taxi medallion loans will likely see an increase in delinquencies, troubled debt restructured loans, and charge-offs.” We really won’t know the full extent of the damage until we know whether or not medallion prices are at their nadir. Stay tuned
NY Fine tunes Direct deposits You may want HR to take a look at regulations proposed by NYS’s Department of Labor addressing , among other things, the use of Direct Deposit by employers
Fed OK’s KeyCorp\First Niagara Merger
The inevitable consolidation of the financial services industry is on track to continue as the Federal Reserve Board approved the merger of Buffalo based First Niagara into Ohio based KeyCorp.
Two days ago Bloomberg news reported that Senator Schumer, who had expressed reservations about the merger, signaled he was no longer opposed after KeyCorp agreed to cut no more than 250 jobs and to hire at least 500 people in the next three years. The deal will make KeyCorp the 26th largest bank in the US and will have a direct impact on New York. The Albany Times Union reported that the merger will result in the closure of 30 branches with 18 closing as early as October .
By the way, in reviewing the impact that the merger would have on financial services in the Buffalo area the Fed noted that “nine credit unions exert a competitive influence in the Buffalo market. Each institution offers a wide range of consumer banking products, operates street-level branches, and has broad membership criteria that include almost all of the residents in the market.”
So let me get this straight. According to the Banking industry, Credit union competition is a bad thing which is why, for instance, NY municipalities shouldn’t be allowed to place taxpayer money in credit unions; but if it helps banks become larger, credit union competition is a good thing. Got it.
Just how much money will those 250 new employees be making? JP Morgan CEO Jamie Dimon announced Tuesday that the bank would be raising the minimum salary of its employees from $12 to $16.50 an hour depending on where they work. Dimon explained that “Wages for many Americans have gone nowhere for too long.” What a guy!
Score on for Bernie Sanders on this one.