Compliance Update - ACUIA. Presented by:

Transcription

1 Compliance Update - ACUIA Presented by: Mike Carter Director of Compliance September 30 th, 2014

2 Topics Discussion of the CFPB Mortgage Rules TILA/RESPA Rule Flood Insurance CUSO Rule Regulation CC Proposal Risk Based Capital HMDA Proposal Fixed Asset Proposal Other things that might be coming

3 Residential Mortgages: Ability to Repay

4 Ability to Repay Mortgages Applies to all consumer-purpose, closed-end mortgage loans secured by a dwelling, including home-purchase loans, refinances and homeequity loans whether first or subordinate liens for applications received on or after January 10, This rule requires that credit unions determine that a member actually has the ability to repay the debt. Does not apply to open-end credit plans (HELOCs), timeshare plans, reverse mortgages, or temporary loans.

5 Ability to Repay Mortgages 8 underwriting factors to review to satisfy ability to repay: Current or reasonably expected income or assets; Current employment status; The monthly payment (intro rate or fully-indexed rate whichever is higher); The monthly payment on any simultaneous loan secured by the same property; The mortgage payment for mortgage-related obligations (property taxes and insurance); Current debt obligations (including alimony and child support); Debt-to-income ratio or residual income; and Credit history.

6 Adjustable Rate Mortgages Keep in mind that your credit union, on adjustable rate mortgages, should be qualifying the member on the fully-indexed rate (index plus margin).

7 Ability to Repay Mortgages Credit unions must use reasonably reliable thirdparty records to verify the information used to evaluate the factors (credit reports, income or assets, employment status (if relied upon)). Can t just take the member s word for it!! Only have to verify the income needed to repay the loan. If a member has a full-time and parttime job and the full-time income satisfies the repayment of the loan you do not have to consider the part-time income.

8 Ability to Repay Mortgages Qualified Mortgage Definition: No excessive upfront points and fees (more than 3% of the loan amount) Cannot exceed 30 year maturity, be a negative amortization loan or interest-only (non-toxic loans) No balloon payment (unless they are originated and held in portfolio by small creditors (less than $2 billion in assets) operating predominately in rural or underserved areas). Debt-to-income ratio of 43% or less No-doc loans cannot be qualified mortgages

9 Ability to Repay Mortgages Qualified Mortgage Definition (continued) Loans purchased, insured or guaranteed by the Government Sponsored Agencies (GSEs) while they operate under conservatorship or receivership; or HUD, VA, or Department of Agriculture or Rural Housing Service This temporary provision will phase out over time as the various Federal agencies issue their own qualified mortgage rules and if conservatorship ends, regardless it will end in 7 years.

10 Types of Qualified Mortgages Type 1 - General QM Definition: May not have negative-amortization, interest only or balloon payment features or terms that exceed 30 years; Must underwrite based on a fully-amortizing schedule using the maximum rate permitted during the first 5 years after the date of the first periodic payment; Consider and verify member s income or assets, current debt obligations, alimony and child-support obligations; Determine that the member s total debt-to-income ratio does not exceed 43%.

11 Types of Qualified Mortgages Type 2 Temporary QM Definition: This applies to loans that are originated during the transitional period if the are eligible for purchase or guarantee by Fannie or Freddie; Once the transition period is over (7 years), loans originated prior to that date are still QMs but loans after that date must meet the one of the other QM definitions to be considered QMs; The first two types can be originated by any creditor regardless of size.

12 Definition of Small Creditor Assets below $2 billion at the end of the last calendar year; The credit union and affiliates together originated no more than 500 first-lien, closedend residential mortgages that are subject to the ATR requirements in the preceding calendar year.

13 Types of Qualified Mortgages Type 3 Small Creditor QM These may not have negative-amortization, interestonly, balloon features, exceed 30 years or have points and fees that exceed specified QM limits; Must underwrite based on a fully-amortizing schedule; Must not be subject to forward commitment; Consider member s income, assets, debts, etc.; and Consider debt-to-income ratio or residual income although the rule sets no specific threshold for DTI or residual income.

14 Types of Qualified Mortgages Type 4 Balloon-Payment QM During the two-year transition period all small credit unions can make balloon-payment QMs regardless of where they operate; After January 10, 2016 credit unions can originate balloon-payment QMs only if you meet the asset size and number of originations criteria as well as a requirement that you operate predominately in rural or underserved areas.

15 Ability to Repay Mortgages Two alternatives #1 - Safe Harbor: creditor deemed to comply with ability to repay requirements if the loan meets the definition of non high-priced qualified mortgage. #2 Presumption of Compliance: creditor deemed to comply with the ability to repay requirements if the loan meets the definition of high-priced qualified mortgage.

16 Verifying Information You must follow the reasonably reliable thirdparty standard but here are some examples: W-2 or payroll statements; Employer records Tax-return transcripts Receipts from check-cashing or funds transfer services Contacting the employer either orally or in writing Credit bureau

17 Verifying Information Records from gov t organizations; Federal, state or local government agency letters detailing the consumer s income, benefits or entitlements; Rent or lease agreement; Statements for student loans, auto loans, credit cards or existing mortgages; Court orders for alimony or child support; Tax returns

18 Verifying Information Bank account statements; Remittance-transfer receipts; Military leave and earnings statements

19 What s the Key? Having good policy and procedure is an absolute must. Documenting any verifying information is crucial.

20 Points and Fees Calculation 3 percent of the total loan amount for a loan greater than or equal to $100,000 $3,000 for a loan greater than or equal to $60,000 but less than $100,000 5 percent of the total loan amount for a loan greater than or equal to $20,000 but less than $60,000 $1,000 for a loan greater than or equal to $12,500 but less than $20,000 8 percent of the total loan amount for a loan less than $12,500

21 So What s Included? Costs known at or before consummation; Closing costs paid by the credit union and recouped from the member over time through the interest rate are NOT counted in points and fees; Finance charges as defined in Regulation Z; Loan originator compensation; Premiums for credit insurance; credit property insurance; other life, accident, health or loss-of-income insurance where the creditor is beneficiary; or debt cancellation or suspension coverage payments

22 So What s Excluded? Bona fide charges not retained by the credit union, loan originator or affiliate of either; Fees for title examination, abstract of title, title insurance, property survey, and similar purposes Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents Notary and credit-report fees Property appraisal fees or inspection fees to assess the value or condition of the property if the service is performed prior to consummation, including fees related to pest-infestation or floodhazard determinations Amounts paid into escrow or trustee accounts that are not otherwise included in the finance charge (except amounts held for future payment of taxes)

23 So What s Excluded? You do not need to include these charges if they are paid after consummation (e.g., monthly premiums). Credit property insurance means insurance that protects the creditor s interest in the property. It does not include homeowner s insurance that protects the consumer. You do not need to include premiums for life, accident, health, or loss-of-income insurance if the consumer (or another person designated by the consumer) is the sole beneficiary of the insurance.

24 Record Retention You must retain evidence that you complied with the ATR/QM rule, including the prepayment penalty limitations, for three years after consummation, though keeping the records longer may be prudent for business purposes.

25 Mortgage Escrow Accounts

26 Mortgage Escrow Account Rules Finalized January 10, 2013 Effective Date June 1, 2013 Requires escrow accounts on higher-priced mortgage loans for a period of 5 years. This is an increase from 1 year. Applies to higher-priced mortgage loans secured by a first-lien on a consumer s principal dwelling.

27 Loans Not Covered Transactions secured by shares in a cooperative Transactions to finance the initial construction of a dwelling Temporary or bridge transactions with terms of 12 months or less Reverse mortgages Subordinate liens Open-end credit (such as a home equity line of credit) Insurance premiums the consumer purchases that you do not require

28 Mortgage Escrow Account Rules Higher-Priced Mortgage Loan is defined as closed-end credit transaction that exceeds the average prime offer rate (APOR) by 1.5 percentage points for first lien loans and 3.5 percentage points on a subordinate lien loan. Average Prime Offer Rate (APOR) means an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics.

29 Mortgage Escrow Account Rules Exemptions: More than half of a credit union s first lien mortgages are in rural or underserved areas; Asset size less than $2 billion; Together with affiliates, originated 500 or fewer firstlien mortgages during the preceding calendar year; and Together with affiliates, not escrow for any mortgage it or its affiliates currently services.

30 Mortgage Escrow Account Rules Cancellation: - A creditor or servicer may cancel escrow accounts only at the earlier of the termination of the debt or upon a member s request at least 5 years after consummation. If a member requests the cancellation the credit union cannot cancel the escrow account unless the unpaid principal balance is less than 80 percent of the original value of the property and the member is not delinquent or in default of the debt.

31 Home Ownership and Equity Protection Act (HOEPA)

32 General info Issued January 10, 2013 Effective Date January 10, 2014 Amends Reg Z for the HOEPA issue and RESPA with respect to homeownership counseling Applies to: Purchase-money mortgages; Refinances; Closed-end Home Equity Loans; and HELOCs

33 Exempt Loans Reverse Mortgages; and Construction Loans; Vacation Homes; Second Homes

34 Three Coverage Tests The transaction s annual percentage rate (APR); The amount of points and fees paid in connection with the transaction; The prepayment penalties you may charge under the loan or credit agreement generally not applicable.

35 HOEPA Final rule revises HOEPA thresholds: APR that exceeds average prime offer rate (APOR) by 6.5 percentage points for most first-lien mortgages, 8.5 percentage points for first-lien transactions that are for less than $50,000 and secured by personal property (e.g., RVs, houseboats and manufactured homes titled as personal property),8.5 percentage points for subordinate lien mortgages; A loan s points and fees exceed 5% of the total loan amount or a higher threshold for loans equal to or greater than $20,000, 8% of the total loan amount or $1,000 (whichever is less) for a loan amount less than $20,000. The transaction documents permit the creditor to charge or collect prepayment penalties more than 36 months after closing or permit fees or penalties to exceed, in the aggregate, more than 2 percent of the amount repaid.

36 Prohibitions Balloon payments would largely be banned and creditors would be prohibited from charging prepayment penalties and financing points and fees; Late fees would be restricted to 4% of the payment that is past due, fees for generating a payoff statement would be restricted and fees for loan modification or loan deferral would be banned; Must assess ability-to-repay for HELOCs under this rule. Closed-end loans are covered under the Ability to Repay rule.

37 Prohibitions Creditors and mortgage brokers are prohibited from recommending or encouraging a consumer to default on a loan or debt to be refinanced by a high-cost mortgage loan; Cannot charge a fee to modify, defer, renew, extend or amend a high-cost mortgage; Late fees are restricted to 4 percent of the past due payment and pyramiding is prohibited; Fees for generation of payoff statements are generally banned; Points and fees cannot be financed but other charges can be; Cannot structure a transaction to evade HOEPA.

38 Homeownership Counseling Prior to making a high-cost mortgage, you must receive written certification that the consumer has received homeownership counseling on the advisability of the mortgage from a HUDapproved counselor or a state housing finance authority, if permitted by HUD. The homeownership counselor cannot be affiliated with or employed by your organization. You cannot steer the consumer to a particular counseling agency.

39 Other Items Two issues not related to HOEPA: Amends Regulation X (RESPA) which implements a requirement that lenders provide a list of approved homeownership counselors or counseling organizations to federally related loan applicants within three business days of receiving the application. The final rule requires the lender to obtain the list from either a website that will be developed by the Bureau or HUD. Amend Regulation Z to require creditors obtain confirmation that a first-time borrower has received homeownership counseling before making a loan that provides for or permits negative amortization.

40 NMLS Numbers Effective with applications received for a consumer credit transaction secured by a dwelling on or after January 10, 2014 the credit union must place its name and NMLS ID number (if one was issued) and the primary loan originator s name and NMLS ID number (if one was issued) on the following documents: The credit application; The note or loan contract; and The security instrument This information does not have to appear on all pages of the document(s) or in any specific area on these documents.

41 Mortgage Servicing

42 Mortgage Servicing Final rule issued January 17, 2013 Effective date January 10, 2014 Amends Reg Z and RESPA Some exemptions for credit unions that service 5,000 or fewer loans and services only loans they originate Applies to closed-end loans secured by a dwelling and we need to keep in mind federallyrelated mortgage loans.

43 Small Servicer Definition If a credit union, together with any affiliates, service 5,000 or fewer mortgage loans and the credit union (or affiliate) are the creditor or assignee for all of them. If the credit union services any mortgage loans that were not originated or owned by the credit union (or affiliate) the credit union does not qualify for the small servicer exception even if the total number of mortgage s services is less than 5,000.

44 What Are Small Servicers Exempt From? The periodic statement provisions. The prohibition on purchasing force-placed insurance where a servicer could continue the consumer s existing hazard insurance coverage by advancing funds to escrow under certain circumstances (when the cost of force-placed insurance is less than the cost of advancing for hazard insurance). The general servicing policies, procedures, and requirements provisions. The early intervention provisions. The continuity of contact provisions. Some of the loss mitigation provisions.

45 What Must Small Servicers Comply With? The ARMs disclosure provisions. The prompt crediting and payoff statement provisions. The force-placed insurance provisions. The error resolution and information request provisions. Some of the loss mitigation provisions.

46 New Rules Regulation Z Monthly mortgage statements provide clear billing statements including information on amount due, explanation of amount due, explanation of amount due, past payment breakdown, transaction activity, partial payment information, contact information, account information, and delinquency information. Applies to closed-end mortgages (first and subordinate lien). Small servicers are exempt from this requirement. Warnings before interest rate adjustments must provide a notice at least 210 days and not more than 240 days before the first time the interest rate adjusts. This may contain an estimate. A disclosure must be given to the member between days before payment at a new level is due when a rate adjustment causes a payment change. Applies to closed-end mortgages and HELOCs. This applies to all servicers.

47 New Rules Regulation Z Prompt crediting of payments payments must be credited on the date received. A periodic payment consists of principal, interest and escrow (if applicable). A payment received that is less than the amount due it may be held in a suspense account. Once enough has been received to complete the payment the payment must be applied to the account. Upon written request from the member the credit union must provide an accurate payoff statement not later than 7 days from receiving the request. This applies to all servicers. Applies to open and closed-end loans. Prompt crediting applies to loans on principal dwellings and payoff statements on all dwellings.

48 New Rules Regulation X Force-placed insurance Servicers can only charge for buying insurance on the property when they have a reasonable belief that the insurance has lapsed and have given two notices to the borrower estimating the cost of the force-placed insurance (first notice 45 days prior to purchase and second notice not earlier than 30 days prior to purchase and at least 15 days before purchase of the insurance). If a member has an escrow account the credit union must pay the insurance from escrow without regard to the balance in the escrow account. Small servicers may be exempt from the escrow requirement if the cost of force-placing the insurance is less expensive than paying from escrow.

49 New Rules Error resolution and information requests must comply with error resolution procedures for a written claim of error regarding the servicing of the mortgage loan. Servicers may designate a specific address for the member to use. Acknowledge the request or notice of error within 5 business days. Determine the outcome within days and provide requested information in the same time frame. Notice of error: Name of member; Information that allows you to determine member s account; The error that the member believes occurred

50 New Rules General servicing policies, procedures and requirements Servicers are required to: Document how the servicer will access and provide accurate and timely information to borrowers, investors and courts; Properly evaluate loss mitigation applications; Perform due diligence on service providers; Facilitate transfer of information during servicing transfers; Inform members of error resolution and information request procedures. This does not apply to small servicers

51 New Rules Early Intervention with Delinquent Consumers - Credit unions must make good faith efforts to establish live contact with the member by the 36 th day of their delinquency and inform them of loss mitigation options available if applicable; Must provide members with written information about any available loss mitigation options by the 45 th day of delinquency; Does not apply to HELOCs, small servicers, reverse mortgages

52 New Rules Continuity of Contact Servicers must have reasonable policies and procedures with respect to providing delinquent members with access to personnel to assist them with loss mitigation options. Must provide written notice of delinquency not later than 45 days of the member s delinquency. Personnel should be accessible by phone to assist with loss mitigation options. Small services are exempt from this requirement.

53 New Rules Loss mitigation procedures - There are extensive requirements if a borrower applies to the servicer for consideration of a loss mitigation option, such as acknowledging receipt within five days, informing the borrower if information is missing, providing a written decision and reasons if denied, and providing an appeals process. The rule restricts a servicer from simultaneously evaluating a borrower for a loan modification while pursuing foreclosure on the property. Small servicers are exempt from many of the procedural requirements, but cannot initiate the foreclosure process unless a borrower is more than 120 days delinquent or proceed to a foreclosure judgment or sale if the borrower is following the terms of a loan mitigation agreement.

54 Periodic Statements A periodic statement must be sent each billing cycle; If the mortgage has a billing cycle shorter than 31 days (such as a bi-weekly payment) one periodic statement may be sent to cover the entire month; Periodic statement must be sent reasonably promptly which is considered no later than 4 days after the close of the courtesy period; A periodic statement must be sent even when the member is delinquent or has filed bankruptcy.

55 Periodic Statements The statement must include: Amount due (payment due date, amount of late fee if payment is late and amount due); Explanation of amount due (Monthly payment amount and breakdown of how that will be applied to principal, interest, and escrow, total of fees imposed, past amount due); Past payment breakdown (total of payments from last statement and total of payments since the beginning of the calendar year); Transaction Activity; Partial payment activity (only if there are funds held in suspense);

56 Periodic Statements Contact information (toll-free number and address where members can receive information on their account); Account information (principal balance, current interest rate, date when rate may change, existence of prepayment penalty and housing counselor information);

57 Periodic Statements Delinquency information (only if member is 45 days or more delinquent) Housing counselor information; Date on which member became delinquent; Notification of risks and expenses; Six month history or the period since the last time the account was current whichever is shorter; Loss mitigation member has agreed to; Notice that the first notice for foreclosure has been filed; Total payment to bring the loan current; A reference to the homeownership counseling information included elsewhere in the periodic statement.

58 Regulation B Appraisals

59 Final Rule Final rule issued 1/18/2013 Effective Date 1/18/2014 Applies to applications for credit to be secured by a first lien on a dwelling. Require creditors to notify applicants within three business days of receiving an application of their right to receive a copy of written appraisals and valuations developed.

60 Mortgage Appraisals Reg B Require creditors to provide applicants a copy of all written appraisals and valuations promptly after receiving an appraisal or valuation, but in no case later than three business days prior to consummation (closed-end) or account opening (open-end) of the mortgage. Permit applicants to waive the timing requirement to receive copies three days prior to consummation. However, applicants who waive the timing requirement must still be given a copy of all written appraisals and valuations at or prior to closing. If the transaction is not consummated then no later than 30 days after it was determined that the loan would not be consummated.

61 Mortgage Appraisals Reg B Prohibit creditors from charging additional fees for providing a copy of written appraisals and valuations, but permit creditors to charge applicants a reasonable fee to reimburse the creditor for the cost of the appraisal or valuation unless otherwise required by law. Prior to this final rule change, credit unions were exempt from the requirements under Regulation B. The final rule removed that exemption and credit unions are required to comply with the rule.

62 NCUA Proposed Rule Proposal eliminates redundancy between NCUA s regulations and Regulation B; Regulation B only applies to first lien loans while NCUA s regulation applies to both first and subordinate liens so the section requiring credit unions to provide an appraisal to a member requesting it on subordinate lien loans; Proposal contains an exemption on the requirement to obtain an appraisal on a refinance or modification of a loan held by a federally insured credit union under certain circumstances.

63 Loan Originator Compensation

64 General info Final rule issued January 20, 2013 Effective date generally January 10, 2014 Clarify and expand on existing regulations governing loan originator compensation and qualifications Implement new laws, including a restriction on the payment of upfront discount points, origination points, and fees on most mortgage loan transactions

65 General info Generally applicable to closed-end consumer lending transactions secured by a dwelling. However, provisions regarding mandatory arbitration and financing of premiums apply to both a closed-end consumer loan transaction secured by a dwelling and a HELOC secured by the consumer s principal dwelling.

66 Final Rule Prohibits mandatory arbitration for disputes in connection with a closed-end consumer lending transaction secured by a dwelling or a HELOC secured by the consumer s principal dwelling effective 6/1/13; Prohibits the financing of any premiums or fees for credit insurance (such as credit life or disability) in any closed-end lending transaction secured by a dwelling or a HELOC secured by the consumer s principal dwelling (but allows credit insurance to be paid monthly).

67 Compensation Continue the general ban on paying or receiving commissions or other loan originator compensation based on the terms of the transaction (other than loan amount); Continues the prohibition on loan originators who receive compensation from the member from receiving compensation from any other party; Continues to allow payment of upfront points and fees (but CFPB will study consumer choices).

68 Prohibited Compensation A loan originator receiving higher compensation based on the transaction s interest rate, such as receiving 2 percent of the loan amount if the interest rate is above 6 percent and 1 percent of the loan amount if the interest rate is 6 percent or less. A loan originator receiving higher compensation based on whether the loan contract contains a prepayment penalty. A loan originator receiving higher compensation for closing more than 10 transactions per month with an interest rate higher than 6 percent. An individual loan originator receiving additional compensation if the consumer buys creditor required title insurance from the originator s employer or its affiliate, rather than a third party.

69 Permissible Compensation The loan originator s overall dollar volume (total dollar amount of credit extended or total number of transactions originated), delivered to the creditor. The long-term performance of the originator s loans. An hourly pay rate based on the actual number of hours worked. Loans made to new customers versus loans to existing customers. A payment that is fixed in advance for every loan the originator arranges for the creditor (for example, $600 for every credit transaction arranged for the creditor, or $1,000 for the first 1,000 credit transactions arranged and $500 for each additional credit transaction arranged). The percentage of the loan originator s applications that close. The quality of the loan originator s loan files (for example, accuracy and completeness of the loan documentation) submitted to the creditor.

70 Compensation Clarifies and revises restrictions on pooled compensation, profit-sharing, and bonus plans for loan originators, depending on the potential incentives to steer consumers to different transaction terms. The final rule permits employers to make contributions from general profits derived from mortgage activity to 401(k) plans, employee stock plans, and other qualified plans under tax and employment law.

71 Loan Originator Qualification Requirements Expands SAFE compliance to include documentation that MLO employees meet character, fitness and criminal background standards similar to mortgage brokers licensing requirements; are suitably trained for their MLO activities; and provide their assigned unique identifiers on loan documents; Extends record-keeping requirements regarding loan originator compensation from two to three years.

72 Background Information You must obtain: A criminal background check A credit report Information from the NMLSR on administrative, civil, or criminal findings reported by any government jurisdiction, or from the individual loan originator if not required to be registered under the NMLSR.

73 Higher-Risk Appraisals

74 Scope Final rule issued on January 18, 2013 Effective date January 18, 2014 Joint rule issued by the agencies Covers higher-risk mortgage loans Applies to closed-end consumer credit transactions secured by the member s principal dwelling.

75 Exemptions A qualified mortgage; A reverse mortgage; A loan for initial construction of a dwelling; A temporary bridge loan.

76 Final Rule Creditors may originate a higher priced mortgage loan (HPML) only if they obtain a written appraisal; the appraisal is performed by a certified or licensed appraiser; and the appraiser conducts a physical property visit of the interior of the property. Creditors must also provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used. In addition, the rule requires a HPML creditor to obtain a second written appraisal at no cost to the borrower in connection with certain flipped properties.

77 TILA/RESPA Integration

78 General Information Final rule issued November 20, 2013 Effective Date August 1, 2015 Amends Reg Z and RESPA

79 TILA/RESPA Integration Applies to most closed-end consumer loans secured by real property Does not apply to HELOCs, reverse mortgages or mortgage loans secured by a mobile home or by a dwelling that is not attached to real property Does not apply to credit unions who make five or fewer mortgages in a year

80 Record Retention Retain copies of the Closing Disclosure for five years after consummation; All other evidence of compliance with the Integrated Disclosure provisions creditors must maintain records for three years after consummation of the transaction; Electronic recordkeeping is permissible

81 Disclosures for Non-Covered Transactions Credit unions will continue to use Good Faith Estimates, HUD-1 and Truth-in-Lending disclosures

82 TILA/RESPA Integration Provision of Loan Estimate must be sent within 3 business days of receiving an application and not later than the seventh business day before closing; The Loan Estimate integrates and replaces the existing RESPA GFE and the initial Truth-in-Lending disclosures; Disclosure must be in writing and must be based on the best information reasonably available at the time the disclosure is provided if the amount is unknown; Application - name, income, SSN, property address, property value estimate, loan amount sought; Limited to collecting a credit report fee until members have been given the Loan Estimate and communicated their intent to proceed.

83 TILA/RESPA Integration Restrictions on Charging Higher Settlement Costs than Initially Disclosed Lender charges cannot exceed estimates (zero tolerance) include Fees paid to the creditor, mortgage broker or an affiliate; Fees paid to an unaffiliated third party if the creditor did not allow the member to shop for the service; Transfer taxes.

84 TILA/RESPA Integration Limited increases are allowed for certain charges. The actual charges cannot exceed the estimates by more than 10% (10% cumulative tolerance) in sum. These include: Fees paid to an unaffiliated third party, if the credit union permitted the member to shop around for servicers not on the list of servicers provided by the credit union and the credit union informed the member that choosing a servicer not on the list is permitted; Recording fees

85 TILA/RESPA Integration There are charges that are allowed to be higher than their estimates as long as the estimated charge was based on the best information reasonably available at the time the disclosure was made. These charges include: Prepaid interest; Property insurance premiums; Escrow amounts; Charges paid to third-party service providers selected by the member that are not on the list provided by the credit union; and Charges paid to third-party service providers for services not required by the credit union

86 TILA/RESPA Integration If amounts paid by the member exceed the amounts specified in the GFE beyond the tolerance limits the excess must be refunded no later than 60 days after closing and new disclosures must be provided showing the refund.

87 TILA/RESPA Integration The new rule incorporates the six exceptions currently in RESPA that allow a charge paid by a borrower to exceed the originally estimated charge and permits a revised Loan Estimate disclosure to be issued: Changed circumstances affecting settlement charges; Changed circumstances affecting eligibility; Revision requested by the borrower; Interest rate dependent charges; Expiration; Delayed settlement date on a construction loan.

88 TILA/RESPA Integration Provision of Settlement Disclosure combines the final Truth in Lending disclosure and the HUD-1 and must be received 3 business days prior to consummation; Consummation is defined by state law; The closing disclosure generally must contain the actual terms and costs of the transaction; Waiving the three business day waiting period can be only for a bona fide personal emergency.

89 TILA/RESPA Integration Credit unions may continue to use settlement agents to provide closing disclosure but the credit union is responsible for ensuring compliance. No fees may be charged for preparing the closing disclosure.

90 Post-Consummation Escrow Cancellation Not required when a loan has been repaid, refinanced, rescinded or foreclosed; If the creditor or servicer cancels escrow at the borrower s request the disclosure must be provided no later than three business days before closure of the escrow account; If the cancellation is not at the borrower s request then the disclosure must be provided no less than 30 days before closure of the escrow account

91 Contents of Disclosure Under the heading Escrow Closing Notice : A statement informing the borrower of the date on which the escrow account will be closed; A statement that an escrow account may also be called an impound or trust account; The reason why the escrow account will be closed; A statement that without an escrow account the borrower is responsible for all property costs directly, possibly in one or two large payments a year.

92 Contents of Disclosure A table titled Cost to you, that includes: An itemization of the amount of any fee the creditor or servicer imposes on the borrower for closing the escrow account labeled Escrow Closing Fee ; A statement that the fee is for closing the account.

93 Contents of Disclosure Under the reference In the future : A statement of the consequences if the borrower fails to pay property costs including actions that can be taken by the state or local government and a statement of actions the creditor or servicer may take (adding amounts to the loan balance, adding an escrow account to the loan, purchasing property insurance that is more costly); A telephone number the borrower may call to get more information about escrow cancellation; A statement on whether the creditor or servicer offers an option to keep escrow open, a number the borrower may call and the cut-off date to request the escrow be kept open.

94 Flood Insurance

95 Flood Insurance Mandatory Escrow Requirements Credit unions must escrow for flood insurance beginning with loans received on or after January 1, 2016.

96 Flood Insurance Mandatory Escrow Requirement Exemption Exception #1 The credit union is less than $1 billion in assets; and There was not a requirement under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of the loan (there currently are no such requirements and the initial proposal did not provide clarification); and

97 Mandatory Escrow Exemption The credit union did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or mobile home.

98 Exceptions Exception #1 The loan is in a junior or subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which flood insurance is being provided at the time of the origination of the loan

99 Exceptions Exception #2 The loan is secured by residential improved real estate or a mobile home that is part of a condominium, cooperative or other project development, if the residential improved real estate or mobile home is covered by a flood insurance policy that: a.meets the requirements that the regulated lending institution is required to enforce under the FDPA; b.is provided by the condominium association, cooperative, homeowner s association, or other applicable group; and c.the premium for which is paid by one of the groups listed in b

100 Exceptions Exception #3 The loan is secured by residential improved real estate or a mobile home that is used as collateral for a business purpose Exception #4 The loan is a home equity line of credit Exception #5 The loan is a non-performing loan Exception #6 The loan s term is not longer than 12 months.

101 Optional Escrow Requirements General Rule Each Federal Entity (NCUA is included in this definition) must issue a regulation that directs that each regulated lending institution (credit unions) or servicer of an outstanding loan must make available to a borrower the option to have the flood insurance premiums and fees escrowed.

102 Optional Escrow Requirements Definitions For purposes of this section of the law an outstanding loan is defined as: 1)A loan that is outstanding as of January 1, 2016; 2)Not subject to the requirement to escrow flood insurance fees and premiums; and 3)A loan that would be subject to the escrow requirements if the loan had been originated, refinanced, increased, extended or renewed on or after January 1, 2016

103 CUSO Rule

104 CUSO Rule Credit unions are required to update contracts with CUSOs to ensure that the CUSO provides certain information about the CUSO and possibly certain financial information. First step is updated contracts by 6/30/14 Information upload around the end of 2015

105 CUSO Rule Higher Risk CUSOs include: Credit and lending: business loan origination; consumer mortgage loan origination; loan support services, including servicing; student loan origination; and credit card loan origination; Information technology: electronic transaction services; record retention, security, and disaster recovery services; and payroll processing services; Custody, safekeeping, and investment management services for credit unions.

106 CUSO Rule The special requirements for a credit union investing in, lending to, or receiving services from the CUSO include: Services provided to each credit union; The investment amount, loan amount, or level of activity of each credit union; and The CUSO s most recent year-end audited financial statements.

107 CUSO Rule In addition, CUSOs engaging in credit and lending services will be required to report the following activity by loan type: The total dollar amount of loans outstanding; The total number of loans outstanding; The total dollar amount of loans granted year-todate; and The total number of loans granted year-to-date.

108 Regulation CC Proposal

109 Reg. CC Proposed by the Federal Reserve Board Required by Dodd-Frank Comment period closed May 2, 2014 CFPB will finalize rule Purpose: to amend Regulation CC to increase next business day availability and encourage electronic check processing and returns

110 Reg. CC Specifics: Increased the amount of funds available for next day availability from $100 to $200, July Must update disclosures (model forms available) and provide change in terms notice Only entitled to expeditious check returns (two day test) if agree to receive returned checks electronically

111 Specifics: Reg. CC Additional hold extension shortened from 5 to 2 business days for most checks Permits paying institutions for same-day settlement to require electronic presentment of checks Removes references to nonlocal checks (due to consolidation of Federal Reserves check-processing regions) Provides a 12 month safe harbor for credit unions that use the model forms

112 Reg. CC The following table shows the current and proposed safe harbor hold periods Type General Hold Hold Extension Current Proposed Current Proposed Local Checks 2 No change 5 2 Non-Local Checks 5 N/A 6 N/A Deposits into nonproprietary ATMs

113 Remote Deposit Capture Remote deposit capture is where a financial institution permits its member or customer to make a deposit by sending an electronic image of the front and back of a check. For remote deposit capture, the proposal would allow a depositary financial institution that accepts deposit of an original check to recover directly from a financial institution that permitted its member or customer to deposit the check through remote deposit capture. The Fed believes the depositary financial institution that accepts an original paper check should not bear the loss if that check has been deposited multiple times. The proposal also provides for a new indemnity relating to remote deposit capture to cover depositary financial institutions that receive deposit of an original paper check returned unpaid, because it was previously deposited (and paid) using remote deposit capture.

114 NCUA S Proposal on Risk-Based Capital

115 Overview Applies to credit unions $50 million in assets and greater; Credit unions with assets greater that $50 million would now be considered complex; Would create a risk-based weighting calculation; Would require a well-capitalized credit union to maintain a 7% net worth ratio (no change) and a 10.5% risk based capital ratio

116 Overview Would set higher risk weights and hence higher capital requirements for credit unions with higher concentrations of assets in real estate loans, member business loans, longer-term investments and some other assets; Would authorize the agency to require even higher capital on a case-by-case basis; NCUA has provided a calculator for credit unions to determine how the proposal would affect them.

117 Some Issues There is concern that NCUA has not adequately justified the need for this proposal; NCUA is giving itself extra authority which may mean that some credit unions would have to maintain higher risk based net worth even higher than well capitalized; NCUA is potentially ignoring the real impact on credit unions whose risk-based capital would be just above well-capitalized or adequately capitalized

118 5 Categories There are 5 capitalization categories: Well capitalized net worth 7% or above and a risk based net worth of 10.5% or above; Adequately capitalized net worth ratio of at least 6% and a risk based capital ratio of 8% or greater; Undercapitalized Net worth ratio of 4-6 percent and a risk based capital ratio less than 8% if the net worth ratio exceeds 6%; Significantly Undercapitalized net worth ratio of less than 5% and a net worth restoration plan has either not been submitted or was rejected or a net worth percentage between 2 and 4 percent Critically Undercapitalized Net worth of less than 2 percent

119 Privacy Notices- Proposal

120 Privacy Notices - Proposal Credit unions that do not engage in certain types of information-sharing activities would be allowed to stop mailing an annual privacy notice if they post the annual notice on their website and meet the following conditions: The credit union does not share the consumer s nonpublic personal information with non-affiliated third parties in a manner that triggers GLBA opt-out rights; The credit union does not include an opt-out notice under the Fair Credit Reporting Act s (FCRA) Affiliate Sharing Rule on its annual privacy notice;

121 Privacy Notices The credit union s annual privacy notice is not the only notice provided to satisfy the requirements of the FCRA Affiliate Marketing Rule; The information included in the annual privacy notice has not changed since the member received the previous notice; and The credit union uses the model privacy notice disclosure form contained in Regulation P.

122 Home Mortgage Disclosure Act (HMDA)-Proposal

123 Proposed changes: HMDA Proposal The tests for determining which institutions are covered will be revised. Along with the asset requirement (currently $43 million) the credit union would also have to have originated 25 covered loans other than open-end lines of credit and commercial lines of credit. Unsecured lines of credit would no longer need to be reported All closed-end loans, open-end lines of credit and reverse mortgage secured by a dwelling would be required to be reported. Comment period closes October 29.

124 HMDA Proposal Much more information would need to be reported: Applicant age; Applicant credit score; Debt-to-income ratio; Application channel; Postal address and location of subject property; Property value; Points and fees; Introductory period; Non-amortizing features

125 HMDA Proposal Prepayment penalty; Universal loan identifier; Reasons for denial; Loan term; Occupancy type; Lien priority; HOEPA status; Loan type; Loan amount; Automated underwriting system results.

126 HMDA Proposal Construction method; Number of individual units; Loan originator identifier; and Legal entity identifier.

127 Fixed Asset Proposal

128 Fixed Asset Proposal Proposal would remove the waiver requirement for FCUs to exceed the 5% aggregate limit on investment in fixed assets; An FCU that chooses to exceed the limit of 5% of shares and retained earnings would need a fixed assets management (FAM) program; The FAM would have to demonstrate that the credit union has analyzed the impact on earnings and net worth levels

129 Fixed Asset Proposal The FAM program would be subject to NCUA supervisory scrutiny; The FAM would have to have limits on the aggregate amount of the FCU s fixed assets which must be board approved; Does not apply to state charters; Comment period ends October 1 st.

130 Looking Forward

131 What To Expect in the Coming Year CFPB on Mortgage Closings; Payday loans; Overdrafts; Prepaid Cards to bring under Regulation E; Student loans; Privacy legislation; Housing finance reform (not optimistic in its current form); Patent reform; Data security; Flood insurance new proposal from the Agencies CDD under BSA

132 Thank You! Any Questions?