Operational Impacts of the Economic Growth, Regulatory Relief, & Consumer Protection Act (S.2155) NAFCU s Regulatory Compliance Seminar Presented by Brandy Bruyere, VP of Regulatory Compliance, NAFCU 1
S.2155 Background The 2016 elections made regulatory relief from some of Dodd- Frank seem possible Many stand-alone bills were introduced throughout 2017, especially in the House In the Senate, some bipartisan support is needed given the current make up (need 60 votes, currently have 51 Republicans, 47 Democrats, and 2 independents who generally work with Dems) S.2155 was introduced in November 2017, incorporating over 30 pieces of legislation that had previously been introduced S.2155 Background Passed in the Senate on April 17, 2018 Passed in the House on May 22, 2018 and the president quickly signed the bill into law on May 24, 2018 The law is separated into six separate titles, some of which do not relate to CUs (example: bank specific, consumer reporting agencies) Different provisions have different effective dates Some effective upon enactment Some effective a certain time period after enactment Some require implementation by a regulator, some seem to need regulatory clarification, some do not address a regulator 2
S.2155 Key Provisions Section 101 Minimum Standards for Mortgage Loans (new QM) Section 103 Exemption from Appraisals of Real Property Located in Rural Areas Section 104 HMDA Adjustment & Study Section 105 CU Residential Loans (MBL) Section 106 Eliminating Barriers to Jobs for Loan Originators Section 108 Escrow Requirements Relating to Certain Consumer Credit Transactions Section 109 No Wait for Lower Mortgage Rates Section 212 Budget Transparency for NCUA Section 213 Making Online Banking Initiation Legal and Easy Section 303 Immunity from Suit for Disclosure of Financial Exploitation of Senior Citizens Section 304 Restoration of the Protecting Tenants at Foreclosure Act Section 309 Protecting Veterans from Predatory Lending Section 313 Foreclosure Relief and Extension for Servicemembers Section 601 Protection in the Event of Death or Bankruptcy Mortgage Specific Provisions Section 101 Minimum Standards for Mortgage Loans (new QM) Section 103 Exemption from Appraisals of Real Property Located in Rural Areas Section 104 HMDA Adjustment & Study Section 105 CU Residential Loans Section 106 Eliminating Barriers to Jobs for Loan Originators Section 108 Escrow Requirements Relating to Certain Consumer Credit Transactions Section 313 Foreclosure Relief and Extension for Servicemembers 3
Section 101 New Category of QM (Background) Regulation Z section 1026.43 ability to repay (ATR)/qualified mortgage (QM) rule Must make a reasonable & good faith determination that the member has the ability to repay the loan Must consider 8 underwriting factors to receive a safe harbor 1. Current or reasonably expected income or assets 2. Current employment status 3. Monthly payment of covered loan 4. Monthly payment on simultaneous loans secured by the same property 5. Monthly payment for mortgage-related obligations (property taxes, insurance, HOA) 6. Current debt obligations, alimony and child support 7. Monthly debt-to-income ratio or residual income 8. Credit history Section 101 New Category of QM (Background) QM receives a presumption of compliance Safe Harbor, if the QM is not higher-priced Rebuttable Presumption, if the QM is higher-priced No toxic terms (negative amortization; interest-only payments; term exceeding 30 years; excessive points and fees; balloon payments) Debt to income limit: 43% Why does this matter? If a non-qm loan defaults in the first 3 years, borrower can assert as a defense to foreclosure that the CU did not property consider ATR Many CUs already make non-qm loans based on portfolio performance 4
Section 101 New Category of QM (Background) Current rule contains 4 types of QMs (General; Temporary; Small Creditor Portfolio; Balloon Payment) Regulatory relief bill adds a 5 th category for CUs with under $10 billion in assets, but must meet several conditions Loan is originated and retained in portfolio by the CU Comply with existing ATR/QM provisions on prepayment penalties 3% points and fees limitations Not have negative amortization or interest-only features Document the debt, income, and financial resources of the borrower Effective date: May 24, 2018, clarifying regs from the Bureau expected Section 105 CU Residential Loans FCU Act limits member business loan balances to the lesser of 1.75 times the actual net worth of the CU or 1.75 times the minimum net worth to be considered well capitalized (net worth ratio not less than 7%) Previously, the FCU Act included 1- to 4- family dwellings that were not the primary residence of the member Section 105 removes these loans from the definition of MBL This does NOT change the maturity limits for these loans FCUs look to the FCU Act, section 701.21 of NCUA s regulations Statutory limits in maturity limits mean FCUs do not have much flexibility to go beyond a 15 year term for loans that are not the member s residence or primary residence 5
Section 105 CU Residential Loans Section 105 CU Residential Loans On June 1, 2018 NCUA finalized a regulation so that Part 723 conforms to the new statutory language June 27, 2018 issue of the NCUA CU Express clarified how to address these loans on the Call Report Due to enactment of S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, we updated several pages of the of the Call Report instructions for Schedule A, Specialized Lending. Credit unions should not report any amount in "Net Member Business Loan Balance Comprised of 1 4 family Residential Properties," account code 400N, item 8 on page 16 of the June Call Report. Account code 400N will be removed from the Call Report form 5300 in September 2018 Effective date: June 5, 2018 6
Section 104 HMDA Partial Exemption HMDA now requires reporting over 40 data points if a CU meets the rule s definition of financial institution, five part test includes: In each of the preceding two calendar years, originated at least 25 closed end mortgage loans, or at least 500 HELOCs (100 in 2020) The 2015 HMDA rule added data points and changed how CUs must report some existing data points (example: race/ethnicity) S.2155 does not amend this definition if the CU was subject to HMDA before the law passed, HMDA still applies However, many credit unions will be eligible for a partial exemption from reporting many of the data points added to HMDA by Dodd-Frank and implemented by the 2015 HMDA rule Section 104 HMDA Partial Exemption Section 104 establishes thresholds for some CUs to no longer have to report the data points added by Dodd-Frank Originate under 500 closed-end HMDA covered loans, or under 500 openend HMDA covered loans in each of the past 2 calendar years, then those loans are eligible for the exemption Covered loan status generally based on if the loan is dwelling secured NOTE until January 1, 2020, if a CU does not originate 500 HELOCs in each of the past 2 calendar years, those loans are exempt transactions under section 1003.4 of HMDA Example CU originated 600 HELOCs in each of the past 2 calendar years, but only 150 closed-end mortgages. Eligible for a partial exemption on the closed-end mortgage loans Effective date: BCFP rule says can apply to all 2018 HMDA data 7
Section 104 HMDA Partial Exemption NAFCU Compliance Blog Post Section 109 No Wait for Lower Mortgage Rates Under TRID, a Closing Disclosure must be provided 3 business days prior to consummation If a change occurs during that period, a revised Closing Disclosure must generally be provided and in 3 circumstances, a new 3 day waiting period is required: 1. The APR becomes inaccurate (as defined in section 1026.22) 2. The loan product changes 3. A prepayment penalty is added (FCUs can t do this anyway) Regulation Z determines if the APR is inaccurate is based on whether the rate changes, regardless of if it is an increase or a decrease in the APR 8
Section 109 No Wait for Lower Mortgage Rates Seemed odd to make a consumer wait three more business days to close if the rate went down In 2015, the Bureau issued a consumer-facing fact sheet on whether TRID would delay mortgage closings that seemed to indicate that only an APR increase required a new waiting period This was not a formal bulletin or regulatory interpretation Some were reluctant to rely on a consumer fact sheet instead of the rules Even with TRID 2.0, the Bureau did not amend the rule to only require a new waiting period for rate increases S.2155 addresses this issue.sort of Section 109 No Wait for Lower Mortgage Rates 9
Section 109 No Wait for Lower Mortgage Rates Section 109 amends section 1639 of the Truth in Lending Act which is the high-cost mortgage rule The delivery and timing requirements for providing TRID disclosures implement section 1638 of TILA It is widely believed that Congress intended to amend TILA so that all mortgages subject to TRID will not require a waiting period when the APR decreases NAFCU discussed the issue with the bill drafters to confirm Intent was not to only address high-cost mortgages NAFCU has also asked the Bureau to implement this as intended Some CUs may consider it low-risk to close without a waiting period when the rate decreases. Effective upon enactment Section 313 Foreclosure Relief and Extension for Servicemembers Section 533 of the Servicemembers Civil Relief Act originally provided protection from foreclosure during and up to 9 months after active duty military service Applies to a mortgage obtained before entering military service Cannot sell, foreclose or seize property for breach of a mortgage except with a court order or if the servicemember waived SCRA rights A court can stay the foreclosure proceeding or adjust the amount owed In 2008, Congress extended this to a year but not permanently Every couple of years the extension would expire, and Congress would retroactively change the 9 months to a year again Section 313 of S.2155 makes the year of protection permanent, effective upon enactment 10
Other Miscellaneous Mortgage Provisions Section 103 Exemption from Appraisals of Real Property Located in Rural Areas Waives a requirement for an independent home appraisal for federally related mortgage loans under $400k in rural areas if the CU has contacted three state-licensed appraisers who couldn t complete the appraisal within a reasonable time On September 20, 2018 NCUA proposed changes to its appraisal rule that would also incorporate this provision and clarify reasonable time Technically effective upon enactment, but NCUA conforming rules pending Section 106 Eliminating Barriers to Jobs for Loan Originators Amends SAFE Act, if a registered LO moves from one state to another, will have a temporary ability to originate loans pending application to the new state s licensure Effective date: November 24, 2018 Section 108 Escrow Requirements Relating to Certain Consumer Credit Transactions (higher priced mortgage loan escrow rule), effective upon enactment, implementing rule expected Section 213 MOBILE Act FAQ from S.2155 what s the impact on scanned IDs when we open accounts online? One stand-alone bill included in S.2155 was the Making Online Banking Initiation Legal and Easy Act Plain language when scanning a driver s license or personal ID card to open an account online, except as required to comply with Federal bank secrecy laws, may only use the scan: A. to verify the authenticity of the driver s license or [ID card] ; B. to verify the identity of the individual and C. to comply with a legal requirement to record, retain, or transmit personal information in connection with account opening or obtaining a financial product After using the ID as allowed by the law, a CU shall permanently delete any image of the ID and any copy of the image 11
Section 213 MOBILE Act It s common to keep a copy of the ID/scan in the CU s files One common use: ongoing identification of the member for future transacting Concern does this mean CUs cannot keep these copies for things like ongoing verification of identity? Permitted to verify the identity of the individual so arguably, this could possibly include ongoing verification Legislative intent making it easier to open accounts online and improve access to services especially since some states have laws prohibiting scanning or copying IDs Section 213 MOBILE Act This provision does not instruct any regulator to take action to implement the law or enforce the provision This is a freestanding law that is not incorporated into any existing legal framework NAFCU has discuss this with NCUA and with staff at FinCEN The regulators seem to understand the legislative intent and that there are various operational purposes for keeping IDs some of which can help combat fraud Possible we could see some guidance as to how NCUA may intend to address this in exams, if at all FinCEN may consider clarifying the role of IDs in CIP Effective upon enactment, may see guidance from regulators 12
Section 303 Immunity from Suit for Disclosure of Financial Exploitation of Senior Citizens Protection from liability in any civil or administrative proceeding for disclosing to a covered agency the suspected exploitation of a senior citizen, under certain conditions 1. Meet training requirements outlined in the law 2. Serve as a supervisor or in a compliance or legal function including as the CU s BSA officer 3. Make the disclosure in good faith and with reasonable care Also protects the credit union if an individual makes a disclosure while employed by the CU if the training requirements and other conditions are met Some terms are specifically defined like exploitation and senior citizen Section 303 Immunity from Suit for Disclosure of Financial Exploitation of Senior Citizens Senior citizen someone who is 65 or older Exploitation the fraudulent or otherwise illegal, unauthorized, or improper act or process of an individual which could include a caregiver or fiduciary that: uses the resources of a senior citizen for monetary or personal benefit, profit, or gain; OR results in depriving a senior citizen of rightful access to or use of benefits, resources, belongings, or assets State law may often inform what is illegal, but unauthorized and improper seem broader in nature, may need some regulatory clarification. Seems akin to negligence/civil liability Preemption does not preempt a state law except to the extent that this law provides a greater level of protection to the individual 13
Section 303 Immunity from Suit for Disclosure of Financial Exploitation of Senior Citizens Training can be provided by the CU or a third party. Requirements in the statute include: Maintain the content and provide to examiners upon request Teach how to identify and report the suspected exploitation of a senior citizen Discuss the need to protect privacy and the integrity of CU members and Be appropriate to the job responsibilities of the employee attending Preemption does not preempt a state law except to the extent that this law provides a greater level of protection to the individual The Bureau s legal team is evaluating the statute and considering how to issue guidance or amend existing resources moving forward A Bureau public forum on October 18 in Baton Rouge is set to focus on elder financial abuse and this may be an area of discussion Section 601 Protections in the Event of Death or Bankruptcy (private student loans) Amends TILA to prohibit private student loan (PSL) lenders from accelerating a PSL or declaring default solely because the co-signer declared bankruptcy or passed away Lender must release the cosigner from an obligation on the PSL when notified of the death of the student obligor Must provide cosigner a notice of release in a reasonable timeframe Must allow the student to designate an individual to have the legal authority to act on their behalf with respect to the PSL in the event of their death State probate law would also likely come into play here Seems to be a pre-consummation requirement Effective date: November 20, 2018 but no implementing regulations 14
Implementing Regulations Regulators have already taken steps to implement some of S2155 (NCUA MBL, appraisals proposal; Bureau HMDA, FCRA changes impacting CRAs) Look out for the fall Unified Agenda of Regulatory and Deregulatory Actions which may help indicate how regulators will continue implementation efforts, often publishes in November Questions? Brandy Bruyere NAFCU VP of Regulatory Compliance bbruyere@nafcu.org compliance@nafcu.org 15