Bank: as of date TABLE OF LAWS AND REGULATIONS CONSUMER PROTECTION LAW...AND MORE (Does not include BSA/AML/OFAC/CIP) REG NAME/Recent Update - Blue generally not included in Consumer Compliance, purple N/A to FI REG DESCRIPTION Business Units Products & Services Policy or Policies Risk Rating Anticipated Updates for Plan Year Monitoring for Plan Year Monitoring Results Date Completed Audit Results Corrective Action New Risk Rating ECOA - Equal Credit Opportunity Act - (updates effective 1/18/14) HMDA - Home Mortgage Disclosure Act B C Prohibits credit practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, age, receipt of public assistance or the fact that the applicant has exercised any right under the Consumer Credit Protection Act. Rules cover advertising, credit applications, adverse action notices, appraisals, etc. The Bureau has announced it has issued a final rule amending its Regulation B to implement Dodd-Frank Act ECOA amendments. Institutions will both have to inform applicants for firstlien mortgage loans they will receive a free copy of appraisals and other home-value estimates, and provide the copies promptly or a minimum of three days before closing. The rule will be effective January 18, 2014. To provide regulators and the public with loan data that can be used to determine whether banks are serving the credit housing needs of their communities. Requires lenders to maintain a Loan Application Register (LAR) as a mechanism to report the data. TIS - Truth In Savings DD Requires banks to provide disclosures to enable consumers to make meaningful comparisons of deposit accounts. Prescribes uniform methods for computing interest, disclosing terms, and advertising deposit accounts. RESPA - Real Estate Settlement Procedures Act (Updates effective January 10, 2014 and 10/15). With some exceptions, it applies to all federally related mortgage loans. Requires advance disclosures of loansettlement costs to home buyers; eliminates certain referral fees; regulates tax and insurance mortgage escrows. Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act This rule is effective January 10, 2014. This final rule will ban potentially risky loan features (balloon payments, prepayment penalties, etc.) for certain loan types. The CFPB s rule bans fees for modifying loans, caps late fees at four percent of the payment that is past due, generally prohibits closing costs from being rolled into the loan amount, and restricts the charging of fees when consumers ask for a payoff statement (a document that tells borrowers how much they need to pay off the loan). The rule also prohibits certain bad practices, such as encouraging a consumer to default on an existing loan to be Commercial & Consumer lending Commercial & Consumer real estate secured lending Retail consumer deposits and marketing Dwelling Secured Consumer lending Commercial, Lending Residential, policy Consumer, Business Loans Originations & Servicing Loan origination Commercial, Residential transactional and non-transactional accounts Residential loans, Escrow analysis, origination services Lending policy Truth in Savings Lending policy High N/A 2016- Appraisal Compliance High None - 2017 Quarterly sample non originated loans Report # for For Audit Period of monitoring period of - Lack of - no findings documentation for ANN noted. to declined business loans Report # for For Audit Period of monitoring period of - No exceptions - 3 denied noted loans not report High New products New Disclosures Report # for For Audit Period of monitoring period of - No exceptions - no findings noted noted. High N/A Sample of annual Escrow analysis Report # for For Audit Period of monitoring period of - Escrow - no findings analysis not provided noted. timely increase training for loan officer, enhanced declined loan procedures for documentation High - Test exception corrects for 2017 Increase training Very High - reporting and enhance requirements procedures to changing ensure all loans are reported None High Enhance procedures, review process for compliance and retest High 1 of 2 5/31/2016
Bank: as of date TABLE OF LAWS AND REGULATIONS CONSUMER PROTECTION LAW...AND MORE (Does not include BSA/AML/OFAC/CIP) REG NAME/Recent Update - Blue generally not included in Consumer Compliance, purple N/A to FI REG DESCRIPTION Business Units Products & Services Policy or Policies Risk Rating Anticipated Updates for Plan Year Monitoring for Plan Year Monitoring Results Date Completed Audit Results Corrective Action New Risk Rating Truth In Lending Act (updates effective 6/1/13, 1/10/14, 1/18/14 and 10/15) Loans to Insiders & Insider Transactions Z O "Designed to help consumers ""comparison shop"" for credit by requiring disclosures about terms and costs. Prescribes uniform methods for computing the costs of credit, for disclosing credit terms, and for resolving errors on certain types of credit accounts. This is the most comprehensive, technical, and frequently violated of the consumer protection regulations. Other section represent a collection of ARM disclosure and product requirements applicable to various banks depending on regulatory agency. These sections also pertain to requirements and restrictions applicable to ""alternative mortgage loans"" of which ARM's are one type. Establishes rules for how a lender should treat billing disputes with a borrower and the rights of borrowers using a credit card who have Consumer lending Consumer Loans Lending policy purchased damaged or poor quality merchandise. Independent Valuation Section of appraisals was also included in updates. The Home Ownership and Equity Protection Act of 1994 (HOEPA) section was enacted in response to allegations abusive lending practices in the home-equity lending market. It imposes additional disclosure requirements and substantive limitations on loans bearing rates and fees above a certain percentage or amount. The Fair Credit and Charge Card Disclosure Act was implemented through the Truth In Lending Act Section 32. This Act, amending the Truth in Lending Act, requires credit and charge card issuers to provide certain disclosures in direct mail, telephone and other applications and solicitations to open-end credit and charge accounts and under other circumstances. The Escrow Requirements under the Truth in Lending Act (Regulation Z) became effective June 1, 2013. Lenders are currently only required to establish an escrow account on Higher-Priced Mortgage Loans (HPML) for a minimum period of 1 year. This final Governs the extensions of credit to insiders, which include: ALL lending, and directors, executive officers, principal shareholders (10%+), and overdrafts their related interest. lending and in clearing approval Lending policy High N/A Sample test LE for Report # for For Audit Period of APR, and timing of fee monitoring period of - No exceptions collection - no findings noted. noted High N/A Review overdraft report None 4th qtr. 2016 documentation to support no special terms None enhance LPS to include comparative section of loans closed for noninsider High High 2 of 2 5/31/2016
Exhibit B Closed Home Equity Loan - Compliance Originations Monitor Review For Period: Scope and Sample Selection Checklist for Closed-End Home Equity Loans Note Number: Borrower(s): Collateral: Loan Type: 1 st, 2 nd : Home Equity Fixed Rate 1st Lien Application Date: 10/13/2015 Loan Closing Date: 10/30/2015 Property Type: Yes No N/A Preliminary Documentation Completed/Signed Application w/ MLO NMLS ID number disclosed If application for joint credit, is intent to apply jointly evidenced? Government Monitoring Information collected (if refinance or HMDA covered transaction) Loan Estimate (provided within 3 business days* of receiving application) Retain revised Loan Estimate along with documentation of changed circumstance causing revisions CHARM Booklet & ARM Disclosure (if adjustable rate loan) (provided at time of application) Reg. B Appraisal Disclosure (for first liens or HPMLs only; provided within 3 business days* of application) Part of Loan Estimate List of Homeownership Counselors Disclosure (provided within 3 business days* of application) FCRA Risk-Based Pricing Disclosure (or Credit Score Exception Disclosure w/ Notice to Home Loan Applicant), as required by Reg. V, 222.72 &.74, if applicable OR FCRA Notice to Home Loan Applicant /credit score disclosure (if credit score used in underwriting and bank does NOT risk-base price) as required by FCRA 609(g) Signed Acknowledgment of Bank Insurance Sales Credit Disclosure (if solicited during application) Privacy Notice (if new customer) * Business day = day on which the offices of the business entity are open to the public for carrying on substantially all of the entity's business functions. ** Business day = all calendar days except Sundays and legal holidays. Yes No N/A Documentation Obtained Prior to Closing Intent to Proceed (required if bank collects fees prior to closing) Flood Determination If property is located in a Special Flood Hazard area: First Lien Balance: This Loan Balance: Total Loan Balance: Is Escrow required for Flood premiums Yes No Notice of Special Flood Hazard Date Provided: Signed copy in file. Required Insurance Amount Lesser of: Loan Amount: Insurable value: NFIP max: Evidence of Flood Insurance NFIP Dec Page Policy Application & Paid Receipt for Premium Other: Evidence of Value Appraisal Valuation Combined LTV: 22% Date: 10/23/15 Mkt. Value:$365,036.81 If in first lien position or an HPML: Date Copy Provided to Consumer: 10/26/2015 Or Waiver Date: (Waivers must be received at least 3 business days prior to closing and are not permitted for HPMLs.) First Lien Balance: This Loan Balance: $80,000.00 Total Loan Balances:_$80,000.00 Title Search: Liens needed to be Released: Any Town Community Bank Payoffs: $62,016.89 Evidence of Current Hazard and Flood (if applicable) Insurance with Bank as Mortgagee CIP Documentation Completed (if new customer to the bank in accordance with Bank s Closed-End Home Equity Page 1 of 2 October 2015
Exhibit B Closed Home Equity Loan - Compliance Originations Monitor Review For Period: Scope and Sample Selection policy) Ability to Repay Determination Repayment Ability Evidenced thru: General ATR provisions General QM GSE/Agency QM Small Creditor QM Balloon Payment QM Small Creditor Balloon-Payment QM (temporary, until 1-10-2016) See Attached ATR/ QM documentation HPML & HOEPA (high cost mortgage) Determination Date Final Interest Determine if loan is a HPML using rate spread Rate Was Set: calculator at http://www.ffiec.gov/ratespread/newcalc.aspx. 10/13/15 Yes No If transaction was an HPML: Was escrow account established prior to closing if in a first lien position? Yes No Was appraisal by state certified or licensed appraiser obtained with interior inspection of property prior to loan closing, unless exemption applies? Yes No If applicable, provide exemption from appraisal requirement Determine if loan is a HOEPA (high cost) loan: Yes No If the transaction is an HOEPA/HCM loan: Was the HOEPA disclosure provided 3 business days prior to closing to all persons with rescission rights? Yes No Did the bank obtain written certification that borrower(s) attended a Homeownership Counseling course? Yes No Yes No N/A Documentation Package for Closing Note w/ MLO NMLS ID number disclosed Real Estate Mortgage w/ MLO NMLS ID number disclosed Closing Disclosure (one copy to borrower and each person having right to rescind) If the APR on the final TIL varies by more than.125% from the APR disclosed on the most recently provided early TIL, or if a variable rate feature has been added, a corrected early TIL must be provided and closing must be postponed for an additional three business days. Agrees to Loan Estimate Right of Rescission (Principal dwellings only - 2 copies to each borrower and each person having right to rescind) Initial Escrow Statement (If applicable. Required for first lien HPMLs unless small, rural creditor exemption applies.) Automatic Transfer Authorization (for auto-debit of monthly payment from bank account Reg. E) on Disbursement Sheet Signed Acknowledgement of Bank Insurance Sales Disclosure (if credit insurance sold) Notice of Negative Reporting if bank reports to credit bureau (if not included on past due notices) Written notice of lender mortgage payment requirements and crediting practices Yes No N/A Post Closing Properly Signed Loan Documents Send Mortgage for Filing Verification of Payoffs and Funds Disbursement (after rescission period expires) HMDA Reporting Input Form Completed (for HMDA covered loans) Add Insurance Expiration Date to Tickler for Follow-up Attach Account as O/D protection (if applicable) Establish process to produce Annual Escrow Statement if escrow account is set up. Establish process to ensure Variable Rate Change Notices are sent if variable rate note. Compliance Review Date: Reviewer: Comments: Closed-End Home Equity Page 2 of 2 October 2015
SAFE Rev 11-13 Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act) Implementation Monitoring Program, Internal Control Questionnaire & Workpaper Time Period: Scope/Sample: OBJECTIVES The S.A.F.E. Act established federal registration requirements for an individual who acts as a residential mortgage loan originator (MLO) and is employed by an institution that is regulated by the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS), National Credit Union Administration (NCUA), or the Farm Credit Administration (FCA) (collectively, agency-regulated institutions). In July 2010, these agencies issued jointly developed final rules that require these MLOs to register with the Nationwide Mortgage and Licensing System and Registry as required by the S.A.F.E. Act. The Board's rule applies to state member banks and certain bank subsidiaries and entities owned or controlled by foreign banks that are regulated by the Board, as well as their employees who act as MLOs. The Registry will assign registered MLOs a unique identifier which consumers may use to access information about a MLO on the Registry's public website. Beginning January 31st, the Registry will accept federal registrations of mortgage loan originators (MLOs) employed by certain agency-regulated institutions. MLOs should direct inquiries about registration to their employing institutions who must have procedures instructing MLO employees how to register. The Registry will provide agency-regulated institutions and their MLOs assistance with the registration process, including access to its national call center. Agency-regulated institutions are encouraged to visit the Registry website for additional information. 3. Assure for the Bank s compliance with the identification of MLO s, MLO(s) adhere to compliance requirements and MLO(s) are properly registered. Examination and other Audit Reports Our previous review in June 2015 noted the following: - The SAFE Policy does not include statements regarding training for all MLOs as well as appropriate training for all other staff members needing training with respect to the SAFE Act s requirements. We recommended statements should be made, upon Policy update such as - The Institution s shall coordinate with the Compliance Officer and senior management to ensure appropriate training to new and existing employees on a periodic basis. This review noted the policy had been updated 11/15 Bank addressed. - There has been no SAFE training during the past year. We recommended training be scheduled at least annually. We noted that the Bank has not Performed by: _ Date: SAFE Page 1 of 4 SAFE
SAFE Rev 11-13 Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act) Implementation Monitoring Program, Internal Control Questionnaire & Workpaper Time Period: Scope/Sample: implemented. Policies and Procedures Obtain and review the Bank s policy and procedures for the S.A.F.E. Assure that the policy/procedures are in compliance with the regulation. Obtained and reviewed policy (provided electronically) approved 11/9/15 and 3/23/16 Elements Review Comments Identification of which employees of Name/Position/MLO# the institution or its subsidiaries are deemed to be MLOs. The creation and ongoing maintenance of a formal process to gather information required for registration and to initially register those individuals. The creation and maintenance of a formal process to ensure that all MLOs renew their registrations annually between November 1st and December 31st. Appropriate training for all MLOs. Appropriate training for all other staff members needing training with respect to the SAFE Act s requirements. Policies and procedures to ensure that the MLO identifier information is provided to consumers when required. Policies that ensure that accurate information is provided to the NMLS as part of initial and annual registration activities. Such policies should at minimum require comparison of information submitted to the registry against other information contained in personnel files for registered employees. Appropriate audit (at least annually) and quality control standards to Included in Policy Included in Policy Included in Policy Included in policy Included in policy Included in policy Performed by: _ Date: SAFE Page 2 of 4 SAFE
SAFE Rev 11-13 Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act) Implementation Monitoring Program, Internal Control Questionnaire & Workpaper Time Period: Scope/Sample: ensure that SAFE Act related policies and standards are independently tested and adhered to and that noncompliance is timely discovered and corrected. Appropriate disciplinary standards for incidents of noncompliance with SAFE Act requirements. Create appropriate procedures for the review of information obtained as part of the registration process, including information obtained in connection with the processing of fingerprints and criminal background checks. Ensure that Suspicious Activity Reporting (SAR) standards are updated to include the filing of reports when information discovered during the handling of SAFE Act registration provides information which may give rise to the need to file a SAR. Included in Policy Included in Policy Included in Policy Creation of appropriate policy Included in Policy standards to ensure that any third parties involved in the mortgage loan origination process have appropriate policies and procedures to comply with SAFE Act requirements. Other Mortgage Loan Originator s (MLO) compliance Obtain a listing of the Bank s MLO s and determine the following: MLO is properly identified and in compliance with Bank policy and regulations On a sample basis determine that: MLO is registered MLO has been trained MLO is following compliance program. Comments: There have been 2 new MLO s for the Bank, we verified the two new and one previous MLO s to NMLS for the Bank: Performed by: _ Date: SAFE Page 3 of 4 SAFE
SAFE Rev 11-13 Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act) Implementation Monitoring Program, Internal Control Questionnaire & Workpaper Time Period: Scope/Sample: Name/Position/Number All were properly listed, no exceptions noted. Also requested email signature lines all responded number included no exceptions. During file review will verify NMLS # on documents. Findings Issues Recommendations Best Practice Recommendation only Performed by: _ Date: SAFE Page 4 of 4 SAFE
CFPB Exam Procedures SAFE Act Secure and Fair Enforcement for Mortgage Licensing Act 1 Examination Objectives To determine whether the financial institution has adopted written policies and procedures designed to assure compliance with the SAFE Act regulation. To determine whether the annual independent testing of the institution s policies and procedures for assuring compliance with the SAFE Act regulation has been conducted. To determine whether any violations or deficiencies identified during the independent testing have been corrected and that steps have been taken to ensure they do not recur. Examination Procedures 1. Determine whether the financial institution, or any of its subsidiaries, has one or more MLO employees. For those institutions without any MLO employees, these examination procedures do not need to be completed. (12 CFR 1007.103(a)(2)) 2. Determine for those financial institutions with MLO employees whether the institution has adopted written policies and procedures and conducts annual independent compliance tests to assure compliance with the SAFE Act regulation. If the institution has failed to adopt policies and procedures and to perform annual independent compliance tests, the examiners should address the violation in the examination report and require corrective action. (12 CFR 1007.104) 3. Review the financial institution s written policies and procedures and the annual independent compliance tests to determine whether the institution has taken appropriate steps to assure compliance with the SAFE Act that at a minimum: a. Establish a process for identifying which employees of the financial institution are required to be registered MLOs; (12 CFR 1007.104(a)) b. Require that all employees of the financial institution who are MLOs be informed of the registration requirements of the SAFE Act and the SAFE Act regulation and be instructed on how to comply with such requirements and procedures; (12 CFR 1007.104(b)) 1 These reflect FFIEC-approved procedures. CFPB Manual V.2 (October 2012) Procedures 1
CFPB Exam Procedures SAFE Act c. Establish procedures to comply with the unique identifier requirements in Section 105 of the SAFE Act regulation; (12 CFR 1007.104(c)) d. Establish reasonable procedures for confirming the adequacy and accuracy of employee registrations, including updates and renewals, by comparisons with its own records; (12 CFR 1007.104(d)) e. Establish procedures and tracking systems for monitoring compliance with registration and renewal requirements and procedures; (12 CFR 1007.104(e)) f. Provide for independent testing for compliance with the SAFE Act regulation conducted annually by institution personnel or by an outside party; (12 CFR 1007.104(f)) g. Provide for appropriate action in the case of an employee who fails to comply with the registration requirements of the SAFE Act, the SAFE Act regulation, or the financial institution s policies and procedures, including prohibiting such employees from acting as an MLO or other appropriate disciplinary actions; (12 CFR 1007.104(g)) h. Establish a process for reviewing employee criminal history background reports received pursuant to the SAFE Act regulation, taking appropriate action consistent with applicable federal law, including Section 19 of the Federal Deposit Insurance Act (12 U.S.C. Section 1829) and implementing regulations with respect to these reports, and maintaining records of these reports and actions taken with respect to applicable employees; and (12 CFR 1007.104(h)) i. Establish procedures designed to ensure that any third party with which the institution has arrangements related to mortgage loan origination has policies and procedures to comply with the SAFE Act, including appropriate licensing and/or registration of individuals acting as MLOs. (12 CFR 1007.104(i)) 4. Any significant deficiencies in the institution s SAFE Act regulation policies and procedures or independent compliance tests should be documented in the workpapers and discussed in the examination report together with corrective actions taken. CFPB Manual V.2 (October 2012) Procedures 2
Exhibit C Retail - Compliance Self- Assessment For Quarter Ended: New Consumer Retail Deposit Products or Bonuses Offered for Quarter: Product Type/Name TISA Disclosure Developed and Reviewed by Compliance Other Disclosures or Forms Effected Reg. E, Reg. CC Website Updated (if) Change: if Change is APY (non -Variable) or adversely effects customer Rate Information APY & Interest Rate on Fixed Rate Established accounts Variable Rate Account Information if applicable -How interest is determined -Frequency - Limitation on the amount the interest rate may change Compounding and Crediting of Interest Balance Information Minimum to avoid fees Minimum to obtain APY Balance Computation Method When interest begins to accrue on noncash deposits Transaction Limitations - Features of Time Accounts Early withdrawal penalties Renewal policies For Current Retail Products Any Changes in the following for the Quarter: Change in Term Notice Sent Initial Disclosures Revised TISA, Reg. E, Reg. CC, Service Fees (if applicable) CORE Updated/tested Website Updated 3-13
Exhibit C Retail - Compliance Self- Assessment Any Regulatory Updates or Core System Updates for Reg. DD, Reg. E or Reg. CC for the quarter: Reg. E Error Resolution Log for the Quarter Reviewed, completed and dates within required timeframes. Received and Reviewed Branch Quarterly Self Assessments - Attached Outstanding Issues: Officer Signature/Date 3-13
Exhibit C Retail - Compliance Self- Assessment For Quarter Ended: New Consumer Retail Deposit Products or Bonuses Offered for Quarter: Product Type/Name TISA Disclosure Developed and Reviewed by Compliance Other Disclosures or Forms Effected Reg. E, Reg. CC Website Updated (if) Change: if Change is APY (non -Variable) or adversely effects customer Rate Information APY & Interest Rate on Fixed Rate Established accounts Variable Rate Account Information if applicable -How interest is determined -Frequency - Limitation on the amount the interest rate may change Compounding and Crediting of Interest Balance Information Minimum to avoid fees Minimum to obtain APY Balance Computation Method When interest begins to accrue on noncash deposits Transaction Limitations - Features of Time Accounts Early withdrawal penalties Renewal policies For Current Retail Products Any Changes in the following for the Quarter: Change in Term Notice Sent Initial Disclosures Revised TISA, Reg. E, Reg. CC, Service Fees (if applicable) CORE Updated/tested Website Updated 3-13
Exhibit C Retail - Compliance Self- Assessment Any Regulatory Updates or Core System Updates for Reg. DD, Reg. E or Reg. CC for the quarter: Reg. E Error Resolution Log for the Quarter Reviewed, completed and dates within required timeframes. Received and Reviewed Branch Quarterly Self Assessments - Attached Outstanding Issues: Officer Signature/Date 3-13
Martino & Thoms, LLC Compliance, Outsourcing, Partnership, Solutions Final Compliance Monitoring Report - # Date: To: From: Martino & Thoms Monitoring Period: 1/1/15 through 8/31/15 Management Response: Areas Reviewed: Targeted Compliance Monitoring: RESPA (Reg. ), Reg. Z, Flood, Reg B, FCRA, SAFE, Appraisal Guidelines, and Homeownership Counseling Lending Regulations for Closing and Servicing Our review of selected consumer loans was to assure for compliance (as applicable for the following federal consumer financial laws: The Real Estate Settlement Procedures Act (RESPA) and its implementing regulation, Regulation, require lenders or mortgage brokers, with respect to mortgage origination, to provide borrowers with disclosures regarding the nature and costs of the real estate settlement process. RESPA also protects borrowers against certain abusive practices, such as fees or kickbacks for the referral of settlement service business, and places requirements on the administration of, and limitations upon required deposits into, escrow accounts. The main disclosure requirements applicable at or before origination include: o Loan Estimate(LE) of settlement costs within three business days after application; o Provision of a written list of homeownership counseling organizations that provide relevant counseling services in the loan applicant s location; o Disclosure of affiliated business arrangements; o An initial notice explaining whether the servicing rights to the loan may be transferred; and o A listing of the final settlement charges of borrowers and sellers on a prescribed settlement statement (Closing Disclosure - CD) must be provided to consumers at least three business days before consummation of the loan The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, provide a uniform system for creditors disclosures of credit terms. In addition, they: Page 1 of 6
Martino & Thoms, LLC Compliance, Outsourcing, Partnership, Solutions Final o Impose certain advertising rules; (which we review ongoing) o Require written disclosure and re-disclosure of certain loan terms; the Bank did not originate any ARM(s) and does not currently provide applications for ARM(s), the Bank does originate HELOCs o Require that creditors make a good faith determination of the borrower s ability to repay and verify information they relied on to do so; o Provide consumers with rescission rights in certain circumstances; o Delineate and prohibit certain unfair and deceptive mortgage lending practices; o Require loan originator identification on certain loan documents; o Prohibit certain terms and practices in the origination of higher-priced loans and prohibit additional terms and practices on a subset of these loans known as high cost loans; o Prohibit certain appraisal practices; and In addition, it has certain requirements during the servicing of the loan including: payment processing requirements, Billing Rights disclosure, ARM adjustment requirements, change in term requirements and payoff statements. The Equal Credit Opportunity Act (ECOA), and its implementing regulation, Regulation B, o Retention of information related to applications, (joint intent, GMI) o Provide appraisal and other written valuations to consumers, such as those generated by automated valuation models (AVMs) and broker price opinions. The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) and its implementing regulations, Regulation G and Regulation H, establish requirements for registration and, when applicable, standards for licensing of individuals who are residential mortgage loan originators. o Each loan originator, unless exempt, must register or be licensed through the NMLSR, obtain a unique identifier and provide it to consumers in certain circumstances, and maintain registration. The Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V, impose disclosure and other requirements on mortgage lenders that obtain information from a consumer reporting agency to determine a consumer s credit o These include the disclosure of credit score information, and disclosure of risk-based pricing. o Notice of negative action. Flood Insurance Protection Act - which places responsibilities on Financial Institutions as follows: o Requires flood insurance in the correct amount when it makes, increases, extends, or renews a loan secured by improved real estate or a mobile home located or to be located in a SFHA. Page 2 of 6
Martino & Thoms, LLC Compliance, Outsourcing, Partnership, Solutions Final o Provides the required notices to the borrower, servicer and to the Director of FEMA whenever flood insurance is required as a condition of the loan. o Requires flood insurance premiums to be escrowed when flood insurance is required on a residential building and other items are required to be escrowed. o Complies with the forced placement provisions if at any time during the term of a loan it determines that flood insurance on the loan is not sufficient to meet the requirements of the regulation. o Initiate corrective action when policies or internal controls are deficient, or when violations of law or regulation are identified. Our Scope for this targeted monitoring was for forced placed flood insurance requirements and the bank s policy and procedure for compliance. Our review of 3 of 17 consumer real estate related loans originated for the audit period and 1 installment loan out of 6 noted the following: Loan Number/Type/ date Name Finding Management Response The Bank has not updated the appraisal notice provided. It appears that the credit score(s) were not provided individually the Bank must not share credit info with spouses The appraisal notice was updated in June 2015. The HELOC application for this customer was received prior to the update of the notice. The bank has not updated the appraisal notice provided No MLO or Bank number on application. Going forward, the Bank will ensure that the credit score notices are mailed to the applicant and co-applicant in separate envelopes. The appraisal notice was updated in June 2015. The HELOC application for this customer was received prior to the update of Page 3 of 6
Martino & Thoms, LLC Compliance, Outsourcing, Partnership, Solutions Final Loan Number/Type/ date Name Finding Management Response the notice. The credit score notice was not provided with the ANN counter offer. The borrower was denied for DTI which was obtained from info provided by Credit report. The HELOC application was updated in June 2015 to include the Bank number. The Compliance Officer reviewed the revised application at the Branch Managers meeting on 6/10/15 and communicated that the Loan Officer must include the MLO number field on the application. Going forward the Consumer Loan Underwriter and Loan Servicing Department will verify that the MLO number is included on all applications received. Going forward, the Bank will ensure that the credit score notice if provided to the customer when the customer is denied or countered due to their debt to income ratio. Billing Rights review: Currently the bank does not provide the billing rights statement on the month loan statement. The Bank is aware of this and is scheduling to produce the notice manually for an annual mailing. Monthly Statements: We reviewed monthly statements for the 4 accounts selected and noted no exceptions. Training: Page 4 of 6
Martino & Thoms, LLC Compliance, Outsourcing, Partnership, Solutions Final We reviewed the training process and program with the compliance officer to ensure that the staff is properly trained. SAFE ACT: We compared the Bank s MLO(s) s to the national registrar and noted no exceptions. Additionally, we reviewed the lending policy, SAFE policy and procedures, and the flood policy and procedures. We have the following recommendations: Policy/Procedures Recommendation Management Response Consumer lending policy The consumer lending policy states the Bank offers fixed rate home equity loans. However, at this time the Bank does not nor do they have the policies and procedures in place for the regulatory requirements. We recommend removing these from the policy. The Consumer Loan Policy will be updated to state that the Bank currently does not offer fixed rate home equity loans. The policy will further state that if the Bank decides to offer fixed rate home equity loans in the future, the Bank will update the Consumer Loam Policy and the Home Equity Loans procedures to ensure the Bank is in compliance with all regulatory requirements for fixed rate home equity loans. The Consumer Loan policy will be updated and presented to the Audit Committee and Board for approval at the October 2015 Flood procedures We recommend the Bank enhance the procedures to align with the Oct 2014 FEMA guidance for forced placed renewal notification to the customers. Page 5 of 6 Board meeting. The Flood procedures will be updated to ensure they are in compliance with the October 2014 FEMA guidance. The procedures will be updated by October 31, 2015.
Martino & Thoms, LLC Compliance, Outsourcing, Partnership, Solutions Final Policy/Procedures Recommendation Management Response SAFE ACT procedures We recommend the policy be enhanced to indicate that MLO number and Bank Identifying numbers will be on all open and closed- end applications and in the future should the Bank originate closed-end loans the Bank will also ensure the numbers will be on the notes and mortgages. The Bank s SAFE Act procedures were updated as recommended. Karen I. Martino Karen I. Martino, Partner Martino & Thoms, LLC Mary Marley Mary Marley, Partner Martino & Thoms, LLC Page 6 of 6