On February 14, 2010, the requirements of the Higher Education Opportunity Act took effect.  These rules affect any financial institution that makes private loans for post-secondary education expenses (with a few exceptions).  We've been hearing from our clients that the software vendors are getting up to speed (or will be soon) to support the required disclosures.  If your institution makes loans that fall under this category it is very good news to know that you will have that support.  However, make sure you know exactly what you are getting.  For example, we have been told that some software providers are only supporting two of the required three disclosures.  The rules require a disclosure with the application/solicitation, when the loan is approved, and when the loan is closed.

There also appears to be some confusion as to when these rules apply.  Some have concluded that the rules only apply if ALL the loan proceeds will be used for post-secondary education expenses.  However, in our opinion, the rules clearly apply if ANY of the loan proceeds will be used for post-secondary education expenses.  The final rule provides the following:

• In the preamble it states, with emphasis added "The final rule would cover multipurpose loans largely as proposed. The Board believes that coverage of loans that may be used for multiple purposes is warranted by the statutory inclusion of loans made "expressly," that is explicitly, for postsecondary education expenses.
• The definition of "private education loan" [226.46(b)(5)] includes any extension of credit that is extended to a consumer expressly, in whole or in part, for postsecondary educational expenses. This section also provides the exemptions to these requirements (for example, federal student loans, open-end credit, dwelling secured loans, etc.)

Yesterday I wrote a blog about the NFIP expiring on 2/28/10.  The NFIP was temporaily extended on 3/3/10.  Unfortunately, Congress only extended the program through 3/28/10, so we may have to face the same issues again at the end of the month.  Ugh!  Stay tuned - we'll keep you informed.

Once again, Congress allowed the National Flood Insurance Program to expire on 2/28/10.  Actually, the House passed an extension (only to 3/31/10), but the Senate didn't do the same.  Here's what FEMA had to say:

Authorization for the National Flood Insurance Program expired February 28, 2010.  If reauthorization takes place after this date, policies that are already in the process of being issued or renewed will be issued when Congress re-authorizes the National Flood Insurance Program.  Payments for claims on existing policies will not be impacted; such policies will continue uninterrupted.

The Senate reconvened on 3/2/10 and it's expected they will reauthorize the NFIP, but nothing has occurred yet.  FEMA wrote a memo to insurance companies with recommendations and guidance on what to do during the lapse (actually from a 10/27/09 memo).  This memo indicates that if Congress allows the NFIP to expire:

The NFIP will not be able to: (a) issue new policies, (b)increase coverage on existing policies, or (c) issue renewal policies.

Here's a story in Consumer Reports from 3/1/10 giving you more details.

Most likely, the Senate will pass an extension soon (possibly today) as has happened when the NFIP has expired in the past.  Until then, if you have a loan secured by property in a Special Flood Hazard Area, you cannot close the loan as you cannot obtain flood insurance at this time.

HOEPA WORKSHEET

Effective January 1, 2010, the fee based trigger amount used to calculate whether a loan is subject to HOEPA was decreased to $579 (down from $583 in 2009).  Therefore, we have updated our HOEPA Worksheet with this change.  Version 2010-1 is now available on the free downloads page of our website.

Just a reminder that if you have a copy of the HOEPA worksheet saved on your computer, you will need to download Version 2010-1.  However, you may want to keep a copy of Version 2009-1 for any auditing you do of "old" loan files.

ESCROW ANALYSIS WORKSHEET

Due to the RESPA changes that take effect January 1, 2010, we have updated our Escrow Analysis Worksheet.  The 2010 Escrow Analysis is now available on the free downloads page or our website.

The changes only affect the "HUD 1/1A Disclosure" section at the top of the worksheet.  Due to the new HUD Settlement Statement forms, this disclosure was changed to match the format of the new forms.

I've been involved in regulatory compliance for 20 years (man, I'm getting old!).  I started as a FDIC Examiner, then worked as a loan officer and then started Banker's Compliance Consulting in 1993.  I remember when the flood rules only required us to document the panel number and the date of the map we reviewed.  CRA was simply about having a public file and a lobby sign.  I remember when Truth In Savings Act came out and we thought it was huge (that was 1993)!  I also remember the early 2000's when we were bombarded with Privacy and then the USA Patriot Act and the BSA requirements went through the roof.  But I can't ever remember so many regulations in one year.

There's been a major change to mortgage lending:  the VERY confusing RESPA rules, MDIA, HPML, new escrow requirements (beginning in April 2010) and new Flood FAQs.  We've also had non-mortgage lending changes:  Open-end payment changes (thanks for letting us know it only applied to credit cards AFTER we made all of the changes - that's sarcasm, in case you didn't get it), prompt crediting of payment requirements, lots of advertising changes, credit card amendments (they've only just begun) and Truth in Lending has more changes coming.  We also have Private Student Loan requirements and the dreaded Regulation GG (UGH!).

But that isn't all. There have been lots of deposit side changes too:  Soon there will be no more non-local checks and Truth In Savings Act now requires balances to be clear about what's really in the customer's account vs. what's available from overdraft services, loans, etc.  There have been CTR Exemption Rule changes and Truth In Savings Act periodic statement changes affecting the disclosure of overdraft and NSF fees.  In July we have a huge change (from Reg E) prohibiting the charging of an overdraft fee on ATM and POS transactions unless the customer opts-in.

Then there's the new Privacy disclosure (that's not mandatory until 1/1/11), the new (final) rules for the FACT Act: Section 312 - Accuracy and Integrity and Direct Dispute Provisions, and the long awaited Section 311 - Risk Based Pricing Notices.  Are you getting tired of this summary yet?

Unfortunately, I don't think we're seeing the end of the regulatory changes.  While at the ABA's Regulatory Compliance Conference this summer, one ABA Attorney likened this to the Gettysburg battle.  In other words, this is only the beginning of the war.  We'll see revisions and FAQs to these quickly issued changes.  We'll see more regulations as some find loopholes.  Congress is on a rampage and they don't seem to care how it affects the banker.

So why am I bringing all of this up?  It's not to depress you.  It's to remind you that you are more valuable to your institution today than ever before.  I encourage you to be optimistic and see this as job security - an opportunity to be a valued member of your bank's Team.

Be sure to update your management on all of these changes and let them know what's yet to come.  They need to budget accordingly, allowing time for training and dedicating resources to equip and educate your bank's personnel.  You should also keep your Board apprised of all of these regulatory changes.  They need to understand the new burdens and complexities to your bank and its' personnel.  They may also want to communicate with your State's Representatives.  It would be great to give Congress some feedback on what they are doing to us.

Rest assured, we're doing all we can to read and digest all of these changes. We're looking for the pitfalls and loopholes and trying to answer your questions before you even know what to ask.  It's been a tough year for us too.  In fact, I've felt depressed not being able to get my arms around a regulation so we can explain it to all of you.

In summary, here's wishing you a blessed 2010!  We welcome the opportunity to work with you through all of these changes and the headaches they bring.

The FRB has announced the 2010 HMDA asset threshold.  Really, they announced it isn't changing.

For 2009, the threshold was $39 million. During the twelve-month period ending in

November 2009, the CPIW decreased by 0.98 percent. That decrease results in a new threshold,

before rounding, of about $38.62 million dollars, which must be rounded to the nearest million

dollars pursuant to Regulation C. As a result, the exemption threshold remains $39 million.

Thus, depository institutions with assets of $39 million or less as of December 31, 2009 are

exempt from collecting data in 2010. An institution's exemption from collecting data in 2010

does not affect its responsibility to report data it was required to collect in 2009.

With all of the regulatory changes, it's good to know that some things don't change.  If you didn't know, there are two ways to get around HMDA reporting:

1. Sell assets to get to the $39 million threshold; or,
2. Sell the banking offices is MSAs.

You think I'm kidding.

The regulatory agencies have adjusted the definitions of "Small Bank", "Intermediate Small Bank" and "Large Bank" in an announcement this week.  It apparently takes 14 pages to say the following:

The definition of "small bank" for CRA examinations means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $274 million.

The definition of "intermediate small bank" for CRA examinations means an institution that, as of December 31 of either of the prior two calendar years, had assets of at least $274 million but less than $1.098 billion.

A "large bank" for CRA purposes is one that has assets of at least $1.098 billion.

These asset thresholds have decreased from 2009.

With January 1^st quickly approaching, have you been wondering how you are going to ensure that your closing agents (attorneys, title companies, etc.) complete the new HUD Settlement Statements correctly?  Well, the American Land Title Association (ALTA) has released a form to do the job!  It's called the "Uniform Supplemental HUD-1/1A Instructions" and provides instructions to ensure proper completion.

Financial institutions may provide this form to their closing agents to assist them in the implementation of the new rules.  The instructions are provided to have the look and feel of the new Good Faith Estimate and HUD Settlement Statement.  This may an easy and valuable tool for you.

I found this on Bankers Online and thought you might enjoy it! 

T'was the week before Christmas
When all through the lands,
LO's and Closers were wringing their hands.
RESPA Changes are coming,
They all started to worry,
We'd better get trained, and trained in a hurry!

We all kept on hoping
There would be a delay.
But HUD said, "No Way," it's all here to stay.
"We love our new HUD
And our new GFE,
Don't fret, don't worry, it's as simple as can be."

We all shook our heads,
Threw our hands to the sky.
What were you smoking? You must have been high!
You took a one page doc
And changed it to three.
Easier? More simple? How can that be?

The Regs don't match up,
So now what do we do?
HUD says, "No comment, It's all up to you."
No info on TILA,
HMDA, REG B.
We are totally screwed, why can't they see??

In a time when some borrowers
Think lenders are scary,
You've given 3 pages to make them more wary.
This doesn't make sense,
No, not one little bit.

We are all trying hard to not throw a big fit.
So we all do our best
To put borrowers at ease.
But make more reform, please, please, please!

Please bring someone in
Who knows what to do.
What is best for both borrowers AND lenders too.

We are all still waiting,
Though not holding our breath
And hoping the government doesn't "Reg" us to death.

So on this week before Christmas,
I'd like to wish you
Good luck with RESPA, I need it too!

As if 2009 hasn't brought us enough new regulations, one more just came out.  The FACTA's Risk Based Pricing final rules were released yesterday.  The good news is the rules don't go into effect until January 1, 2011.  Don't worry, we'll read and digest these rules for you and have more information in a future newsletter.

Merry Christmas!