HMDA submission time is quickly approaching and we’re getting more and more questions from our clients.  So, over the next couple weeks we want to give you some little HMDA refreshers before the big day arrives. 

The example we’ll use today is an LLC.  The borrower/applicant is the LLC.  An LLC, or any other business “entity” is NOT a “natural person.”  The signers on the note are the LLC "members."  In this example, the LLC members did NOT also sign the note individually/personally, meaning they are not also personally liable on the note.  So, there is only ONE borrower/applicant - the LLC, and there is NO co-borrower/co-applicant. 

If you refer to page A6 of Appendix A in the HMDA Getting It Right Guide you will find the instructions for completing the Ethnicity, Race and Sex for a borrower that is NOT a “natural person.”  In our example, you would report Codes 4, 7, and 4 (not applicable) for the Ethnicity, Race and Sex of the applicant - the LLC.  You would report Codes 5, 8, and 5 (no co-applicant) for the Ethnicity, Race and Sex of the co-applicant because there is none.  If an individual (natural person) also signed the note personally, meaning they are also personally liable on the note, then you WOULD have a co-applicant and you would use the codes to describe the Ethnicity, Race and Sex of that natural person.

Stay tuned for more upcoming HMDA tips!

As part of the Dodd-Frank Act, the CFPB assumed rulemaking authority for certain consumer financial regulations (17 in all).  As of today, most if not all of these Regulations have been transferred from other regulatory agencies to the CFPB’s Chapter X.  A good example, RESPA (24 CFR 3500) no longer belongs to HUD and is now 12 CFR 1024.  The CFPB will also be implementing a new numbering system in the 1000 series.  All regulations will correspond with the number of the alphabet:  Reg B is 12 CFR 1002, Reg C is 12 CFR 1003 and Reg Z is 12 CFR 1026.  All those years of memorizing regulatory citations down the drain.  

All of the Regulations transferred in the last couple weeks are interim final rules that took effect on December 30, 2011.  The comment periods; however, remain open until various dates in February.  This means that you were required to comply by December 30^th but the CFPB can still “tweak” the requirements before they become final-final.

There have been no substantive changes made to these Regs so far.  The only change worth noting is in Reg Z where what we knew to be 226.5a (credit card rules) and 226.5b (HELOCs) were moved to 1026.60 and 1026.40, respectively.  For more on these transfers, see our January newsletter.

As you can probably tell from our blogs over that last couple days, January 1st is a day when a lot of changes occur in the compliance world.  Next on the list...CRA.  The thresholds for CRA were recently adjusted and were effective January 1.  These thresholds are based on an institution's asset size as of December 31st of either of the prior two calendar years and determine an institution’s classification as either a small bank, intermediate small bank or large bank.

For 2012 the thresholds are as follows:

• A "small bank" or "small savings association" means assets less than $1.160 billion
• An "intermediate small bank" or "intermediate small savings association" means assets of at least $290 million but less than $1.160 billion
• A "large bank" or "large savings association" means assets of $1.160 billion or mor

Each year the FRB adjusts the threshold for the “points and fees test” to determine if a loan is subject to §1026.32 of Reg Z (aka “HOEPA”).  The June 20, 2011 Federal Register announced the threshold as $611 for 2012: 

Effective January 1, 2012, for purposes of determining whether a home mortgage transaction is covered by 12 CFR 1026.32 (based on the total points and fees payable by the consumer at or before loan consummation), a loan is covered if the points and fees exceed the greater of $611 or 8 percent of the total loan amount.

We have posted an updated HOEPA Worksheet (Version 2012-1) on the free downloads page of our website.  If you save a copy of the HOEPA Worksheet on your computer don't forget to download the new version.  We will continue to make the 2011 HOEPA worksheet available on the website as well to assist you in your loan compliance audits.

Just in case you forgot, the threshold to exempt consumer credit (Reg Z) and consumer leases (Reg M) from the applicable requirements increases to $51,800 on January 1, 2012.  This means that any consumer credit and/or consumer lease transactions equal to or less than this threshold amount are subject to the applicable requirements.  Thus, consumer purpose credit or leases greater than these minimums are not subject to Reg Z, unless secured by real estate.  Refer to §1026.3(b) – or the “old” 226.3(b).

Once again, the NFIP has been temporarily extended.  The NFIP actually expired on December 16^th, but this past weekend, President Obama signed into law a $1 trillion appropriations bill that not only funded the government through September 2012, but also extended the NFIP through May 31^st, 2012.  Apparently, Congress wants more time to work on new legislation that would reform the NFIP (something they say they have been working on since the 2005 hurricanes that hit the Gulf Coast).

We finally have a way to search the OFAC list automatically.  OFAC announced an online application allowing users to simply input an entities or person’s name.  You can also print the results or save them as a spreadsheet.

Happy searching!

Some things are a given...almost every time we provide training on the Fair Credit Reporting Act (FCRA) we end up in deep discussions about credit reports used in connection with business transactions.  There are typically two issues on bankers' minds:

1. When is it permissible to request a consumer report in connection with business credit?
2. When are an Equal Credit Opportunity Act (ECOA) and/or FCRA Adverse Action Notice required?

The answer to the first question has a direct correlation to individual liability.  A lender has a permissible purpose to obtain a consumer report on a consumer in connection with a business credit transaction when the consumer is or will be personally liable on the loan as a co-signer or guarantor...  However, a lender would not have a permissible purpose to obtain a consumer report on a consumer who will not be personally liable for repayment [2011 FTC Staff Interpretations page 51]

To answer the second question, you need to determine whether the liability incurred is that of a co-signer or guarantor.  A creditor need not provide a guarantor (or co-signer) with an adverse action notice (ECOA or FCRA), even if the application is denied in whole or in part based upon information from the consumer report of the guarantor.  Regulation B states that only an "applicant" can experience "adverse action" in a credit context and excludes a guarantor from its definition of "applicant." [2011 FTC Staff Interpretations page 83] 

Since Regulation B states that a guarantor or co-signer is not deemed an applicant under § 202.2(e) and Sections 603(k)(1)(A) and 603(k)(1)(B)(2) of the FCRA provide that adverse action has the same meaning for purposes of the FCRA as is provided in Regulation B a guarantor or co-signer would not receive an adverse action notice under the ECOA or the FCRA.  [Federal Register/Vol. 76, No. 136/7-15-11/Rules and Regulations - Page 41597]

On October 11, 2011, the Office of the Comptroller of the Currency (OCC) issued Bulletin 2011-41 advising their institutions on the names and addresses to be disclosed on various notices and/or posters required by various regulations.  These include the Community Reinvestment Act (CRA), Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA).  These changes are a result of the July 21^st transfer of the Office of Thrift Supervision (OTS) functions to the OCC and are required to be made within 90 days.

CRA PUBLIC NOTICE

FAIR HOUSING POSTER

The provision dealing with submission of FHA complaints to HUD remains unchanged.

ECOA NOTICE

The enforcement authority of ECOA for OCC-supervised institutions with assets greater than $10 billion was transferred to the Consumer Financial Protection Bureau (CFPB) by the Dodd-Frank Act.  The CFPB plans to update ECOA to reflect the supervisory changes; however until this occurs, financial institutions should continue to provide the address as specified in Appendix A of the regulation.

Federal savings associations which are now supervised by the OCC should continue to use the OTS address for complaints.  ECOA and other consumer complaints that are received OTS address will be forwarded to the appropriate supervisory agency for processing.  Similarly, complaints received by the OCC for institutions supervised for consumer compliance by the CFPB will be forwarded to the CFPB.

It's a good thing we didn't hold our breath.  Back in July 2009, the regulatory agencies issued FAQs to the Flood Insurance requirements which also included 5 additional proposed FAQs.  Well . . .  they . . . finally . . . got . . . around . . . to (OK, you get my joke) - they finally got around to finalizing some (but not all) of the proposed FAQs.  Technically, they haven't officially been published in the Federal Register, but the regulatory agencies gave us a preview with this announcement. 

Unfortunately, it takes the agencies 38 pages to make this announcement.  Let me give you the cliff notes: 

The Agencies are adopting two of the five questions and answers proposed in the 2009 Interagency Questions and Answers: one question and answer relating to insurable value (question and answer 9) and another question and answer relating to force placement of flood insurance (question and answer 61). The Agencies are also withdrawing one question and answer relating to insurable value . . . . (question and answer 10). However, as discussed below, because the Agencies propose to significantly and substantively change the answers to two of the questions and answers relating to the force placement of flood insurance, the Agencies are proposing them for additional comment (questions and answers 60 and 62). In addition, the Agencies are proposing changes to a previously finalized question and answer (question and answer 57) that also relates to the force placement of flood insurance to be consistent with the proposed changes to these two questions and answers.  

We'll be analyzing this new guidance and telling you more about what it has to say in our November e-newsletter.  Here's a link to the 2009 FAQs so you can research more on your own, if you have the urge.

I wonder how long it will be before we get the final-final FAQs?