December 2017 Newsletters
By: Kimberly R. Graves, Associate General Counsel
On Friday, November 24, 2017, the agencies finalized a rule creating consistency between the Community Reinvestment Act (CRA) and the new Home Mortgage Disclosure Act (HMDA) rules for 2018. With the overwhelming amount of regulatory burden banks currently face, and the upcoming effective date of the new HMDA reporting requirements, this “easy button” provides some welcome relief.
The most significant change to the CRA in the final rule is the revision to the definition of “home mortgage loan.” Currently, the term is defined to include home purchase, home improvement, and refinance consistent with HMDA. Beginning January 1, 2018, in line with HMDA changes, the CRA definition of home mortgage loan will include closed-end mortgage loans and open-end lines of credit, as defined in HMDA. One implication of this change is that home equity lines of credit secured by a dwelling will now routinely be considered in CRA evaluations rather than as an optionally reported consumer loan. Also in line with HMDA 2018, the revisions to the CRA definition will now exclude home improvement loans not secured by a dwelling. These loans may still be reported by a bank, but they will be included under “other secured consumer loan” or “other unsecured consumer loan,” as the situation may dictate and consistent with current CRA requirements for such reporting.
The next most important change in the final rule relates to the public information file maintained by banks locally. Currently, the CRA requires a bank to include in the public file HMDA disclosure statements for the prior two years if the bank is a HMDA reporter. The final rule amends this requirement so that as of January 1, 2018, the public file need only contain a notice clearly conveying that the public may obtain the disclosure statement on the Consumer Financial Protection Bureau’s (CFPB) website. Note, however, that this substitution may only occur if the bank’s disclosure statement is already actually on the CFPB’s website, so make sure to check before replacing the notice in the bank’s public file.
Three additional changes result from the final rule. First, the definition of “consumer loan” under CRA is amended by removing reference to open-end lines of credit secured by a dwelling because these loans now fall under “home mortgage loan,” as discussed above. Second, the reference under “community development loan” to Appendix A in HMDA regarding multifamily dwellings is being removed as that Appendix will be removed from HMDA as of January 1, 2018. Finally, the reference to Neighborhood Stabilization Programs (NSP) is removed because community development credit is no longer available for these programs.
Effective January 1, 2018, the final HMDA rule can be accessed at this link. As always, Compliance Alliance is available to answer any questions that may arise in relation to this final rule or related regulation. For more about Compliance Alliance HMDA toolkits, use this link.
By Sarah Sauceda, Associate General Counsel
The sun is setting, and it is setting fast. What am I referring to, you may ask? I am referring to the “sunset” provisions of 2017. The term “sunset” is used to describe laws or rules that have a set expiration date and have yet to be reauthorized or renewed. If these so-called “sunset” provisions are not renewed, then they will be terminated or disbanded by the set expiration date. This article will address two major provisions that are set to expire in December of 2017: (1) the National Flood Insurance Program (NFIP) and (2) the foreclosure protection and notice disclosure rules of the Servicemembers Civil Relief Act (SCRA).
The President, earlier this year, signed legislation that extended the NFIP authorization from September 30, 2017 to December 8, 2017. Congress has now extended the authorization expiration date to December 22, 2017. However, it has yet to be reauthorized past that date. So, what does this mean for the bankers of America? First and foremost, it means that FEMA will no longer have authority to issue flood insurance once the provision lapses. In other words, the NFIP cannot issue new policies nor can they renew existing policies during this lapse of authorization. This being said, banks may still make loans subject to the Flood Act and 12 CFR Part 339 without flood insurance coverage. Of course, banks should evaluate these loans for safety-and-soundness issues. It is important to note that regulated institutions still have to make standard flood hazard determinations. Likewise, banks must continue to give borrowers notice of special flood hazards and the availability of federal disaster relief, if applicable. Finally, FDIC guidelines indicate that banks need to have a system in place, post-expiration, to ensure insurance policies are obtained for properties that are subject to mandatory flood insurance coverage in the case of reauthorization. For more information on what to do in the case of a lapse of the NFIP, the FDIC puts forth helpful guidelines in a financial institution letter that can be found here (https://www.fdic.gov/news/news/financial/2010/fil10023.html).
Another set of major sunset provisions affect the SCRA, which is currently on track to expire on December 31, 2017. The first affected portion of the SCRA is Section 533, the foreclosure extension section. This amended provision of the SCRA prohibits foreclosing on a servicemember’s home for one year following their return from active duty. The original protection length was 90 days, and if the provision is allowed to expire, then the period of protection would revert back to that 90-day period.
The second affected section of SCRA is the notice disclosure. Under the current law, when a borrower defaults on any mortgage loan, creditors and their servicers must provide the Department of Housing and Urban Development’s (HUD) SCRA notice to the borrower within 45 days. This notice provides information to the defaulting borrower of rights available to servicemembers under the SCRA. Like Section 533, it is set to expire on December 31, 2017.
As always, for any questions or concerns, please feel free to give us a call at (888) 353-3933, chat with us on the website (https://www.compliancealliance.com), or email us at email@example.com .
By Jennifer Kirby, Compliance Specialist
As we approach the end of 2017, your bank should be ready for some important regulatory compliance changes that it must follow next year. Here’s a look at what compliance changes your bank should be ready for in 2018.
Regulation Z Annual Threshold Adjustments
On August 30, 2017, the CFPB announced several of its annual adjustments to the dollar amounts of various thresholds under Truth in Lending Act (TILA) regulation (Regulation Z) that will apply to certain consumer credit transactions in 2018. For open-end consumer credit plans under TILA, the minimum interest charge disclosure threshold will remain unchanged at $1.00 in 2018. For open-end consumer credit plans under the CARD Act amendments, the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $27 in 2018, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will remain unchanged at $38 in 2018. For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages in 2018 will increase to $21,032, and the adjusted points and fees dollar trigger for high-cost mortgages in 2018 will be $1,052. To satisfy the underwriting requirements under the ATR/QM rule, the maximum thresholds for total points and fees for qualified mortgages in 2018 will be: (i) 3 percent of the total loan amount for loans greater than or equal to $105,158; (ii) $3,155 for loan amounts greater than or equal to $63,095 but less than $105,158; (iii) 5 percent of the total loan amount for loans greater than or equal to $21,032 but less than $63,095; (iv) $1,052 for loan amounts greater than or equal to $13,145 but less than $21,032; and (v) 8 percent of the total loan amount for loan amounts less than $13,145. The adjustments are effective January 1, 2018.
Also, effective January 1, 2018, the dollar threshold for Regulation Z exempt consumer credit transactions will increase from $54,600 to $55,800, and the Appraisals for Higher-Priced Mortgage Loans exemption threshold will increase from $25,500 to $26,000.
Amendments to Equal Credit Opportunity Act (Regulation B) Ethnicity and Race Information Collection
CFPB modified its Equal Credit Opportunity Act (ECOA) regulations to provide additional flexibility for mortgage lenders in the collection of consumer ethnicity and race information. These amendments provide clarity regarding the collection and retention of information about the ethnicity, sex, and race of certain mortgage applicants. Amendments go into effect January 1, 2018.
Most HMDA provisions related to institutional and transactional coverage, and data collection, recording, reporting, and disclosure are effective January 1, 2018. Don’t forget that 2017 HMDA data is to be submitted to the CFPB. Also, make sure to collect 2018 data as required under the new HMDA rule issued on October 15, 2015 (for reporting in 2019).
NACHA Same-Day ACH Phase 3
Beginning March 16, 2018, every RDFI will be required to make available funds from same-day ACH credits no later than 5:00 PM of the RDFI’s local time to give recipients access to funds in their accounts by the end of the business day.
Prepaid Accounts under EFTA/TILA
CFPB issued a Final Rule for consumer protections on prepaid accounts under Regulation E’s Electronic Fund Transfer Act (EFTA) and Regulation Z’s Truth in Lending Act (TILA). Regulation E’s general requirements for disclosures, limited liability and error resolutions are modified, as well as sections added for periodic statements and posting of account agreements. Also, it regulates which overdraft credit features may be offered in connection with prepaid accounts. Generally, most credit features will be covered by Regulation Z. On April 20, 2017, the CFPB extended the effective date until April 1, 2018. In addition, issuers must start submitting prepaid account agreements to the CFPB by October 1, 2018.
The new mortgage servicing successor-in-interest rules and bankruptcy periodic statement exemption and modified statements go into effect April 19, 2018.
Customer Due Diligence Requirements for Financial Institutions
FinCEN issued the new Customer Due Diligence Rule (CDD Rule) to amend existing BSA regulations to clarify and strengthen customer due diligence requirements for certain financial institutions. The CDD Rule outlines explicit customer due diligence requirements and imposes a new requirement for these financial institutions to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and exemptions. Covered financial institutions have until May 11, 2018, to implement and comply with the CDD Rule.
Regulation CC Amendments
Final amendments to the check collection and return provisions in Regulation CC are effective July 1, 2018. Important takeaways include: 1) adding definitions of Electronic Check and Electronically created item; 2) expedited return times of 2 pm on the second business day; 3) adding specific warranties and indemnities for electronic items including remotely created items; 4) increase in the large item notice threshold from $2,500 to $5,000; and 5) adding sections specific only to "paper checks."
2017 TILA-RESPA Integrated Disclosures (TRID) Amendments
Mandatory compliance date for these amendments is October 1, 2018. Some of the key takeaways are that it: 1) Establishes coverage requirements for cooperatives, certain housing assistance loans, and certain trusts; 2) Clarifies various elements of constructions loans, including allocation of costs, holdbacks, inspection and handling fees, disclosure timing, and increases to the periodic payment; 3) Provides options for separating borrower and seller information on the respective disclosures, and guidance on sharing the disclosures with various parties involved in the mortgage origination process; 4) Creates tolerances for the Total of Payments disclosure; and 5) Clarifies applications of the good faith standard, disclosures in the Calculating Cash to Close table, rounding requirements, when and how revised disclosures may be provided, the responsibilities of creditors and settlement agents, and escrow account disclosures, among other items.
By Elizabeth K. Madlem, Associate General Counsel
In the nick-of-time, President Trump has signed H.R. 2810, the National Defense Authorization Act for Fiscal Year 2018, and extended until January 1, 2020 the period of protections for members of uniformed services relating to mortgages, mortgage foreclosures and evictions. These post-active duty foreclosure relief provisions under the Servicemembers Civil Relief Act (SCRA) prohibit foreclosing on a servicemember’s home for one year following the servicemember’s return from active duty.
In 2003, the SCRA provided servicemembers with only ninety days of foreclosure protection beyond their departure from active duty service. Congress, in the better interest of servicemembers transitioning from military to civilian life, extended that ninety day period to nine months in 2008, and then ultimately to its current status of one year in 2012. However, this provision has continued as a result of recurrent annual amendments to the sunset provision. March 2017 amendments kept the one-year period of protection but it was set to expire on December 31, 2017 and would have reverted back to the ninety day allowance on January 1, 2018. Congress’ repeated extensions to the sunset provision attempts to show a commitment to protecting servicemembers and their families. So what exactly are these SCRA foreclosure protections that lenders need to follow?
Under the SCRA, any real property owned by a servicemember prior to their military service that is secured by a mortgage or deed of trust cannot be foreclosed upon, sold, or seized during the period of military service or up to one year after service without a court order or the written agreement of the servicemember. There is no requirement for the servicemember to notify the bank as there is for interest rate reductions. Banks need to remain vigilant before initiating foreclosure procedures and all personnel must be trained and required to check the Department of Defense database to verify that borrowers are not covered borrowers under the SCRA. Additionally, servicemembers who are in default must receive notice informing them of their rights provided for in the SCRA. The U.S. Department of Housing and Urban Development Office of Housing (HUD) has compiled a Sample Notice. However, the current notice expires December 31, 2017 and an updated one has not been issued on its website as of the publication of this article. The assumption is that this form should be updated prior to the new year by HUD.
As a reminder, Compliance Alliance does offer additional guidance with our Lending to Service Members toolkit as well as a Foreclosure Procedures Checklist to assist our member banks in maintaining compliance.