Source: https://www.jackscomplianceresource.com/2014/01/
Timestamp: 2018-05-21 22:35:50
Document Index: 193827176

Matched Legal Cases: ['§ 1026', '§ 1026', '§1026', '§1026', '§1026', '§1026', '§1026', '§1026', 'art 232']

Jack's Compliance Resource | 2014 January
COMPLIANCE REVIEW/AUDIT CONSIDERATIONS FOR 2014
this entry has 0 Comments/	in Lending Compliance / by jholzknecht
Compliance audits for 2014 are not business as usual.
We have all been inundated by the volume of changes.
There is confusion regarding when examiners will be ready to begin compliance examinations for the new and revised requirements and how intense those examinations will be. The regulators have indicated that “… oversight of the new mortgage rules in the early months will be sensitive to the progress made by institutions that have been squarely focused on making good-faith efforts to come into substantial compliance on time.” It is not clear what that statement means, but does not appear to promise complete forbearance.
Many loan origination software systems (LOS) were not available by the effective dates, or were partially available by the effective dates, or had all functions available but contained obvious errors as the result of a lack of thorough vendor testing.
Some financial institutions have completed implementation and appear to be in great shape, while others are just beginning the implementation process.
What should you do to assure your compliance audit/review process is ready for the challenges and uncertainty of 2014:
Update all compliance audit/review policies and procedures;
Verify that the 2014 audit plan includes coverage of the new and revised requirements;
Verify that the engagement letter for the external compliance review/audit includes coverage of the new and revised requirements;
Train internal audit/review staff on the new and revised requirements and make sure external audit/review staff has received proper training on the new and revised requirements;
Update internal audit/review documentation for the revisions and changes and be sure external audit/review documentation is also updated; and
Consider a special targeted internal or external review focusing exclusively on the revised and new requirements to assure compliance before the examiners arrive.
this entry has 0 Comments/	in Compliance Management, Dodd-Frank Act, Financial Reform / by jholzknecht
Whenever federal financial institution regulatory agencies issue new final regulations they include an effective date. We have all seen, “The rule is effective January 10, 2014” or “The rule is effective for applications received on or after January 10, 2014,” but what does that mean. Apparently the term “effective date” means different things to different people.
For financial institution regulatory agencies the term “effective date” apparently refers to the date by which a financial institution is deemed to be in compliance if it tries really hard to comply, but comes up short. Recently CFPB Director Richard Cordray stated, “Let me also assure you that our oversight of the new mortgage rules in the early months will be sensitive to the progress made by institutions that have been squarely focused on making good-faith efforts to come into substantial compliance on time – a point that we have also been discussing with our fellow regulators.” It is important to note that the regulatory agencies could not fully enforce the new requirements as of the effective dates in any event since their examination staff has not been adequately trained on the new requirements.
For loan origination software providers the term “effective date” seems to mean the date by which a partially tested version of the software update that contains part, but not all, of the new requirements and that is likely to contain numerous errors that will be corrected in the months following the effective date is released.
For creditors the meaning of the term “effective date” varies from one financial institution to another. For some it means the date by which the institution, after making an inhuman effort to complete all implementation tasks, is in full compliance with the requirements. For others it seems to mean the date by which efforts to implement compliance begin.
Whatever the meaning of the term, we certainly have had a bunch of those effective dates recently.
REVISED COMPLIANCE BROCHURE AND BOOKLETS
this entry has 0 Comments/	in CFPB, Dodd-Frank Act, Lending Compliance, Regulation X, Regulation Z, RESPA, Truth in Lending / by jholzknecht
On January 6, 2014 the Consumer Financial Protection Bureau (CFPB) published three revised consumer publications, including a consumer information brochure and two booklets required under the Real Estate Settlement Procedures Act (RESPA), Regulation X, the Truth in Lending Act (TILA), and Regulation Z. These publications are titled:
(1) What You Should Know About Home Equity Lines of Credit (HELOC Brochure);
(2) Consumer Handbook on Adjustable-Rate Mortgages (CHARM Booklet); and
(3) Shopping for Your Home Loan, Settlement Cost Booklet (Settlement Cost Booklet).
The CFPB is making technical and conforming changes to each of the three publications in conjunction with the January 2014 effective dates for many provisions of the CFPB’s rulemakings regulating practices in mortgage origination and servicing. The CFPB therefore expects to consider further revisions to these publications in the future, in particular to reflect changes to disclosure requirements for mortgage credit transactions under TILA and for real estate settlements under RESPA, pursuant to the CFPB’s Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z) final rule issued on November 20, 2013.
Mandatory Use – Creditors may, at their option, immediately begin using the revised HELOC Brochure, CHARM Booklet, or Settlement Cost Booklet, or suitable substitutes to comply with the requirements in Regulations X and Z. The CFPB understands, however, that some may wish to use their existing stock of publications. Therefore, creditors may use earlier versions of these publications until existing supplies are exhausted. When reprinting these publications, the most recent version should be used.
The revised Settlement Cost Booklet is available here.
The revised Consumer Handbook on Adjustable-Rate Mortgages is available here.
The revised booklet entitles, What You Should Know About Home Equity Lines of Credit, is available here.
JUNE 1, 2014 NATIONAL FLOOD INSURANCE PROGRAM CHANGES
this entry has 0 Comments/	in Flood Insurance, Lending Compliance / by jholzknecht
Recently the Federal Emergency Management Agency (FEMA) published a summary of the changes to the National Flood Insurance Program that will be effective on June 1, 2014. The changes result from the Biggert-Waters Flood Insurance Reform Act of 2012.
The summary provides an excellent overview of some of the fun that is ahead of us.
Notice to Compliance Masters Group Members – The upcoming changes to the Flood Insurance Program and the interagency revised flood insurance rules, which will be complete this Spring, will be the subject of several upcoming CMG meetings.
CHANGE IN WAITING PERIOD FOR FLOOD INSURANCE
Effective October 1, 2013 the National Flood Insurance Program no longer allows an exception to the 30-day waiting period for policies that are required as a result of a lender determining that a loan on a building in a Special Flood Hazard Area that does not have flood insurance coverage should be protected by flood insurance. The only allowable exceptions to the 30-day waiting period are:
A. The initial purchase of flood insurance coverage in connection with the making, increasing, extension, or renewal of a loan; or
B. The initial purchase of flood insurance coverage during the 13-month period beginning on the effective date of a map revision; or
C. The initial purchase of flood insurance coverage for private property if:
the flood insurance coverage was purchased not later than 60 days after the fire containment date, as determined by the appropriate Federal employee, relating to the wildfire that caused the post-wildfire conditions described in paragraph i above.
PERMISSIBLE PAYMENTS TO LOAN ORIGINATORS
this entry has 0 Comments/	in Lending Compliance, Regulation Z, Truth in Lending / by jholzknecht
Recently I received a question about appropriate methods of compensating loan originators. Section 1026.36(d) of Regulation Z prohibits payments to loan originators based on the terms of the transaction. Restrictions on compensation to loan originators have been in place for several years. The latest revisions to the rules are effective January 10, 2014.
While there are several significant issues resolved by the January 10th revisions, the question involved a less significant part of the rules. The bank with the question compensates some loan originators based on the amount of credit extended. The loan originator receives a commission in the amount of .5% of the amount of each loan closed. The bank was concerned that since the list of permissible compensation no longer included compensation based on the amount of credit extended that they would have to change how they compensated loan originators.
Existing comment 36(d)((1)-3 states, “The following are illustrative examples of compensation methods that are permissible (unless otherwise prohibited by applicable law), and not an exhaustive list. Compensation is not based on the transaction’s terms or conditions if it is based on, for example:
i. The loan originator’s overall loan volume (i.e., total dollar amount of credit extended or total number of loans originated), delivered to the creditor.
ii. The long-term performance of the originator’s loans.
iii. An hourly rate of pay to compensate the originator for the actual number of hours worked.
iv Whether the consumer is an existing customer of the creditor or a new customer.
v A payment that is fixed in advance for every loan the originator arranges for the creditor (e.g., $600 for every loan arranged for the creditor, or $1,000 for the first 1000 loans arranged and $500 for each additional loan arranged).
vi The percentage of applications submitted by the loan originator to the creditor that result in consummated transactions.
vii. The quality of the loan originator’s loan files (e.g., accuracy and completeness of the loan documentation) submitted to the creditor.
A legitimate business expense, such as fixed overhead costs.
i. Compensation that is based on the amount of credit extended, as permitted by § 1026.36(d)(1)(ii).”
The revised comment 36(d)((1)-2. states ” Compensation based on the following factors is not compensation based on a term of a transaction or a proxy for a term of a transaction:
The loan originator’s overall dollar volume ( i.e., total dollar amount of credit extended or total number of transactions originated), delivered to the creditor. See comment 36(d)(1)-9 discussing variations of compensation based on the amount of credit extended.
The long-term performance of the originator’s loans.
An hourly rate of pay to compensate the originator for the actual number of hours worked.
Whether the consumer is an existing customer of the creditor or a new customer.
A payment that is fixed in advance for every loan the originator arranges for the creditor (e.g., $600 for every credit transaction arranged for the creditor, or $1,000 for the first 1,000 credit transactions arranged and $500 for each additional credit transaction arranged).
The percentage of applications submitted by the loan originator to the creditor that results in consummated transactions.
The quality of the loan originator’s loan files ( e.g., accuracy and completeness of the loan documentation) submitted to the creditor.”
While the highlighted item from the old list is not included on the new list the Consumer Financial Protection Bureau (CFPB) says we have nothing to worry about. The Supplemental Information that accompanied the final rule states, “The final rule list deletes the last example that allows for compensation based on the amount of credit extended. The Bureau believes that this example is unnecessary because, as the example itself notes, this exception is expressly set forth in § 1026.36(d)(1)(ii). Moreover, the corollary to “amount of credit extended” is embodied in the first example on the list that permits compensation based on the loan originator’s overall loan volume, which is further explained as either the “total dollar amount of credit extended or total number of loans originated.”
POINTS AND FEES – INDEX RATE FOR PERSONAL PROPERTY
this entry has 0 Comments/	in CFPB, Dodd-Frank Act, Financial Reform, Lending Compliance, Regulation Z, Truth in Lending / by afaust
When calculating points and fees §1026.32(b)(1)(i)(E and F) allow the creditor to exclude from the calculation up to two bona fide discount points under §1026.32(b)(1)(i)(E), or up to one bona fide discount point under §1026.32(b)(1)(i)(F), paid by the consumer in connection with the transaction, if certain conditions are met. When a loan is secured by personal property, such as a mobile home, the condition is that the interest rate without any discount does not exceed the average rate for a loan insured under Title I of the National Housing Act (12 U.S.C. 1702 et seq.) by more than one percentage point under §1026.32(b)(1)(i)(E), or by more than two discount points under §1026.32(b)(1)(i)(F).
Deducting one or two bona fide discount points is a huge advantage. Obviously there is some complexity in the calculation described above, and there is also a major problem. The average rate for a loan insured under Title I of the National Housing Act is not available. Apparently the Consumer Financial Protection Bureau (CFPB) has tried, with no success, to get the Department of Housing and Urban Development to publish the rate. The CFPB has suggested various interim steps including reliance on market rates, and even assuming that market rates are indicative of market rates.
With the current situation it appears that you really can’t be wrong, but at the same time there is no assurance that you are right. The suggested interim steps are not contained in Regulation Z or in the Official Interpretations. The suggestions have been made in phone calls from the CFPB in response to questions from several bankers. The CFPB needs to insert some certainty into this matter.
The revisions to §1026.32 are effective on January 10, 2014.
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