Compliance hot topics acuia 3 13 13 v4

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1 Insight. Oversight. Foresight. SMMichigan l Texas l Florida

Compliance Hot TopicsMarch 13, 2013

Presented by:

Robin D. Hoag, CPA, CGMA, CMC

Lindsey Becker, BA

Kia Hekneby


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• Top Compliance Concerns

• New Regulations

Overview Financial Institutions Group


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Top Compliance Concerns


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• Exam findings around HMDA LAR (Loan Application

Register) filing

• Greater regulatory focus on financial institutions

completing their HMDA LAR correctly

• CMP (Civil Money Penalties) are being assessed for

incorrect HMDA LAR filing/ LAR errors

• Focus on including all reportable loans on the HMDA LAR

and ensuring all fields are properly completed

Regulation C: Home Mortgage

Disclosure Act (HMDA)Financial Institutions Group


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• Implement a quarterly scrub process of HMDA LAR

before filing annually to eliminate errors

• Most common errors reported are:

• Application Date: Have a consistent process in place to

determine the application date

• Action Type: Implement a process on what is considered a

denial, withdrawal, incomplete, approved not accepted, and

approval

• Purchaser Type: Record type of sale during the calendar

year. Be cautious of 4th quarter reporting; if loan was not

actually sold in the same year, it is considered not sold at

year end for HMDA purposes

Financial Institutions GroupRegulation C: Home Mortgage

Disclosure Act (HMDA)


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• Four interdependent components of a compliance

program

• Board management and oversight: active involvement from

Board and Senior Management with the CMS

• Compliance program

• Policy: create strong compliance policy and procedures

• Training: creation of compliance training plan and schedule with

additional monitoring to ensure training is given with regulatory change

• Monitoring: implement monitoring to address exam/audit findings

• Consumer complaints: develop consumer complaint handing

procedures

• Compliance audit: develop aggressive audit plan to ensure

CMS

Compliance Management

System (CMS)Financial Institutions Group


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• Implementation, development, and maintenance of a

sound compliance management system that is

integrated into the institution’s overall risk

management strategy

• Allocate appropriate resources to the compliance

function

• Keep abreast of regulatory changes and properly train

staff to avoid regulatory violations

Compliance Management

System (CMS)Financial Institutions Group


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• Monitor third-party relationships

• Credit reporting

• Appraisers

• Call centers

• Implement policy and procedures for third-party

relationships to include (annually):

• Due diligence

• Creating approved lists

• Annual auditing of third parties

Affiliate Due Diligence Financial Institutions Group


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• Regulatory focus on BSA

High risk members

• Risk rate all members

• Develop enhanced due diligence (EDD) monitoring for all “high

risk” members

• Transaction volume, suspicious activity, purpose of account

• Create system parameters to monitor high risk members and

suspicious activity

Money Service Businesses (MSBs)

• Identify any MSBs

• Complete due diligence annually to include onsite visits, monitoring

business activity, verifying registration with FinCEN

Bank Secrecy Act (BSA) Financial Institutions Group


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• Non-filed Suspicious Activity Reports (SARs)

• Decision when and when not to file SAR

• Retain all documentation for unfiled SARs in a “non-filed”

SAR folder for examiner review

• Risk Assessment

• Provide accurate and comprehensive risk assessment for

BSA and OFAC compliance that fully takes into account

the nature of the credit union’s operations

Bank Secrecy Act (BSA) Financial Institutions Group


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Focus

• Monitor member’s overdraft activities to ensure daily limits

on fees are assessed

• Implement approval process for waiving overdraft fees and

maintain a tracking report

• Document and track all communications with members

regarding offered alternatives and all other member

correspondence

Unfair or Deceptive Acts or

Practices (UDAP)Financial Institutions Group


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• Implement policy and procedures to include

overdraft presentment of debit items

• Include in member disclosures; items should clear in

order according to credit union’s policy and disclosure

• Full disclosure of all fees

• No underlying fees charged to member

• Direct advertising

• Not to include misleading

information, rates, fees, promotions

• UDAP covers full product line (deposit/lending)

Unfair or Deceptive Acts or

Practices (UDAP)Financial Institutions Group


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New Regulations


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“The Consumer Bureau is well aware that credit

unions were not one of the causes of the recent

financial crisis. You were not underwriting the bad

loans that brought down the housing market.

Instead you were upholding sound underwriting

standards…”

Ability to Repay & Qualified

Mortgages (TIL)Financial Institutions Group

Remarks by Richard Cordray, Director, CFPB, to CUNA (February 27, 2013)


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I know that [the qualified mortgage rule] probably

sounds quite foreign to credit unions,” he said.

“You typically pay close attention to whether your

members can repay the money you lend them.”

Remarks by Richard Cordray, Director, Consumer Financial

Protection Bureau (CFPB), to CUNA (February 27, 2013)


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• Effective January 10, 2014

• Requires creditors to determine and document

ability to repay for mortgages against primary

residences

• Establishes eight criteria that must be used in

determining ability to repay

• Defines product features and underwriting criteria

for Qualified Mortgages (QM)




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• Current or reasonably expected income or assets

• Current employment status

• Monthly payment on the mortgage transaction

• Monthly payment on any simultaneous loan

• Monthly payment for mortgage-related obligations

• Current debt obligations, alimony, and child support

• Monthly debt-to-income ratio or residual income

• Credit history

Ability to Repay Criteria Financial Institutions Group


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• Product and underwriting features

• No balloon, interest-only, or negative amortization loans

• Loan terms do not exceed thirty years

• Points and fees do not exceed 3% of the loan amount

for loans greater than or equal to $100,000

• Calculation of the mortgage payment using the

maximum rate that will apply in the first five years of the

transaction

• Overall debt ratio does not exceed 43%




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• Establishes a presumption of compliance for QM

with Ability to Repay Rules

• Based on APR

• Safe harbor versus rebuttable presumption

• Provides for a temporary secondary set of QM

• Have the general product features of QM

• Are eligible for purchase by Fannie Mae, Freddie Mac,

HUD, Veterans Affairs, or Rural Housing




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• Allows for rural balloon QM under certain circumstances

• Designated rural or underserved area

• Community bank lender

• Less than $2 billion in assets

• Originates at least 50% of loans in rural or underserved areas

• Originates no more than 500 first mortgage per year

• Holds loan in portfolio for a minimum of three years

• Product features

• Amortization term of no more than 30 years

• Minimum five year term

• Meet QM underwriting criteria, not including 43% debt to income ratio




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• New proposals for small community

lenders

• Create new set of QM mortgages

having same criteria as existing set, but

not include the 43% debt to income ratio

• Allow higher threshold APR on first lien

QM which would still provide a safe

harbor instead of a rebuttable

presumption




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• New proposal to exempt certain types of loans

from QM requirements

• Agency and government streamline loans

• Non-profit loans

• Homeownership stabilization program loans




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• Amendments restricting mandatory arbitration and

financing single premium credit insurance effective

June 1, 2013

• All other provisions effective January 10, 2014

• Clarifies existing rules for loan officer compensation

• Defines “term of a transaction”

• Restricts use of a proxy for a term of a transaction

• Generally prohibits pricing concessions

• Prohibits compensation based on profitability of a

transaction or pool of transactions

Loan Originator Compensation

(TIL)Financial Institutions Group


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• Allows for charges of upfront points or fees

• Imposes a duty on institutions to ensure loan

originators are qualified.

• Requires creditor and loan officer names and

identifiers on notes, security instruments and credit

application

• Prohibits mandatory arbitration in residential

mortgage transactions

• Prohibits financing of single premium credit

insurance including credit life products

Loan Originator Compensation



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"Once again, for these servicing rules, we have

recognized that credit unions and other smaller

servicers typically operate according to a very

different business model based on strong customer

service. In their own way, each offers the kind of

high-touch service that their members have come to

expect, making extensive efforts to avoid

foreclosures."



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• Defines small servicers and exempts them from

many of the servicing requirements

• An institution which services 5,000 or fewer loans and

only services mortgage loans the institution or affiliate

originated or owned

• Requires periodic billing statements which must

meet timing, form, and content requirements

• Small servicers are exempt

• Fixed rate loans may be exempt

Mortgage Servicing



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• Provides for new interest rate adjustment notices

for ARMs

• Prompt crediting of payment

• Requires accurate payoff letters be issued within

seven days of receipt of a written request

Mortgage Servicing Rules



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• Changes requirements for charges of force-placed

insurance

• New initial and reminder notices required

• When borrower has an escrow account, servicers must

try to extend existing coverage

• Exemption for small servicers

• Insurance may be force-placed when there is an escrow

account if the price for the forced-place insurance is less

expensive

Mortgage Servicing

(RESPA)Financial Institutions Group


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• New error resolution and requests for information

requirements

• Generally includes any error relating to servicing

mortgage loans

• Includes Qualified Written Requests when related to

servicing

• Written acknowledgment of receiving the error within 5

business days

• Written response of resolution within 30 business days of

receipt (in most cases)

Mortgage Servicing

(TIL and RESPA)Financial Institutions Group


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• Requires developing and maintaining reasonable

polices and procedures for the servicing process

• Small servicers are exempt

• Early intervention for delinquent borrowers

• Contact required by 36th day of delinquency

• Written notice of loss mitigation options delivered by 45th

day of delinquency (model language provided in rule)

Mortgage Servicing



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• Continuity of contact

• Requires procedures to ensure competent personnel are available

to assist borrowers through the loss mitigation process

• Small Servicers are exempt

• Specifies loss mitigation procedures for primary residences

• Establishes timeframes

• Enforceable by individuals against creditors

• Small servicers exempt from all except

• Foreclosure filing cannot begin until 120th day of delinquency

• Foreclosure cannot be pursued if borrower is performing under the

terms of a loss mitigation agreement

Mortgage Servicing



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• Applies to applications for first lien loans on a

dwelling

• Requires creditors to notify applicants within three

days of receiving an application of their right to

receive a copy of the appraisal

• Requires creditors to provide copies of appraisals

or other written valuations upon completion or

within three days before consummation

Appraisal Disclosure and

Delivery Requirements (ECOA)Financial Institutions Group


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• Allows for a waiver of timing requirements as long

information is provided by consummation

• Prohibits creditors from charging for appraisal

delivery, but allows charging for appraisal cost

Appraisal Disclosure and

Delivery Requirements (ECOA)Financial Institutions Group


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• List of homeownership counseling organizations

must be provided within three days of application

on all mortgage loans except reverse mortgages

and time shares

• First-time buyers must have homeownership

counseling before closing a negative amortization

loan

Homeownership Counseling

Requirement (RESPA and TIL)Financial Institutions Group


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• Two other new rules

• High-Cost Mortgage and Homeownership Counseling

Amendments to the Truth-in Lending Act

• Appraisals for Higher-Priced Mortgages

High Priced Mortgages (TIL) Financial Institutions Group


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"All of these exemptions express our recognition

and acknowledgement that the traditional credit

union lending model is deserving of respect and

should be treated differently under our rules. You

are member-focused, and you carefully protect the

people you serve. This is just the kind of service-

based model that we want to encourage in the

consumer financial marketplace."



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Financial Institutions Group

Michigan:305 W. Big Beaver Rd.

Troy, Michigan 48084

Thank You!

Texas: One Riverway, Ste. 1200

Houston, Texas 77056

Florida: 6750 N. Andrews Ave., Ste. 200

Ft. Lauderdale, Florida 33309


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Contact Us

Today’s Presenters


Robin D. Hoag, CPA, CGMA, CMC

Shareholder

Direct: 248-244-3242

Cell: 248.709.1270

Email: [email protected]

Lindsey Becker, BA

Compliance Supervisor

Direct: 248-244- 3791


Kia Hekneby

Senior Compliance Specialist

Direct: 248-244-3184



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Services

• Audit

• Merger & consolidations

• IT assurance

• Controls review

• Vulnerability assessments

• Penetration testing

• Commercial loan review

• Loan loss & delinquency

control

• Regulatory compliance


Documents

Compliance hot topics acuia 3 13 13 v4