Slide 1 FDIC Federal Deposit Insurance Corporation (PowerPoint) by derong123

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									   REGULATION Z –
  MORTGAGE LENDING
      CHANGES

FDIC Chicago Regional Conference Call
         November 30, 2009
         Today’s Presenters

   Curtis W. Theyse – Senior Compliance
    Examiner, Springfield, IL Field Office

   James R. Bryans, Compliance
    Supervisory Examiner, Springfield, IL
    Field Office


                    2
        Topics of Discussion

   Early Disclosure Requirements
   Rules Affecting Higher-Priced
    Mortgage Loans
   Prohibitions on Appraiser Coercion
   Rules on Mortgage Servicing
   Best Practices


                    3
     Purpose of Amendments

   To protect consumers against unfair,
    abusive, or deceptive mortgage lending and
    servicing practices while preserving
    responsible lending and sustainable
    homeownership

   To provide consumers transaction-specific
    disclosures early enough to use while
    shopping for a mortgage

                      4
 Mortgage Disclosure Improvement
           Act (MDIA)
  Expands the Types of Loans Requiring Early
         Disclosures Under §226.19
 Expands Coverage
    Mortgage transactions subject to RESPA (other than open-
     end) and secured by the “dwelling of a consumer”

 Includes:
    Home Purchase Loans
    Home Refinance Loans (New)
    Home Equity loans – Closed-End (New)
    Dwellings other than the consumer’s principal dwelling
      (i.e.; vacation and/or second homes) (New)

 Effective date
    Applications received on or after July 30, 2009


                            5
            Early Disclosures
    Timing Rules and Waiting Periods
   Early TILA disclosures must be delivered or
    mailed within 3 business days of application, and
    prior to collecting any fees other than a bona fide
    and reasonable credit report fee

   Must wait 7 business days after providing early
    disclosures before closing loan

   Must provide new disclosures and wait an additional
    3 business days before closing loan, if the APR
    provided in early disclosures changes and is not
    considered accurate under §226.22 §226.19(a)(2)

                           6
             Early Disclosures
               Other MDIA Rules
   Consumer waiver of waiting periods –
    226.19(a)(3)
     Consumer can waive both the 3 & 7 day waiting periods
     Bona fide personal financial emergency

   Disclosure notice rule – 226.19(a)(4)
     The following statement must be included in the early and
      corrected disclosures:
      “You are not required to complete this agreement
      merely because you have received these
      disclosures or signed a loan application.”
     Must be grouped with required disclosures under 226.18

                             7
               “3-7-3” Timing Rules
Sunday   Monday         Tuesday          Wednesday        Thursday         Friday           Saturday

                                                          Oct 29           Oct 30           Oct 31
                                                          Application      Business Day 1   Business Day 2
                                                          Received                          (open for
                                                                                            business)


Nov 1    Nov 2          Nov 3            Nov 4            Nov 5            Nov 6            Nov 7
         Business Day   Business Day 1   Business Day 2   Business Day 3   Business Day 4   Business Day 5
         3

    X    Initial
                                                          Mailed initial
                                                          disclosures
         disclosures                                      considered
         mailed                                           received & may
                                                          collect fees

Nov 8    Nov 9          Nov 10           Nov 11           Nov 12           Nov 13           Nov 14
         Business Day   Business Day 7
         6                                                                 Mailed

    X
                                         Veteran’s Day                     corrected
                        Consummation
         Corrected      date if no                                         disclosures
         disclosures
         mailed
                        corrected
                        disclosure            X                            considered
                                                                           received
                        required

Nov 15   Nov 16         Nov 17           Nov 18

                        Consummation

    X                   based upon
                        corrected
                        disclosure

                                               8
      Higher-Priced Mortgage
              Loans
                           §226.35

   A New Category of Mortgage Loan
   Definition: Closed-end consumer credit transaction
    secured by the consumer’s principal dwelling

   APR Triggers
     First-lien: On the “rate-lock” date, the APR on the loan
      exceeds the APOR by 1.5 or more percentage points
     Subordinate-lien: On the “rate-lock” date, the APR on the
      loan exceeds the APOR by 3.5 or more percentage
      points

   Effective Date: Requirements apply to applications
    received on or after October 1, 2009

                             9
         Covered Transactions
                             §226.35


   Covered Loans:
     Home Purchase
     Home Refinance
     Closed-End Home Equity Loans

   Excluded Loans:
       HELOCs
       Reverse Mortgages
       Construction-Only
       Bridge Loans
       Loans for real estate investment purposes


                              10
       Index for Determining
      Higher-Priced Mortgage
               Loans
                             §226.35

   Average Prime Offer Rate (APOR): The APOR is an APR
    that is derived from average interest rates, points, and other
    loan pricing terms offered to consumers by a sample of
    creditors for mortgage transactions that have low-risk pricing
    characteristics

      Calculated (or derived) and published by the Board at
       least weekly and can be found on the FFIEC website at
       www.ffiec.gov
      Based on data obtained from the Freddie Mac Primary
       Mortgage Market Survey®



                              11
New FFIEC Rate Spread Calculator
 Generates Spread Between the APR and the APOR
    http://ffiec.gov/ratespread/newcalc.aspx




                    12
      Rules for Higher Priced
         Mortgage Loans
   Must Evaluate a Borrower’s
    Repayment Ability
   Limits Prepayment Penalties
   Requires Escrow Accounts
   Prohibits Evasion Tactics/Strategies to
    Avoid Regulation


                    13
                 Ability to Repay
                    §226.34(a)4 and §226.35(b)1


   Creditors must take into account consumer’s
    repayment ability

   Ability to repay is determined by:
       Current and reasonably expected income
       Employment
       Assets other than the collateral
       Current obligations
       Mortgage related obligations
         •   Expected property taxes
         •   Insurance premiums required by the creditor, such as
             property insurance or PMI


                               14
Verification of Repayment Ability
                 §226.34(a)4 and §226.35(b)1


   Creditor must verify repayment ability

   Verification of income and assets require third
    party documentation, oral information does not
    satisfy this requirement:
       IRS Form W-2
       Tax returns
       Payroll receipts
       Financial institution records
       Check-cashing or remittance receipts
       Written statement from the consumer’s employer
       Other third party documents


                             15
       Why so Much Focus on
        Repayment Ability?
   This Rule is intended to ensure that creditors do not
    assess repayment ability using overstated incomes
    or understated obligations when evaluating higher-
    priced or HOEPA loans (creates unaffordable or
    irresponsible lending practices)
   Therefore, the Rule explicitly requires creditors to
    verify consumer income and assets using reliable
    3rd party docs when making a higher-priced or
    HOEPA loan
   A creditor can no longer rely on an income
    statement from the borrower as sufficient evidence
    of repayment ability for a higher-priced or HOEPA
    loan

                          16
         Ability to Repay
    Presumption of Compliance
                    §226.34(a)4 and §226.35(b)1

   A creditor is presumed to be in compliance if all
    three of the following requirements are satisfied:
      Verification of repayment ability through use of 3rd party
       docs
      Determines repayment ability using the largest principal
       and interest payment scheduled in the first 7 years
       following consummation and taking into account current
       obligations and mortgage-related obligations (i.e. property
       tax, insurance)
      Takes into account at least one of the following:
         •   A ratio of total debt obligations to income, or
         •   Consumer’s available income after paying debt
             (residual income)


                                17
Presumption of Compliance
                        (Continued)



   There is no presumption of compliance for a
    balloon payment loan with a term shorter
    than 7 years
     If the term is at least 7 years, the creditor that
      underwrites the loan based upon regular
      payments (not the balloon payment) retains
      presumption of compliance
     If the term is less than 7 years, compliance is
      determined on the basis of all the facts and
      circumstances, including consideration of how
      the balloon payment is going to be made

                          18
         Prepayment Penalty
                      §226.35(b)(2)


Prepayment penalty is allowed on higher-priced
mortgage loans provided:

   Principal and Interest payment may not change
    during first four years of loan

   Penalty can only apply for a maximum of two
    years following consummation

   Penalty cannot apply if source of funds of
    prepayment is refinancing by same creditor or an
    affiliate

                         19
Escrow for Taxes and Insurance
                         §226.35(b)(3)


   Escrow required for payment of property taxes and
    homeowners insurance for higher cost mortgage loans
    secured by a first lien on a principal dwelling

   Creditors may allow a consumer to cancel escrow accounts
    but no sooner than 12 months after consummation

   Effective Dates
      Non-manufactured housing: Applications received on
        or after April 1, 2010
      Manufactured housing: Applications received on or after
        October 1, 2010




                             20
 Prohibited Acts or Practices
                      §226.36(b)



Appraisal
 Prohibits any creditor or mortgage broker from
  directly or indirectly coercing, influencing, or
  otherwise encouraging an appraiser to
  misrepresent or misstate the value of a
  consumer’s principal dwelling
 Regulation lists examples of acts or practices that
  would and would not violate the regulation.
  ILLUSTRATIVE ONLY
 Prohibits a creditor from extending credit if knows
  before or at consummation of a violation of this
  section


                        21
Prohibited Acts or Practices
                  §226.36(c)




Servicing
 Prohibits mortgage servicing
  abuses
  Failing to credit a payment to an account
   as of the date received
  Pyramiding of late fees
  Failing to provide within a reasonable
   time of a request, a payoff statement

                    22
         CMS Best Practices

   Review and provide training regarding early
    TIL disclosure procedures for coverage,
    timeliness, and delivery
   Develop procedures to identify Higher-
    Priced Mortgage Loans early in the
    application process
   For Higher-Priced Mortgage Loans, ensure
    loan underwriting procedures include an
    evaluation of the borrower’s ability to repay
                       23
        CMS Best Practices

   Review timing of fees charged on
    residential mortgage loans
   Review mortgage servicing practices
   For Higher-Priced Mortgage
    Loans, review mortgage loan
    documents and contracts for any
    prepayment penalties, including
    minimum interest charges

                   24
        CMS Best Practices

   Expand audit coverage
   Be aware of escrow accounting rules




                   25
      CMS Recommendation

   If your institution is considering new
    products or different contract
    language as a result of these
    amendments, be sure to conduct
    proper due diligence, such as
    discussions with legal counsel,
    software providers, servicing company,
    and other third party providers before
    implementing any changes
                    26
        Additional Changes

   Be aware of recent and forthcoming
    changes to Regulation Z
    Closed- and open-end credit advertising
     rules effective October 1, 2009
    Credit CARD Act amendments, some
     effective August 20, 2009
    Proposed changes, dated August
     26, 2009, currently out for public
     comment
                     27
              Resources

   FIL-134-2008 (12/2/08) – Reg Z and
    Reg C: Amendments to the Regulations
   FIL-26-2009 (6/1/09) – Reg Z Early
    Disclosure Requirements
   FIL-44-2009 (8/6/09) – Reg Z Open-end
    Consumer Credit Changes Notice of
    Immediate and 90-Day Changes


                   28
                 Resources

   FDIC’s Summer 2009 Supervisory
    Insights Journal
     http://www.fdic.gov/regulations/examinations/su
      pervisory/insights/sisum09/si_sum09.pdf
   For proposed Reg Z changes see the
    following Federal Register citations
     http://edocket.access.gpo.gov/2009/pdf/E9-
      18119.pdf
     http://edocket.access.gpo.gov/2009/pdf/E9-
      18121.pdf

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