Proposed Revisions to Regulation Z Mortgage Loan Disclosures & Final RESPA Rule

CUNA
January 5, 2009

Proposed Revisions to Regulation Z Mortgage Loan Disclosures

The Federal Reserve Board (Fed) has issued a proposal that will revise the Regulation Z disclosure requirements for mortgage loans. These are specific changes to implement provisions of the Mortgage Disclosure Improvement Act (MDIA), which was enacted this past July and amends certain provisions of the Truth in Lending Act (TILA). As previously planned, the Fed is in the process of reviewing Regulation Z in its entirety and will issue more changes to the mortgage disclosure provisions sometime next year.

The MDIA requires creditors to mail or deliver good faith estimates of mortgage loan costs within three business days after receiving the application for the loan and before any fees are collected, other than a reasonable fee for obtaining a credit report. For these provisions, “business days” are defined as any day in which the lender's office is open for business. These early disclosure provisions are consistent with the Fed's recent final rule that amends the Home Ownership Equity Protection Act (HOEPA), which imposes this requirement for the consumer's primary home, although the MDIA now broadens this requirement to include all dwellings, such as second homes. These requirements will apply to refinancings and home equity loans, but they will not apply to home equity lines of credit (HELOC), which are considered “open-end” loans and not subject to these provisions of TILA and Regulation Z.

The proposed rule incorporates this extended coverage and also implements these additional requirements that were included in the MDIA:

• Creditors must wait at least seven business days after they provide the early disclosures before closing the loan. Again, “business days” are defined as any day in which the lender's office is open for business.
• Creditors must provide corrected disclosures with a revised annual percentage rate (APR) if there are any changes that result in the APR being inaccurate beyond certain tolerances, which will generally be 1/8 of 1 percent. These disclosures must be received at least three days before the loan closing, and the consumer will have been considered to have received these disclosures three business days after they are mailed by the lender. For these corrected disclosure provisions, “business days” are defined as all days except Sundays and specific Federal public holidays, which differs from the definition that applies to the provisions described above for providing early disclosures.

With regard to the seven-day and three-day timing requirements, as described above, the proposed rule will allow a consumer to modify or waive the timing requirements for the loan closing if due to a bona fide personal financial emergency that must be satisfied before the end of the waiting period. An example may include an impending foreclosure. However, accurate disclosures must be provided at or before the time these requirements are modified or waived. In these situations, the consumer must give the lender a dated, written statement describing the emergency. All consumers entitled to receive the disclosures must sign this statement and printed forms will not be permitted. Whether the emergency exists will be determined based on the facts surrounding the individual circumstances.

Both the initial disclosures and corrected disclosures must include the following statement: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”

The seven-day and three-day timing requirements for disclosures do not apply to mortgage transactions secured by timeshares.

The requirements under the proposed rule, as well as the other requirements under the MDIA, will become effective as of July 30, 2009. This differs from the effective date of the recent final rules that amend HOEPA, which is October 1, 2009. Comments in response to the proposal are due by February 9, 2009.

Please submit your comments to CUNA by January 29, 2009. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. If commenting directly to the Fed, you must refer to Docket No. R-1340. You may also contact us if you would like a copy of the proposal or you may access it here.

> View CUNA's full Regulatory Comment Call, which provides additional information and questions.

> Regulatory & Legislative Resources for Council Members

 

Final RESPA Rule

The Department of Housing and Urban Development (HUD) has issued a final rule to amend the requirements under the Real Estate Settlement Procedures Act (RESPA) in order to improve the mortgage process and to lower settlement costs for borrowers.

The final rule will make significant changes to the Good Faith Estimate (GFE) form. The changes will result in a new format for the GFE that is intended to ensure that the estimates are more accurate and to facilitate comparisons between lenders. These changes will also facilitate comparisons between the GFE and the HUD-1 or HUD-1A settlement statements.

The final rule will clarify when it is appropriate to provide borrowers with discounts and average price costing of settlement services. The final rule also includes changes to the disclosures in connection with the lender payments to brokers that are commonly referred to as yield spread premiums.

The rule is effective January 16, 2009. However, use of the new GFE and HUD-1 settlement statements will not be mandatory until January 1, 2010. HUD will issue guidance on compliance during this implementation period.

If you have questions or need more information about the final rule, please contact Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.coop or by telephone at (800) 356-9655, extension 6736, or contact Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.coop or by telephone at (800) 356-9655, extension 6732. You may also access a copy of the final rule here.

> View CUNA's full final rule analysis

> Regulatory & Legislative Resources for Council Members

 

Protect Your Members from Sharks

Neil Archibald
December 31, 2008

According to the Bureau of Labor Statistics, the cost of gasoline has increased by 26% in the last year and oil increases show no sign of slowing down. Similarly, the bureau notes that grain and dairy-based products have increased by double digits in the last year. And, we are all aware of the weakening dollar and its effect on the cost of goods coupled with less available credit. Further, as noted on the Bloomberg newswire, Fannie Mae forecasts a drop of 7% to 8% in home prices nationally in 2008. None of this is good news. In short, all our members are feeling the pain of this seemingly perfect storm of economic poor tidings.

So, are we in a bull market or bear market? The question appears moot, even a foregone conclusion. Further, that answer depends upon which expert you talk to. More importantly, however, does it really matter? That answer depends upon whether you or your members are in the right asset allocation. And, what is the right asset allocation? The answer depends. So, what is certain? One thing for certain, in up or down cycles, individualized advice for each of your members needs is king.

In bull or bear markets, members need solutions to their concerns and pathways to their goals. And in times when many if not all investors feel insecure about their financial future, good advice is akin to a hot meal on a cold day—essential.

To be clear, the definition of success depends upon the needs and goals of the members. Thus, rule No. 1 for a stable financial picture is to consult a qualified investment adviser about your individualized needs and goals to create a long-term strategy. When evaluating an investment adviser, experience and process are important. An adviser that has been through a few bear markets often has the ability to remain calm and stay focused on long-term objectives.

Further, how can you rest assured that adviser has your members' best interests at heart? Evaluate their investment process. Where the process focuses on designing allocations to fit individual needs as opposed to a focus on hitting home runs by using an individual stock, mutual fund or other investment product, members will benefit. Credentials are another good sign of qualification. A firm that emphasizes knowledge as reflected by its representatives' designations (e.g., CFP, CFA, CTA) is a good indicator that members will get learned advice based on the principles of member-centric investing. Ultimately, working with an adviser to create an asset allocation with high-quality securities that meets members' needs and goals and addresses their tolerance for risk, will result in an all weather portfolio that works come rain or shine.

Once you consult with a qualified investment adviser about your needs and establish an asset allocation, stay the course with adjustments as your circumstances dictate. Key to financial success is to understand what works for each of us as opposed to what works according to the pundits. In brief, short-term moves to match the news of the day are a recipe for long-term disappointment.

When markets go sour investors are prone to err on the side of panic. This immediate release of emotional steam affords temporary reprieve only to be followed shortly by the haunting possibility of the consequences of our actions. Certainly, in markets like this one, these emotions abound. But, members should beware. Panic-induced actions often lead to short-term results and long-term loss. Selling low and then buying high as the market rises is a recipe for deflated returns in a time of rising inflation.

To quote famed investor Warren Buffet: "Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."

It is important to know who is doing business with your member and to pick a company your members can trust. In determining whether an adviser is right for members, it is important the adviser is relationship oriented. Members, especially in trying times, require knowledgeable investment people who will guide them through the morass of market data and chatter. The blah, blah, blah and rah, rah, rah of varying market voices is short of schizophrenic and can freeze members to inaction, and inaction in the market place is tantamount to retrograde motion.

Consulting with a process-oriented adviser is an education for members and a salve to their financial wounds because their plan is built around their needs and goals and not a product. Further, ensure that members' investment returns are not reduced by costly embedded transactional fees couched in member statements. Addressing these two items broadly addresses the needs of members and further reminds them why the credit union way is the right way.

In summation, direct members to consult with a knowledgeable investment adviser about their specific needs and goals. Advise members to stay the course and stay in contact with their advisers to make changes to their long-term strategy as needed. Reassure members to fight the panic impulse leading to further investment confusion and to seek the counsel of their adviser. A basic investment principle that has stood the test of time is buy low and sell high. Remind members not to let their emotions result in selling low and then buying high, hoping to sell higher. The major market forces that determine much of members' investment outcome are fear and greed. Finally, protect your members by associating them with advisers that are client oriented. In rough waters, sharks often abound and, as financial institutions, we serve as lifeboats for our members. Let us represent the time-honored principle to not only serve but serve well by taking care of our members.

Neil Archibald is chief compliance officer at MEMBERS Trust Company. He can be reached at 888-727-9191 or neil.archibald@memberstrust.com. This story was originally published in Credit Union Times at www.cutimes.com. Reprinted with permission.

Savvy Sales Managers Speed Up in a Slow Economy

Lana J. Chandler
December 29, 2008

In good times and bad, a sales manager is essential to the success of their team,” says Lynn Giuliani, president of Progressions in Bellingham, Washington. “Sales can be a lonely job. A salesperson faces economic challenges, push back, rejection, challenges in time management, product competition—it's a lengthy list. To know that you have someone who believes in you and provides continuous support for you can make or break your contribution to the company.”

In tough times a sales manager's role is even more critical because selling is harder than ever. “We're in a particularly rocky time right now. A good sales manager can create a winning team that not only survives this downturn but creates a team that positions themselves for when the economy turns around, to kick the shins out of the competition,” says Giuliani.

Surpassing the Competition

“Financial institutions are going to close. There are going to be some consolidations,” Giuliani says. “In my 35 years in the industry this is the toughest time I've witnessed, so you must have the right people on the bus. Banks and credit unions have no other choice but to cut expenses. The biggest expense on the balance sheet is employee costs. If we go back to sales management, all you have to do is connect the dots. The sales manager must develop their team to both survive and thrive.”

If you can only justify having five sales reps versus maybe seven in the past, as sales manager your obligation is to give them the utmost amount of support, guidance, and love. “You've got to love them more than ever because every single day they're facing struggles they haven't faced in times past,” Giuliani says. “You can't have a weak leader at this point. You won't make it.”

Savvy sales management is how you will surpass the competition. You must have the best sales team calling on your clients and potential clients. “The lending market is tougher. Lending has always been your carrot . . . clients needed to get the loan,” Giuliani continues. “With lending cut back, now your sales skills have to be better than ever. You can't always give clients what they want the most.”

“Being Tough” Can Boost Morale

What does it mean for a leader to be tough? “Being tough means that you are consistent, caring, and supportive but you're not a willow tree. Sales managers that are a willow tree focus on being light. Instead of getting the job done, they're really hurting the organization,” says Giuliani.

Being tough essentially means not backing down. If we do our job right in the first place—setting clear expectations and then being a good coach and leader and helping employees achieve those expectations—we seldom need to be as tough as one might think. “I believe that being tough boosts morale rather than busts it, because no one appreciates working with someone who is not pulling their weight,” says Giuliani. She offers these tips:

• Understand that being tough ultimately helps employees. Especially in smaller organizations, having tough conversations can be challenging. You get really close with your people. You're more like a family, so it's hard to have those tough conversations. But when you fail to do so, you're actually hurting the employee. “Every moment that an employee does something wrong and it goes unchecked, you're essentially saying that the behavior is acceptable. Once the employee sees that you're going to be consistent, your job becomes much easier and they really won't test you as much,” says Giuliani.
• Have difficult conversations when needed. Savvy sales managers do more than just compliment and praise employees. They are also masters of addressing problem areas. “In an attempt to be nice and not wanting to have difficult conversations, some leaders relax on their expectations,” Giuliani says. “The employee falters or fails to achieve what's been set out and the sales manager caves or gives them a hall pass. Their credibility as the sales manager has just been diluted.”
• Care enough to confront. When you see behaviors that are not acceptable, be willing to confront the employee. Care enough about that person to help him or her improve.
• Exit employees who are not performing. Poor performance and attitude issues are grounds for terminating employment. If you fail to exit these people, you end up diluting the entire team. “There are no secrets in community banks and credit unions. Everybody notices when someone is not pulling their weight,” Giuliani says. “The other team members resent the sales manager because he or she doesn't hold that person accountable.”

Hold Team Members Accountable

Sales managers must hold their team members accountable. “I don't think of it as tough. I think of it as doing your job,” Giuliani says. “A leader needs to have a firm and consistent style coupled with being approachable and letting their team members know how much they value them every day.”

Effective leaders set abundantly clear expectations and then provide the coaching, training, and resources to help their team achieve and surpass those expectations. “Daily coaching is crucial. Spend 2 to 10 minutes a day essentially asking vs. telling,” advises Giuliani.

With “telling” you've done all the thinking. If you switch that behavior to asking open-ended questions, the employee needs to do the thinking and come up with their own answer. When it's your own answer, buy-in is immediate because you own it.

Examples:

“Tell me how you plan to organize your week?”

“Share with me your prospecting approach for XYZ client?”

To answer both of the above questions, employees have to develop a plan. By doing so, they hold themselves accountable. Say you're coaching a teller on cross-selling”

“I noticed that you had a nice exchange with Mr. Jones. Tell me about that . . .”

• Listen intently and acknowledge the employee's performance and then ask . . .

“Are there any other products or services that Mr. Jones might benefit from?”

• At this point, the employee comes up with a cross-selling strategy.

“Asking makes coaching easy for the sales manager because by asking open-ended questions, the employee does all the work. Follow-up, however, is absolutely a must,” explains Giuliani. As the saying goes, a good leader inspects what he/she expects. If you do not follow-up, the employee may get the impression that the goal is not important. And therefore, the employee may not achieve the goal—or achieve it to the desired level.

Strategies for Success

In economic slowdowns, savvy sales managers speed up. Giuliani offers these tips:

• Coach your team daily. If you're going to build a winning team, daily coaching is non-negotiable. Coaching shows that you care. It shows you know what's going on and gives employees an opportunity to be heard and be valued. “Coaching has to be part of your daily routine. It's what brings everything together,” Giuliani says. “Any salesperson deserves a coach. That is someone who listens, cares, supports, mentors, and guides.”
• Be a buffer. Employees are being bombarded with doom and gloom from the media and clients. Savvy sales managers filter that negativity. Let your team know that you're going to set clear expectations, provide resources, and be there for them. Let them know you're a team and that you're going to be okay.
• Know your market. What's happening economically in your area? Which industries are struggling? Which ones are doing well? What about foreclosures and unemployment?
• Invest in your people. In tough times, your team may need more empathy, time, and coaching.
• Hold weekly sales and service meetings. Use these meetings to sharpen skills and communicate. Employees need more communication that ever now.
• Establish performance metrics. Employees need to know what is to be measured, how it is measured, and what the consequences will be if performance falls below expectations. Provide employees with feedback about their performance throughout the performance period—not just at evaluation time. When you only measure at evaluation time, it's now a point of history and nothing can be changed.
• Be there for your team. “Employees need even more guidance and support in tough times. They need to know the sales manager really supports them and defends them,” says Giuliani.
• Create trust and mutual respect. How can you achieve this? Coaching, actively spending one-on-one time, and being present. This means that you're 100% there – your attention is completely focused on the employee and you're not multi-tasking.
• Reassure your team more. Be involved with your team and be highly visible. “They need to see you and talk to you,” Giuliani says. “Coaching gives you an opportunity to interact with your team and know what's going on.”
• Acknowledge that everyone has more responsibility. “In tough times, everybody has more responsibility. There's really no one in the group that's exempt from it,” Giuliani says. “Everyone has to work harder and smarter.”

Lana J. Chandler is the publisher of Branch Manager's Letter. Reprinted with permission.

RegWatch - CUNA OpSS Council

CUNA Regulatory Affairs (edited by the OpSS Council Regulatory Committee)
December 18, 2008

Regulatory Issues of Interest to CUNA OpSS Council Members

In This Issue:

• NCUA and Other Agencies Issue Appraisal Guidance
• CUNA Comments on Recent Proposal to Amend the Share Insurance Sign Requirements
• FED Issues Proposal to Revise Mortgage Loan Disclosures
• Update on the Mark-to-Market Accounting Rule
• FinCEN Simplifies CTR Exemption Process

> Read the Full Version of RegWatch
> View Recent Comment Calls

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NCUA AND OTHER AGENCIES ISSUE APPRAISAL GUIDANCE

he NCUA and the other federal financial institution regulators (Agencies) have issued proposed Interagency Appraisal and Evaluation Guidelines (Guidelines) that outline supervisory expectations for sound real estate appraisal and evaluation practices. This includes formal appraisals, as well as other evaluation methods that are permitted under certain circumstances. The Guidelines are intended to clarify and provide more details on appropriate risk management principles and internal controls for ensuring that real estate appraisals and other evaluations are reliable and support the real estate transactions.

The Guidelines replace the 1994 Interagency Appraisal and Evaluation Guidelines and incorporate recent regulatory actions, while also reflecting other changes in industry practices, uniform appraisal standards, and available technologies. NCUA was not a party to the 1994 Guidelines.

The Guidelines also include three appendices. One provides further clarification on real estate transactions that are exempt from the agencies' appraisal regulations, while another addresses acceptable evaluation alternatives, including the use of automated valuation models (AVMs). The third appendix provides a glossary of terms.

Comments on the proposed Guidelines are due by January 20, 2009. Click here for a copy of CUNA's Regulatory Comment Call for more information.

- Jeff Bloch, Senior Assistant General Counsel

 

CUNA COMMENTS ON RECENT PROPOSAL TO AMEND THE SHARE INSURANCE SIGN REQUIREMENTS

CUNA recently submitted a comment letter to the NCUA in response to a proposed rule that will amend the share insurance sign requirements for federally insured credit unions participating in shared branch networks. Currently, for tellers accepting share deposits for both federally insured and nonfederally insured credit unions, there must be a second sign adjacent to the official NCUA insurance sign. The second sign must list each federally insured credit union served by the teller, along with a statement that only those credit unions are federally insured. The proposed rule will replace the required list of credit unions with a general statement that not all of the credit unions served by the teller are federally insured and members should contact their credit union for further information.

As outlined in the letter, CUNA supports the goal of the proposed rule, which is to reduce the burden of the current share insurance sign requirements for shared branch networks. The letter also suggests additional flexibility for credit unions. This includes only requiring one sign in the branch in a conspicuous location that provides the general statement that not all credit unions served by the teller are federally insured or, instead of a sign, allowing tellers at credit unions that provide service to members of other credit unions the option of providing a separate disclosure to these nonmembers. A federally insured credit union that provides service to members of other credit unions should also have the option of indicating either on the sign or any separate disclosure that it is federally insured.

Click here for a copy of CUNA's letter.

- Jeff Bloch, Senior Assistant General Counsel

 

FED ISSUES PROPOSAL TO REVISE MORTGAGE LOAN DISCLOSURES

The Federal Reserve Board (Fed) late last week issued a proposal that will revise the Regulation Z disclosure requirements for mortgage loans. These are specific changes to implement provisions of the Mortgage Disclosure Improvement Act (MDIA), which was enacted this past July and amends certain provisions of the Truth in Lending Act. As previously planned, the Fed is in the process of reviewing Regulation Z in its entirety and will issue more changes to the mortgage disclosure provisions sometime next year.

The MDIA requires creditors to give good faith estimates of mortgage loan costs within three days after receiving the application for the mortgage loan and before any fees are collected, other than a reasonable fee for obtaining a credit report. This is consistent with the Fed's recent final rule that amends the Home Ownership Equity Protection Act, which imposes this requirement for the consumer's primary home, but the MDIA now broadens this requirement to include all dwellings, such as second homes. The proposed rule incorporates this extended coverage and also implements these additional requirements that were included in the MDIA:

• Creditors must wait seven business days after they provide the early disclosures before closing the loan.
• Creditors must provide new disclosures with a revised annual percentage rate (APR) if there are any changes that result in the APR being inaccurate beyond certain tolerances. These disclosures must be provided at least three days before the loan closing.

With regard to the above requirements, the proposed rule will allow a consumer to expedite the loan closing if due to a personal financial emergency, such as a foreclosure. As required under the MDIA, the requirements under the proposed rule will become effective as of July 30, 2009. Comments in response to the proposal are due by January 23, 2009. CUNA's Regulatory Comment Call, which will provide additional information, will be posted on CUNA's website shortly.

- Jeff Bloch, Senior Assistant General Counsel

 

UPDATE ON THE MARK-TO-MARKET ACCOUNTING RULE

The recent Emergency Economic Stabilization Act tasked the Securities and Exchange Commission (SEC) with conducting a study on the potentially negative effects of mark-to-market (MTM) accounting on the balance sheets of many financial institutions. The SEC must report its findings to Congress by January 2; the report will include the SEC's recommendation on whether to suspend the accounting rule.

Certain assets held by financial institutions are required to be measured using the MTM accounting technique. This essentially requires these assets to be valued at the price they could be sold for today on the open market. Of concern, is the current lack of willing buyers for many of these assets, including mortgage-backed securities. Although credit unions do not report directly to the SEC they must follow Generally Accepted Accounting Principles which mandate MTM.

Critics of MTM accounting argue that the rule ignores the holder's intent and ability to retain an asset. Mortgage-backed securities, for example, will likely fetch much less than their original purchase price in today's market. Proponents of the accounting rule site the need for full transparency of the condition of an asset to ensure investor confidence. Many of these individuals believe MTM has not caused the problem but has simply illuminated existing issues with certain assets.

CUNA has been in contact with individuals at both the SEC and the Financial Accounting Standards Board (FASB) to ensure the concerns of the credit union industry are addressed. Additionally, CUNA's Accounting Task Force has been closely monitoring the SEC's study and has attended both public roundtable discussions.

In a recent letter to the SEC, CUNA emphasized that while credit unions are impacted to a much lesser degree by the current economic downturn than are most other mainstream financial institutions, it is still important that a thorough examination be conducted on changes to any accounting rules that credit unions must follow.

The SEC has recently indicated that it is unlikely to suspend the MTM accounting rule but will make some revisions in an effort to improve it. CUNA will provide an update on this issue as soon as the SEC releases a definite plan.

- Luke Martone, Regulatory Research Counsel

 

FINCEN SIMPLIFIES CTR EXEMPTION PROCESS

The Financial Crimes Enforcement Network (FinCEN) issued a final rule simplifying the requirements for depository institutions to exempt certain customers from filing Currency Transaction Reports (CTRs). The Bank Secrecy Act (BSA) regulations require that all financial institutions, including credit unions, file a CTR for each transaction involving currency (cash) of more than $10,000.

The BSA regulations created two categories of “exempt” status, Phase I and Phase II, so that transactions of certain individuals do not need to be reported if such information is unlikely to aid officials in addressing potential criminal activity. Therefore, if an “exempt person” initiates a currency transaction in excess of $10,000 the credit union is not required to file a CTR.

Most credit unions, as well as other depository institutions, have not made full use of the exemption option because of the burdens and uncertainty associated with it. In an effort to encourage greater use of CTR exemptions, FinCEN is making the following changes to the current system:

• Depository institutions will no longer be required to review annually or make a designation of exempt person filing for members/customers that are other depository institutions, U.S. or State governments, or entities acting with governmental authority.
• Depository institutions will be able to designate an otherwise eligible non-listed company or a payroll customer after either two months (previously twelve) or after conducting a risk-based analysis of the legitimacy of that customer's transactions.
• FinCEN's definition of “frequent” transactions will be lowered from eight to five transactions per year.
• Depository institutions will no longer be required to biennially renew a designation of exempt person filing for otherwise eligible Phase II customers. However, an annual review of these customers must still be conducted.
• Depository institutions will no longer be required to record and report a change of control in a designated non-listed or payroll customer.

CUNA's Final Rule Analysis will be posted shortly on CUNA's website here.

- Lilly Thomas, Assistant General Counsel