LENDING COMPLIANCE 101

1. LENDING COMPLIANCE 101 FOR CREDIT UNIONS

2. TOTAL TRAINING SOLUTIONS with ANNE LOLLEY

3. PURPOSE OF THIS WEBINAR • Rules seem overwhelming/unrelated • We’ll review all rules in one webinar • Note: Summaries not detailed • Reference booklet • Part 1: Federal compliance rules (listed alphabetically) • Part 2: Supplemental memos, charts, sample forms • Cites / Index

4. SOME REGS HAVE A NEW HOME Regulations transferred to CFBP: Regulation B: Equal Credit OpportunityRegulation C: Home Mortgage DisclosureRegulation E: Electronic Fund TransfersRegulation F: Fair Debt Collection Practices ActRegulation M: Consumer LeasingRegulation P: Privacy of Consumer Financial InformationRegulation V: Fair Credit ReportingRegulation X: Real Estate Settlement Procedures ActRegulation Z: Truth in LendingRegulation DD: Truth in Savings

5. NO MEMORIZING!

6. PART 1 FEDERAL COMPLIANCE REQUIREMENTS

7. APPRAISALS AND EVALUATIONS A Every loan secured by real property • OVER $250,000 –APPRAISAL • Exception – Business loan $1 million or less • Exception – Refinancings • $250,000 OR LESS – EVALUATION ___________ • Existing A/E okay if still valid–must document! • Be sure to review • Before loan is closed EVALUATION CHART – PAGE 28

8. BANK SECRECY ACT Applicable if loan is: • Over $10,000 • Not secured by real estate • Show purpose of loan • No general terms • Business • Personal NOT ACCEPTABLE • Personal expenses A PURPOSE

9. CREDIT PRACTICES RULE – REG AA All consumer loans - except loans to purchase real estate • Prohibits: • Confession of judgment • Assignment of wages • Pyramiding late fees • Security interests in existing household goods • Requires • Notice to Cosigner A Technically repealed . . . but principles remain sound.

10. CUSTOMER IDENTIFICATION PROGRAM (CIP) A New customers only • Before closing: IDENTIFY • Name • Date of birth • Address • Taxpayer identification number (TIN or EIN) • Reasonable time after closing: VERIFY • Driver’s license • Other as required by lender’s policy

11. ENVIRONMENTAL RISK A Loans secured by real property • Initial analysis • Present and past uses of property • Governmental contacts • If problem – investigate further (policy) • Due diligence will protect against: • Liability on mortgaged property • Worthless collateral • Emphasis for credit union examiners

12. EQUAL CREDIT OPPORTUNITY ACT – REG B A Every loan—including business/ag • Prohibits discrimination • Monitoring requirements • If loan is to purchase/refi principal dwelling + secured by dwelling • Ethnicity, race, sex, marital status and age • Substitute monitoring programs okay (HMDA) • Written application • Purchase/refinancing of applicant’s dwelling • Secured by same dwelling

13. ECOA – REG B . . . CONTINUED • Adverse action notices • Consumer • Large business – gross revenues >$1 million • Small business – can use consumer rules • Intent to apply for joint credit • Signature requirements – individual applications • Individual qualifies – cannot require another signer • Individual does not qualify – can require another signer • Security documents – can require all owners to sign

14. ECOA – REG B . . . CONTINUED • Copy-of-Appraisal Rules • Applies to all loans (including commercial) • Applies to loans secured by first lien on dwelling • Provide copy-of-appraisal notice • 3 business days after application • Provide copy of appraisal • Promptly . . . but at least 3 business daysbefore closing • Applicant can waive timing • Must receive waiver at least 3 business days before closing • Still must provide copy by closing • No charge for copies

15. E-SIGN ACT Electronic disclosures to consumers • Permitted if: • Electronic consumer consent • Disclosure prior to consent A

16. FAIR CREDIT REPORTING ACT – REG V RISK-BASED-PRICING DISCLOSURES Applies to consumer loans with risk-based pricing • Two options - Option 2 is usual option • If risk-based pricing • Give Credit Score Notice A TWO TYPES OF NOTICES 1. SECURED BY REAL ESTATE 2. NOT SECURED BY REAL ESTATE TRIGGERED BY RISK-BASED PRICING . . . NOT BY PULLING CREDIT SCORE BUT MUST GET CREDIT SCORE TO COMPLETE THE NOTICE!

17. FAIR HOUSING A Loans to finance or refinance: • Purchase/construction/improvement/repair/maintenance of a dwelling • Secured by a dwelling • Prohibits discrimination • Advertising rules • Indicate that institution will not discriminate • Logo or spoken words • Required Poster - • Equal Housing Lender Poster (NCUA) • Equal Housing Opportunity Poster (HUD)

18. FLOOD DISASTER PROTECTION ACT A Make, increase, extend or renew a loan secured by a building • Determination • Whether building in SFHA • Whether community participates in NFIP • Notice • If building is in SFHA • Must be acknowledged • At least 10 days before closing • Require insurance • If building in flood hazard area AND • Community participates in flood program • Force place if necessary

19. FLOOD INSURANCE . . . CONTINUED AMOUNT OF INSURANCE OUTSTANDING PRINCIPAL BALANCE OF THE LOAN LESSER OF OR “INSURABLE VALUE

20. FLOOD INSURANCE . . . CONTINUED Prior Determinations • Okay on increases, renewals, extensions if: • Less than 7 years old • No map revisions or updates • Be safe – use recertification • Can never be used on new loans or refinancings ARE YOU SURE?

21. FLOOD INSURANCE . . . CONTINUED • Manufactured homes – if it can’t be hauled off to avoid flood, subject to flood insurance rules. • Escrowing premiums – if institution requires escrow account for other purposes (taxes, insurance), must also escrow flood insurance premiums. • New escrow rules coming

22. FLOOD INSURANCE . . . CONTINUED New rule on detached structures: • Insurance not required if structure: • On residential property • Detached from primary residence • Not used as a residence • Lender may require insurance • What is “residential property”? • Look for explanatory regulations • Effective March 21, 2014

23. HOME MORTGAGE DISCLOSURE ACT – REG C HMDA institutions - • Assets in excess of $44million • Home/branch in MSA • Must report data on these loans • Home-purchase • Home improvement SPECIAL DEFINITIONS • Refinancing A

24. HOMEOWNERS PROTECTION ACT A • When PMI on home mortgage • From Homeowners Protection Act of 1998 • Not applicable if FHA/VA loan or lender-paid PMI • Termination/cancellation rules • 20% equity – cancel upon request • 22% equity – automatically terminate • Required disclosures and notices • Initial • Annual • At cancellation or termination EXCEPTIONS HIGH-RISK LOAN PAYMENTS NOT CURRENT OTHER LIENS SEE BOOKLET FOR SAMPLE ANNUAL DISCLOSURE

25. HUD HOMEOWNERSHIP COUNSELING NOTICE • If delinquent homeowner • Provide within 45 days of delinquency • Includes SCRA notice

26. LOAN-TO-VALUE LIMITS A All loans secured by real estate CONSIDERED “BEST PRACTICES” FOR CREDIT UNIONS

27. PRIVACY OF CONSUMER FINANCIAL INFORMATION Consumer loans • New customer • New policy • Initial privacy notice - at or before closing • Annual privacy notice • New rule: May provide annual notice on website A

28. REAL ESTATE SETTLEMENT PROCEDURES ACT A Loan secured by real property with dwelling/MH • Exemptions • 25 acres or more • Business/ag loans • Construction/bridge loans SEE BOOKLET FOR NIFTY “CHEAT SHEET” PAGE 35 CONSTRUCTION LOAN NOT EXEMPT IF: TWO YEARS OR MORE PROCEEDS ARE USED TO BUY THE PROPERTY

29. RESPA . . . CONTINUED SEE BOOKLET FOR REFERRAL FEE CHECKLIST • No unearned fees • Early disclosures – within 3 days of “application” • Booklet • Good Faith Estimate (and list of providers) • Servicing Disclosure - first mortgages only • List of Homeownership Counseling Organizations PAGE 36 EARLY DISCLOSURES NOT REQUIRED IF: DENIED/WITHDRAWN WITHIN THREE-DAY PERIOD

30. RESPA . . . CONTINUED • Settlement Statement at closing (HUD-1/1A) • Escrow Requirements • Limits and calculation rules • Initial Escrow Account Statement • Annual Escrow Account Statement • Required-Provider Disclosure

31. RESPA . . . NEW CFPB RULES . THE NEW CFPB RULES SOME EXEMPTIONS FOR SMALL SERVICERS Services 5,000 or fewer mortgage loans and creditor of every loan it services

32. RESPA . . . NEW CFPB RULES NEW • List of homeownership counseling organizations • 3 business days after application • 10 organizations closest to applicant’s location • Error resolution • Acknowledge within 5 business days • Correct and notify within 7 business days (extensions possible) • Information requests • Acknowledge within 5 business days • Provide requested information within 10 business days (30 days for some)

33. RESPA . . . NEW CFPB RULES NEW • Force-Place Insurance • Cannot charge until two notices • Cancel duplicate insurance within 15 days • Refund fees for overlapping coverage • Cannot force-place if escrow account (exception for small servicers) • Rule does not cover flood insurance • Policies & Procedures • Providing information • Loss mitigation • Oversight of service providers • Transferring information • Error-resolution and information-requests SMALL SERVICERS EXEMPT

34. RESPA . . . NEW CFPB RULES NEW • Early Intervention with Delinquent Consumers • Establish contact by 36th day • Written information by 45th day • Continuity of Contact with Delinquent Consumers • Assign personnel to help by 45th day • Ensure personnel can be reached by phone • Ensure timely responses to phone messages SMALL SERVICERS EXEMPT SMALL SERVICERS EXEMPT

35. RESPA . . . NEW CFPB RULES NEW • Loss Mitigation Procedures - Generally • Help consumers apply for loss mitigation • Evaluate application within 30 days • Inform of options • Evaluate appeals • Refrain from foreclosure during evaluation • Loss Mitigation Procedures for Small Servicers • Cannot file for foreclosure unless loan is more than 120 days delinquent • No judgment/sale if consumer is performing on loss mitigation agreement SMALL SERVICERS EXEMPT

36. SECURITIES EXCHANGE ACT – REG U Loan is secured by stock • Purchase secured stock – limited to 50% of market value • Secured by margin stock andloan >$100,000 – U-1 form • Custody/control of secured stock – SEC verification A

37. SERVICEMEMBERS CIVIL RELIEF ACT Persons in military service • Active duty • National Guard – active duty >30 days • Formerly Soldiers and Sailors Act • Existing loan – lower rate to 6% • Limits on foreclosure A MORE INFORMATION IN BOOKLET PAGE 40

38. SERVICE MEMBERS & DEPENDENTS RULE Loans detrimental to service members • Payday loans • Vehicle title loans • Tax refund anticipation loans A • 91 days or less • $2,000 or less • Holding check/EFT authorization • 181 days or less • Secured by vehicle • Non-purchase Repay with tax refund

39. SERVICE MEMBERS . . . CONTINUED • Identify borrower – • Active service member or dependent? • Special identification form • If active service member/dependent • Calculate and disclose MAPR (includes credit insurance) • Statement – financial assistance available • Disclosures - written and oral • Protective loan limitations REVISE LOAN POLICY TO PROHIBIT Payday loans Vehicle title loans Tax refund anticipation loans PAGE 18

40. TENANTS IN FORECLOSURE When lenderforecloses on residential property with tenants • Helping Families Save Their Homes Act of 2009 • Must provide notice of need to vacate • 90 days in advance A SAMPLE NOTICE ON PAGE 39

41. TRUTH IN LENDING – REG Z A Consumer-purpose loans EXEMPT NON-REAL ESTATE LOANS OVER $54,600 2015 THRESHOLD

42. TRUTH IN LENDING . . . CONTINUED • Initial disclosure • Closed-end • Open-end • Periodic disclosures (open-end)

43. TRUTH IN LENDING . . . CONTINUED • Early disclosures (ELYTIL) • Required when: • Loan secured by consumer’s dwelling AND • Loan subject to RESPA • Within 3 business days after application • Inaccurate APR – give corrected disclosures • Waiting period . . . cannot close until: • 7th business day after lender mails/delivers original • 3rd business day after consumer receives correction SATURDAY IS ALWAYS A “BUSINESS DAY”

44. TRUTH IN LENDING . . . CONTINUED • HELOCs – special disclosures and rules • Adjustable-rate-mortgages disclosures • Secured by borrower’s principal dwelling • Greater than one year

45. TRUTH IN LENDING . . . CONTINUED • Right of Rescission • Applies to a loan secured by a principal dwelling • Exemptions • Residential Mortgage Transaction [loan to buy/build] • Refinancing with no new money • Can cancel within 3 business days • Give Notice of Right to Rescind SATURDAY IS ALWAYS A “BUSINESS DAY” SEE DETAILED MEMO ON PAGE 30

46. TRUTH IN LENDING . . . CONTINUED • Advertising rules– for consumer loans • Credit card applications and solicitations • High Cost Mortgages (HOEPA loans) • Applies if: • Secured by borrower’s principal dwelling • High rates or fees • Special disclosures and restrictions • New rules (later)

47. TRUTH IN LENDING . . . CONTINUED • Higher-priced mortgage loans • Applies when: • Loan is secured by consumer’s principal dwelling • APR exceeds average prime offer rate by: • 1.5% or more (first mortgage) • 3.5% or more (second mortgage) • Escrow requirements (later) • New appraisal rules (later)

48. TRUTH IN LENDING . . . CONTINUED • Private education loans • If any part of a loan is for post-secondary educational expenses • Three new disclosures: • At application • At loan approval • After borrower accepts • Self-certification form • Three-day right of rescission • Not applicable if: • Open-end credit or • Secured by real estate • EDUCATIONAL EXPENSES • Tuition and fees • Books • Supplies • Miscellaneous personal expense • Room and board • TO ELIMINATE REQUIREMENTS • REVISE LOAN POLICY TO PROHIBIT • PRIVATE EDUCATION LOANS UNLESS: • OPEN-END CREDIT OR • (2) SECURED BY REAL ESTATE

49. TRUTH IN LENDING . . . NEW CFPB RULES THE NEW CFPB RULES

50. TRUTH IN LENDING . . . ABILITY TO REPAY NEW • New Ability-to-repay rules • For closed-end loans secured by a dwelling • Not limited to first liens or primary dwellings • Exempt loans: • HELOCs • Temporary/bridge loans of 12 months or less