Regulations to Watch
in 2016
The New Year brings with it many different types of celebrations
and traditions. In the world of financial
institution compliance the tradition for the New Year is to await the
implementation of new regulations. For
the past several years, there have been a large number of new regulations that
have been implemented. Fortunately, the
pace of new regulations has slowed dramatically and 2016 will not see a large number. In fact, there are only two significant
regulatory changes that will take place in 2016. Despite this fact, as you plan for the compliance
year, remember that the supervisory emphasis of the regulatory agencies can
have the same impact as new regulations.
There are several sources for regulatory changes. Regulatory agencies respond to world events,
the political environment, resources allocations, technology and many other
factors. One valuable source of
information that is often overlooked are the annual plans or statements that
are issued by the prudential regulators.
All three issue a plan that addresses the areas that they will emphasize
in the upcoming year. In addition,
there are many organizations and agencies that list the effective dates for
regulations. Gathering information on
the new regulations and regulatory initiatives is a key first step for planning
the compliance year.
Two (and one/half)
Significant Changes
The most significant regulatory changes that will occur in
2016 are the flood insurance rules and changes in regulation Z that will expand
the ability of small creditors to make loans with terms that would otherwise
make them non-qualified mortgages without fear. There is also the TILA / RESPA Integrated Disclosure Rule aka, “TRID” that went into effect
in the final quarter of 2015.
Flood Insurance
The flood insurance rules are likely to impact your
institution in two significant areas.
First, for loans with a residence as collateral, there is now an exception
for detached structures. No longer will
you have to get insurance for that random tool shed on the property that you
have taken as collateral. There are
several considerations that go with this change.
The second change impacts the way that forced placed
insurance may be charged to the customer.
In some cases, the customer may be charged back to the day that the
policy lapsed for flood insurance. Again,
there are several considerations to make when applying this rule to your
institution.
The flood rules also apply an escrow requirement for
institutions that are over $1billion in assets.
We discussed these changes in detail in a three part blog that is on our
website at www.vcm4you.com. For
more information, please review our blogs.
Regulation Z
Another significant change is the expansion of the ability
of small creditors to enjoy qualified mortgage protections for mortgage loans. The CFPB described the change this way;
There are a variety of provisions in the rules that affect
small creditors, as well as small creditors that operate predominantly in rural
or underserved areas. For instance, a provision in the Ability-to-Repay rule
extends Qualified Mortgage status to loans that small creditors hold in their
own portfolios, even if consumers’ debt-to-income ratio exceeds 43 percent.
Small creditors that operate predominantly in rural or underserved areas can
originate Qualified Mortgages with balloon payments even though balloon
payments are otherwise not allowed with Qualified Mortgages. Similarly, under
the Bureau’s Home Ownership and Equity Protection Act rule, such small
creditors can originate high-cost mortgages with balloon payments. Also, under
the Bureau’s Escrows rule, eligible small creditors that operate predominantly
in rural or underserved areas are not required to establish escrow accounts for
higher-priced mortgages. [1]
This expansion creates a great deal of opportunity for smaller
financial institutions to consider mortgage lending. We will discuss this opportunity in detail in
blogs to come in the near future.
TRID
The regulatory change that received the most publicity last
year was the TILA / RESPA Integrated
Disclosure Rule which was widely known as TRID.
This rule actually was implemented in the last quarter of 2015. Since its start, several regulatory agencies
have released examination procedures that indicate how they will treat
financial institutions the first time new loans are reviewed for compliance
with these rules. According to many
publications, technical or individual violations will be de-emphasized. The main area of emphasis will be on the
system for compliance that has been developed by the institution.
Regulatory Emphasis
In addition to changes in regulations, it is important to glean
as much information as is available from the regulatory agencies about the
areas of focus for examinations. A
change in the area of focus can have the same impact as a change in
regulation. For example, in the area of
flood insurance when the focus changed from the appropriate amount of insurance
to a review of flood notices, a number institutions that previously had satisfactory
reviews found themselves with findings and in extreme cases, civil money penalties. It is the change in focus of the regulators
that often has many an institution asking “why were we okay at the last
examination, but not now? Fortunately,
many of the regulatory agencies publish strategic plans which indicate the areas
that will be emphasized for the year. Here
is a brief review:
CFPB
The CFPB’s Deputy Assistant Director for origination, Calvin
Hagins, recently warned mortgage lenders of the four main examination
priorities for 2016—loan originator compensation plans, the ability-to-repay
rule, the TILA-RESPA Integrated Disclosures (TRID) rule, and marketing
service agreements.
Speaking at the California MBA Legal Issues Conference, indicated
that CFPB examiners will spend a substantial amount of time evaluating loan
compensation schemes at every exam at every entity. [2]
OCC
The Office of the Comptroller of the Currency, in its 2016
strategic operating plan released the following priorities
·
Evaluating adequacy of compliance risk
management and assessing banks’ effectiveness in identifying and responding to
risks posed by new products, services, or terms.
·
Examiners will also assess compliance with the
following: – new requirements for integrated mortgage disclosure under the
Truth in Lending Act of 1968 and the Real Estate Settlement Procedures Act of
1974.
·
Relevant consumer laws, regulations, and
guidance for banks under $10 billion in assets.
·
Flood Disaster Protection Act of 1973
·
The Servicemembers Civil Relief Act of 2003.
In addition, the OCC pointed out that fair access to credit
will also be a priority;
·
Assessing banks’ efforts to meet the needs of
creditworthy borrowers and to monitor banks’ compliance with the Community
Reinvestment Act and fair lending laws.
·
Examiners at banks with more than $500 million
in assets will continue to use the Fair Lending Risk Assessment Tool in their
fair lending assessments. [3]
FDIC
The FDIC’s 2015 strategic plan is still in effect and it
covers several years. While this plan is
not as specific in the areas of emphasis as some of the other agencies, the
plan does mention that there will be an emphasis placed on consumer protection,
the CRA and Fair Lending laws. [4] We have interpreted this language to mean
that UDAAP, Fair Lending and the Community Reinvestment Act are all areas that
should receive attention at your institution before, the examiners arrive.
Federal Reserve
The Federal Reserve System in its annual compliance hot
topics presentation that areas of focus will include regulation C (HMDA), Regulation
B spousal signature rules and UDAAP. [5]
FinCEN
In the area of BSA/AML FinCEN is now taking comments about
new rules for due diligence. The
original proposal was controversial in that it essentially required financial
institutions to perform due diligence on the beneficiaries of accounts as well
as in some cases, the customers of the financial institutions clients. While it is evident that the proposal will be
scaled back somewhat, it is also logical to assume that customer due diligence
will be an area of focus for the FinCen in both the short term and the long
term.
[1]
CFPB Finalizes Rule to Facilitate Access to Credit in Rural and Underserved
Areas- September 21, 2015
[2] Deputy
Assistant Director for Originations, Calvin Hagins, comments to California MBA Legal Issues
Conference
[3] OCC
Committee on Bank Supervision FY 2016 Operating Plan
[4]
2015 Strategic plan
[5]
2015 Strategic plan
No comments:
Post a Comment