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Texas Tech University School of Law

36 th Annual Texas Tech University Banking School. Legal Issues for Bankers. Ann Graham, J.D., M.B.A. Professor of Law, Texas Tech University School of Law Banking Law Blog: http://lawprofessors.typepad.com/banking/. Texas Tech University School of Law. Financial Systems in Crisis.

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Texas Tech University School of Law

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  1. 36th Annual Texas Tech University Banking School Legal Issues for Bankers Ann Graham, J.D., M.B.A. Professor of Law, Texas Tech University School of Law Banking Law Blog: http://lawprofessors.typepad.com/banking/ Texas Tech University School of Law

  2. Financial Systems in Crisis Bailouts Broad Safety Net Regulating the Unregulated Executive Compensation Lending Issues Consumer Protection Large/Small - State/National Regulatory Reform Bank Failures – Too Big to Fail

  3. Consumer Protectionand Bank Compliance • Consumer Financial Protection Agency? • Safety & Soundness depends on Consumer Protection • Policies & Procedures – Update All Affected • New Legislation: • Truth in Lending Act (TILA) – Reg Z • Housing and Economic Recovery Act (HERA) • Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) • Mortgage Disclosure Improvement Act (MDIA)

  4. Consumer Protection – More New Laws & Regs • Emergency Economic Stabilization Act of 2008 (EESA) • Amended MDIA • Preventing Mortgage Foreclosures & Enhancing Mortgage Credit Act – “Helping Families Save Their Homes Act of 2009” • Credit Card Accountability Responsibility & Disclosure Act of 2009 (Credit CARD Act) • Regulations: • RESPA - HUD’s Reg X * FACTA Reg V • HMDA – FRB Reg C

  5. For Lenders – Reg Z Changes • Reg Z Changesfinalized July 2008 (orig. eff. 10/1/09) • MDIA & More Reg Z Changes (eff. 7/30/09) • New “Higher Priced Mortgage Loans” (HPMLs) • New Average Prime Offer Rate “APOR” (FFIEC site) • Lenders must assess, verify & document ability to repay for Higher Priced Mortgage Loans & HOEPA loans • New way to calculate Debt-to-Income (eff. 10/09) • Prepayment penalty restrictions • New Early TIL requirements: http://www.fdic.gov/news/news/financial/2009/fil09026.html

  6. More Reg Z Prepayment penalty restrictions on HPMLs Limits on collecting fees until early disclosures New early disclosure requirements Redisclosure if APR becomes inaccurate No coercion or undue influence of appraisers Restricted S-T balloons on principal dwelling loans Required to escrow tax & ins for 1st mtg. HPMLs No pyramiding late fees on principal dwelling loan New advertising requirements

  7. New Reg Z Waiting Periods Application: giving info in anticipation of credit decision Early TIL Disclosures within 3 days Wait 7 business days from early disclosures for earliest possible closing If disclosures mailed, presume 3 days for receipt Immediate redisclosure if APR inaccurate New tolerances Wait 3 bus. days from receipt of revised disclosure WAIVER: Must be bona fide personal emergency, customer request, no forms

  8. RESPA – HUD’s Reg X(final 11/08, some changes eff. 1/16/09, some 1/1/10) • Servicing Disclosure Statement – New Form • 3 business days after Loan Application • New Definition of Application • New Good Faith Estimate Form • Can’t charge appraisal fee as condition for GFE • GFE MUST be good for 10 business days unless changed circumstance • New tolerance limits, cure with refund at settlement or within 30 days • New HUD1/1A Forms & Instructions – 1/1/10

  9. HMDA – Reg C & HMDA LAR • Changes eff. 10/1/09 • For Higher Priced Mortgage Loans, • Report spread between APR and Survey-Based estimate of prime mortgage loans • If spread >1.5% for lst lien loan or >3.5% for 2nd

  10. Credit CARD Act & Reg Z • Effective Aug. 20, 2009 • For ALL open-end consumer credit accounts, including Credit Cards & HELOCs • Mail/deliver Statements 21 days before payment due • For Credit Cards • 45 days notice of increased APR or other sig. changes • Include right to cancel the account • All interest rate increases after 1/1/09 must be reviewed beginning Aug. 2010 for reduction • More changes 2/22/2010 - http://www.fdic.gov/news/news/financial/2009/fil09044.html

  11. SAFE Act Secure and Fair Enforcement for Mortgage Licensing Act of 2008 Requires Mortgage Loan Originators (MLOs) to register with Nationwide Mortgage Licensing System and Registry (NMLSR) Fingerprints & background Also for Agency Regulated institutions & subs Proposed Rule: http://www.fdic.gov/news/news/financial/2009/fil09028.html

  12. Appraisal Issues • Reg Z: Cannot Directly OR Indirectly Influence Appraiser • Need Policies & Procedures – • Use Appraisal Mgt. Company? • Borrower cannot pay for appraisal • Home Valuation Code of Conduct – HVCC • Industry Standard • Selling into Secondary Market • Who can talk to the appraiser • Annual Audit

  13. Allowance for Loan & Lease Losses Guidance: Aug. 3, 2009 ALLL for Residential Mortgages secured by junior liens Analyze each quarter Examiners will be looking at loss mitigation http://www.fdic.gov/news/news/financial/2009/fil09043.html Loan Modification Guidance for Servicers: http://www.fdic.gov/news/news/financial/2009/fil09045.html

  14. Service Members • Mortgage Protection for Servicemembers • Amends Servicemembers Civil Relief Act • Effective July 30, 2008 • 6% interest rate cap for pre-service debt during military service and if mortgage up to 1 year after military service • Stay of court proceedings for 9 months after service – temporary until 12/31/2010

  15. Fair Credit Reporting Act – FCRA (1970)Fair & Accurate Credit Transactions Act FACTA (2003) Affiliate Marketing Restrictions Accuracy & Integrity Guidelines Direct Dispute Resolution ANPR: http://edocket.access.gpo.gov/2009/pdf/E9-15322.pdf Comment period ends 8/31/09 ID Theft RED FLAG FAQs: http://www.fdic.gov/news/news/financial/2009/fil09030.html

  16. More Examiner Focus • Flood Insurance – New Q&A – 7/21/09 http://www.fdic.gov/news/news/press/2009/pr09127.html Effective 9/21/09 • Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) • FinCEN • CTRs and SARs • FDIC Nationwide Seminars on Deposit Insurance: • http://www.fdic.gov/news/news/financial/2009/fil09046.html#body • Sweep Account Disclosures (eff. 7/1/09) FAQ:http://www.fdic.gov/news/news/financial/2009/fil09039.html

  17. CRA Changes • Higher Education Opportunity Act • Requires considering low-cost education loans to low-income borrowers • Meeting community credit needs • Agencies’ proposed regs: • http://www.fdic.gov/news/news/financial/2009/fil09035.html

  18. Capital “Making Homes Affordable” Program Mortgage Loan Modifications May Assign 50% risk weight, if not 90 days or more past due or on non-accrual Interim Final Rule: http://www.fdic.gov/news/news/financial/2009/fil09036.html Balancing Act

  19. Federal Preemption • Watters v. Wachovia (2007) • OCC has exclusive “visitorial power” over nat’l banks AND their operating subsidiaries • Cuomo v. Clearing House (2009) • States can enforce consumer protection statutes against national banks • By Lawsuit, not by “visitorial powers” • Administration’s Regulatory Reform Legislation

  20. Texas News Texas Banking Commissioner Charles Cooper Regulatory Guidance 3009: Loan Participation Risks What happens if the Lead Bank fails & offsets deposit? Monitor Risk! FAQs: http://www.banking.state.tx.us/exec/faq.htm HOME EQUITY – Texas Constitution Art. 16, Sec. 50

  21. Legal Info for Bankers • Agency Websites: • www.fdic.gov Financial Institution Letters (FILs) • www.federalreserve.gov • www.occ.treas.gov * www.ots.treas.gov • www.treas.gov * www.ffiec.gov • www.banking.state.tx.us • Trade Associations: • ABA: www.aba.com * TBA: www.texasbankers.com • ICBA: www.icba.com * IBAT: www.ibat.org • CSBS: www.csbs.org • Texas Statutes: www.capitol.state.tx.us

  22. Legal Info for Bankers • FTC • ID Theft: http://www.ftc.gov/bcp/edu/microsites/idtheft/ • Credit Reports: http://www.ftc.gov/freereports • FinCEN: BSA Issues: http://www.fincen.gov/

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