Fair lending and home-secured loans
In addition to dealing with consumer complaints, the OCP will continue to conduct fair lending exams of those credit unions that raise Home Mortgage Disclosure Act (HMDA) red flags. These red flags could include late HMDA filings, pricing outliers, preapproval programs, or high denial rates.
The OCP isn’t alone in its focus on fair lending practices. The Obama administration has created a special fair lending unit in the Justice Department and the CFPB is specifically charged with focusing on fair lending abuses (not just related to mortgages, but all loan products including credit cards and auto loans).
It’s important that credit unions review their policies, procedures, and practices related to the Equal Credit Opportunity Act, the Fair Housing Act, and HMDA to ensure they have no fair lending violations.
As for NCUA examinations and rule making, the focus will continue to be on issues related to risk, including interest-rate and concentration risk. NCUA will likely issue a final rule related to interest-rate risk as well as a proposed rule related to loan participations.
We also might see this year a revised version of the credit union service organization rule. Expect the revision to reflect a narrow focus of the rule.
Last year, the first of many regulatory changes to home-secured loans began to take shape. These included:
There will be additional home-secured loan changes in 2012. The CFPB spent a lot of effort in 2011 testing disclosures for closed-end, home-secured loans under its “Know Before You Owe” project (available at consumer finance.gov). CFPB will issue its findings from these tests in the form of a proposed rule for new closed-end, home-secured loan disclosures this year.
These new mortgage disclosures will combine the two separate early disclosure requirements under the Truth in Lending Act (TIL) and the Real Estate Settlement Procedures Act (RESPA) into one disclosure.
The CFPB also will propose a new disclosure to be issued at or near the closing of the loan for closed-end, home-secured loans. This disclosure also will combine TIL and RESPA requirements for disclosures required at closing including the HUD 1/1A settlement statement.
Mortgage rules that could be finalized in 2012 also include disclosures for escrow accounts and requirements for underwriting practices (also known as the “Ability to Repay” rule). The proposed escrow rule requires that credit unions provide consumers an escrow disclosure no later than three business days before loan closing for closed-end, home-secured loans. A disclosure would be provided to members who have escrow accounts, and a different form would be provided to those who don’t.
The proposed Ability to Repay rule also applies to closed-end, home-secured loans. The proposed rule requires credit unions to make a reasonable, good faith determination that a member would have a reasonable ability to repay the loan as of the closing date.
There are four compliance options under the proposed rule that would allow credit unions to satisfy the minimum underwriting standards. Credit unions must review underwriting policies and procedures to make sure they’ve considered the required factors and have the appropriate documentation.
Changes also have been proposed for deposit account regulations, including Regulation CC (the implementing regulation for the Expedited Funds Availability Act), and Regulation E with respect to remittance transfers. There also has been discussion of revising checking/share draft account disclosures to create a single-page disclosure of fees and terms.
Changes are occurring in all product areas, so part of your regulatory strategy must be to track new and amended regulatory requirements. Early tracking allows you to help shape the rule by commenting and to prepare in advance to make implementation of the final rule easier.
The advance preparation includes budgeting for additional resources (forms, staff, or training) that you might need for implementation. And in this fast-paced, ever-changing regulatory environment, credit unions must always look ahead to the next possible changes, while still focusing on your most important asset—members.
ANDREA STRITZKE is vice president of regulatory compliance at PolicyWorks, Des Moines, Iowa.