CFPB Mortgage Reforms - Part 2

In order to provide additional clarification on the recently issued CFPB mortgage reforms, IBAT Regulatory Compliance Manager Kelly Goulart is releasing a series of white papers addressing each change contained in the seven major mortgage lending initiatives, six of which have been finalized by the CFPB (more or less).  

The second part of the series, focused on changes to Regulation Z, is now available on the IBAT website.  These changes include prohibitions on mandatory arbitration, waiver of statutory causes of action and financing single-premium credit insurance.

The third part of the series will follow next week focusing on the Ability to Repay (ATR) and Qualified Mortgage (QM) rules.

Previous documents in the series can be found here: 
Escrow requirements for HPMLs.

Week in Review May 3

Yes, it's that time again. The month's first Friday brings a fresh, new round of employment numbers from the Bureau of Labor Statistics, and, this time, the surprise is to the upside. If one sets the bar low enough, disappointment can be avoided. With the markets expecting an unchanged Unemployment Rate and a 140k rise in Non-Farm Payrolls, imagine the warm, fuzzy feelings generated by the reported 165k rise in NFP along with a .1% decline in the Unemployment Rate to 7.5%. And for those still disconcerted by last month's meager 88k jobs gain... Read more in the Baker Market Update.

CFPB Mortgage Reforms

Based upon recent conversations with Texas community bankers looking for additional clarification and guidance on the CFPB mortgage reforms, IBAT will be releasing a series addressing each change contained in the seven major mortgage lending initiatives, six of which have been finalized (more or less) by the CFPB.  

The first in this series focuses on the escrow requirements for HPMLs (§1026.35) - which become effective for applications received on or after June 1, 2013.  Member banks will first have to determine if they are exempt from the rule based upon the "Small Creditor" exemption, and if they can take advantage of that "Small Creditor" exemption, exactly what are they exempt from.  In our next installment, we will cover changes to Regulation Z §1026.36(h) and (i) including mandatory arbitration clauses, financing single premium credit insurance, and waivers of certain consumer rights. 

CFPB Rural Exemption

Early last week IBAT Associate Counsel Shannon Phillips along with IBAT President and CEO Chris Williston met with Senior staff of the Consumer Financial Protection Bureau (CFPB) in Washington, D.C. urging the CFPB to expand its definition of rural areas for exemption from onerous new mortgage rules. Currently, the CFPB definition only excludes 158 or Texas's 254 counties.

IBAT has long advocated that all mortgage loans kept in portfolio by community banks be excluded.  The CFPB has chosen to adopt a rural exclusion model instead and final rules take effect on June 1, 2013.

Phillips reviewed the results of IBAT's analysis of why the CFPB rural definition was overly restrictive and encouraged the CFPB to carefully consider IBAT's findings.  CFPB made it clear that while no changes are contemplated before the June 1 effective date, bureau economists are committed to reviewing the definition in the future.  A copy of IBAT's analysis and recommendations can be found here.

"IBAT will continue to press forward for modification of the rules to exempt more banks domiciled in rural counties," said IBAT President and CEO Chris Williston. "We made our case that the consequences of the current rule would force many IBAT members to abandon their mortgage programs and disenfranchise many borrowers who otherwise do not qualify for traditional mortgage loan financing."

West Relief

IBAT and TBA recently teamed up to coordinate relief efforts for our banker friends in West, Texas, following the massive fertilizer plant explosion.  We are happy to report that although the fund drive is still ongoing, community bankers have stepped up to help the West community with more than $65,000 in relief donations.  Additional pledges continue to come in every day.  IBAT and TBA will work with POINTWEST Bank and The State National Bank as they assist their own employees who suffered losses and the West community in their recovery and rebuilding efforts.  

"In the same way that our state's community bankers provided financial assistance to our friends devastated by Hurricane Ike and the wildfires that ravaged parts of our state, they are now pulling together to help our friends in West.  Community bankers are a family and when tragedy strikes one, it affects us all, " said Chris Williston, IBAT President and CEO.

You still have time to contribute to the Texas Bankers Disaster Relief Fund and we will continue to keep you informed on fundraising efforts and disbursements in the coming weeks.     

Special Baker Market Update 5.2.13

Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable... Read more in the Baker Market Update.

Debit Surcharge Prohibition

As reported in Monday's Legislative Insider newsletter, last Friday saw the passage of HB 3068 by Mendenez, which would prohibit merchants from assessing a surcharge on a debit card transaction, from the Texas House of Representatives.  The bill now moves to the Senate for consideration.  

Sincere thanks to all who answered our "Call to Action" last Thursday, and contacted your State Representatives!  This is a case study in the success of the grassroots effectiveness of the IBAT members, and more than a few legislators have commented on the number of contacts they received from their constituent community bankers.  We promise never to pull a "chicken little" scenario, and will use this powerful, effective and valuable tool only when necessary... which it will likely be again before the end of May.  Job well done, and we thank you.  Stay tuned as this bill moves through the process, as we will no doubt call upon you again as it moves to the Senate floor.

Targeting Too Big to Fail

It was an impressive showing.  That's how many members of the Texas Congressional delegation described the number of Texas community banker constituents and associates that packed their Congressional offices to lobby for comprehensive regulatory relief and a permanent legislative fix to end taxpayer subsidies of banks deemed too big to fail.  More than 100 Texans accompanied IBAT staff to our nation's Capitol last week as part of IBAT's and ICBA's Washington Policy Summit. Pictures capturing the event can be found here.

The group specifically lobbied some twelve regulatory relief provisions that should be enacted in the 113th Congress and encouraged members to support any Congressional efforts to end the unfair subsidies enjoyed by the so-called. "systemically important institutions." Senators Brown of Ohio and Vitter of Louisiana have introduced legislation (S.798) that would dramatically increase the capital requirements of the nation's largest banks. The legislation would also provide much-needed regulatory relief for community banks.

Following visits to more than 30 Texas offices, the group was briefed by several members of the Congressional delegation including Texas Representatives Sessions, Neugebauer, Hensarling and Cuellar.  Texas senior Senator John Cornyn and House Financial Services Subcommittee Chairman Shelley Capito (R, West Virginia) also briefed the attendees.

"It is time we quit talking about helping community banks out of the current regulatory quagmire and enact legislation that will do just that," said IBAT Executive Vice President Steve Scurlock. "IBAT members are growing weary paying for the sins of the big too big to fail banks."

Financial Services Committee Chairman Hensarling advised the group that his committee was determined to introduce and enact bipartisan regulatory relief legislation this year. "Discussions are already underway with House democrats to do just that," Hensarling concluded.

IBAT wishes to thank all those that made the trip at their own expense to work on this important agenda.

Due Diligence Checklist

During IBAT's 21st Congressional Visit last week, a prominent regulatory compliance attorney and friend of Texas community bankers remarked to IBAT staff about the number of requests he is receiving regarding vendor due diligence.  Additionally, Gordon Moore with IBAT Services was able to visit with a senior staff member of the Office of Comptroller of the Currency who stated the OCC is working on an update to their guidance on third-party vendor relationships.  

IBAT will update members as soon as any revisions to the guidance are released, though, a review of the current guidance seems warranted and IBAT has developed a vendor due diligence quick reference guide and checklist as a resource for members. While this review is distilled from the current OCC guidance, it remains relevant for all banks regardless of their primary regulator.

Week in Review April 30

Risk is something that investors have always had to live with; credit risk, interest rate risk, exchange risk, event risk, lots o' risk. This week we learned about a new kind of risk: Twitter risk. Tuesday's fraudulent Associated Press tweet sent equity prices tumbling and bond prices soaring. Fortunately, the "anti-social" media hoax was short lived. As if there wasn't enough to worry about! Like this morning's initial Q1 GDP estimate of 2.5% which proved a disappointment for those experts expecting 3.0%. For those experts expecting 2%, the number was great. Apparently, there were more disappointed experts than not, as rising bond prices... Read more in the Baker Market Update.

CHUBB Webinar

Save the date of Thursday, May 23rd at 10 a.m. for the upcoming FREE webinar exploring the current trends in Fraudulent Funds Transfers. George Allport of CHUBB Insurance Group will make the presentation which will include a discussion of CHUBB's various approaches to insurance coverage that may come into play. Registration will be available on the IBAT website later this week.

Flags at Half Staff for West

The State of Texas has been deeply affected by the injuries and loss of life that resulted from the recent explosion in the City of West.  It seems fitting that flags should be flown at half-staff on the day of the memorial service as a mark of respect for all those who perished, including the brave souls who gave their lives while protecting their neighbors. 

Therefore, pursuant to Texas Government Code Chapter 3100 and acting in my capacity as the Governor of the State of Texas, I hereby direct the lowering of State of Texas flags to half-staff on Thursday, April 25, 2013.  Flags should return to full-staff on the next day, Friday, April 26, 2013. 

Please notify personnel within your agency and other state agency and university leaders of this directive.  Flags should be flown at half-staff for the same length of time at all State of Texas offices and facilities in other states and abroad.  Individuals, businesses, municipalities, counties and other political subdivisions are encouraged to fly their flags at half-staff for the same length of time as a sign of respect. 

Anita and I send our deepest condolences and prayers to the families and support personnel touched by this terrible event. 



Fun Fact Friday


In observance of Easter, the IBAT office will close at noon on Friday, March 29, 2013. We will reopen for regular hours Monday, April 1st (no joke!).


For a history of Easter, click here.

Capitol Comments

Articles in this issue include:

  • CFPB
    publishes preliminary list of rural and underserved counties;
  • Fraudulent
    OCC correspondence sent to consumers;
  • CFPB
    field hearing in Des Moines, Iowa;
  • Federal
    bank regulatory agencies propose changes to Call Report;
  • FinCEN
    reminder on new report format;
  • Fed
    releases stress test results of the largest bank holding companies;
  • FTC
    releases top complaint categories in 2012;
  • Upcoming
    OCC directors\' workshop;
  • Big
    Banks wrongfully foreclose on hundreds of military members;
  • FinCEN
    advisory on tax refund fraud and related identity theft;
  • NMLS
    makes MLO-reported disciplinary action public;
  • HUD:
    New fair housing mobile app;
  • OCC
    marks sesquicentennial year;
  • CFPB
    Consumer Advisory Board holds first meeting;
  • OFAC
    Financial Industry Symposium;
  • Bank
    and credit card customers billed $25 million without consent;
  • Three
    new business transactions offered through FDICconnect;
  • OMB
    revised delineations of statistical areas;
  • OFAC
    releases new SDN search tool;
  • FDIC
    community affairs webinar on programs that support export lending to small
  • FinCEN
    issues guidance on using virtual currencies;
  • Free
    online safety videos from the FTC;
  • FDIC
    releases list of its most popular consumer protection articles;
  • Fed
    report on interchange fee revenue; and
  • Latest
    Beige Book released.

Mortgage Lending Compliance

is certain that the new mortgage lending compliance requirements issued by the
CFPB will have a considerable impact upon community banks across Texas.
 Of the seven major mortgage lending compliance initiatives required under
Dodd-Frank, six have been finalized. Three of the four have an exemption either
finalized or proposed targeting small, rural lenders. This single page handout is intended to help you
understand the practical considerations of the exemption qualifications in
general and what specifically is being exempted.

Alternative "Rural" Definition

The Consumer Financial Protection Bureau (CFPB) recently completed the difficult task of defining the word "rural" in implementing the rural exemption of the Dodd-Frank Act\'s HPML escrow requirement.  While we commend the CFPB\'s efforts in considerably broadening the definition originally proposed by the Federal Reserve in 2011, our research concludes that the CFPB\'s definition (and the Federal Reserve\'s before it) relies on Census Bureau data that was not intended to delineate rural areas. In fact, the Census Bureau warns federal agencies against using this data to determine rural areas.

IBAT Deputy General Counsel Shannon Phillips Jr. prepared a memo describing the shortcomings of the CFPB\'s definition and proposing a standard delineating rural from urban that would nearly triple the number of Texas residents living in rural areas and almost doubling the number of Texas community banks chartered in rural areas. IBAT is seeking input from its members as it prepares to present this proposal to the CFPB.