October 3 - 7, 2016 Pittsburgh, PA - Temenos [PDF]

Sep 19, 2016 - look forward to continuing to serve you for many years to come through Temenos Compliance Services. Pleas

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Idea Transcript


October 3 - 7, 2016 Pittsburgh, PA

New name. Same people. Same service. As you may remember, TriNovus and the TriComply solution were acquired by Temenos in 2013. Now, in an effort to increase our capabilities and better serve our customers, we have re-aligned all of Temenos’ products and services under a series of product families. As part of this strategy, TriComply has been renamed Temenos Compliance Services and has joined the Risk & Compliance product family. TriComply is not going away, we are simply changing what it’s called! Executive Director Compliance Services What does this mean for TriComply members? 

For now, you will continue to access TriComply exactly how you always have, though it will be rebranded as Temenos. However, we plan to upgrade the system URLs and will keep you informed of those changes. You can always visit temenos.com and click “Product Login” in the top right hand corner of the page.



Compliance Services has been redesigned and will have a new look-and-feel featuring updated Temenos branding.



Though gradual, our communications, manuals, policies, webinars, training and various other resources will begin to reflect Temenos branding.

What you will NOT see change is the TriComply Team or the excellent service you have come to expect from us. Again, TriComply is not going away, we are only changing names!

TriNovus and Temenos Together Temenos is the only company in the industry completely specialized in financial software. As part of this rebrand, you will also notice a difference in how we refer to all of our solutions including core processing, analytics & reporting, risk & compliance, front office and financial crimes mitigation, etc. As one of our valued customers, I appreciate your continued support. On behalf of the entire TriComply team, we look forward to continuing to serve you for many years to come through Temenos Compliance Services. Please don't hesitate to contact us by calling 205.991.5636 or at [email protected]. Sincerely, Bart Hall

2016 Temenos KnowledgeShare Speakers - Pittsburgh Leah M. Hamilton is the Chief Compliance Officer for Temenos Compliance Services and has 20 years of experience in the financial services industry. She also serves as the Director of Compliance Education and Training as well as the Editor-in-Chief of the Temenos Financial Compliance Journal. Known for her engaging approach to teaching regulatory compliance as a nationally recognized speaker on Compliance Lending, Deposits, Compliance Management and BSA/AML matters, Leah provides candor and an in-touch approach while equipping attendees with tools and valuable insight. As a compliance expert, Leah has served as the lead compliance consultant and advisor on consent order remediation engagements and management responses to examiner concerns. She has served as a TRID expert for the ABA and trained more than 1,000 lenders on TRID. She received her Juris Doctorate from Northern Illinois University College of Law and her Bachelor of Arts in General Studies degree from the University of Texas at Dallas where she majored in law and minored in business management. Leah also serves as a faculty member for the Southwest Graduate School of Banking at Southern Methodist University in Dallas.

Cindy Prince

is a Senior Compliance Advisor with the Temenos Compliance Advisory team.

Cindy brings almost 25 years of banking experience to the Temenos team, which includes 12 years of experience as a Compliance Officer. Her career has also focused on risk management, training and audit, and she also held the position of Internal Auditor for 7 years at a small community bank. Cindy is a RESPA, TRID and HMDA guru. As the lead developer of Temenos’ The New HMDA Workshop, she created over 300 FAQs on the 2018 HMDA rules! Cindy received her Certified Regulatory Compliance Manager (CRCM) designation in 2011.

Greg Sawyers

is the Managing Director for our Advisory Services team. With over a

decade of experience working in the banking industry, Greg has spent the majority of his career working in compliance and BSA. His work history includes time spent at both small and large financial institutions giving him a wide range of knowledge pertinent to all community banks. Prior to his arrival at Temenos, Greg was the Chief Compliance Officer and Chief Risk Officer for Educational Services of America where he worked within the student loan industry. In addition, Greg was the Chief Risk Officer and Senior Compliance Officer for its subsidiary, SouthEast Bank. Greg graduated from East Tennessee State University with a Bachelor's of Science degree. He has furthered his education in the field of compliance by attaining the designations of Certified Regulatory Compliance Manager (CRCM), Certified Anti-Money Laundering Specialist (CAMS), and Certified Community Bank Compliance Officer (CCBCO).

2016 Temenos KnowledgeShare Speakers - Pittsburgh

Derrick Black is a Senior Compliance Advisor with the Temenos Compliance Advisory team. He joined us from a large community bank where he began in loan operations and quickly advanced to lending compliance specialist. He has strong research skills which came in handy when he developed the bank’s action plan for new Dodd-Frank ATR/QM requirements. As a member of both the Advisory and Consulting teams, Derrick has a strong acumen for both HMDA and TRID. Derrick attended Wallace State Community College where he majored in financial management. In 2010, Derrick received his CRCM.

2016 Temenos KnowledgeShare Agenda - Pittsburgh Day 1: Deposits, Compliance Management and BSA/AML Introduction

9:00

9:15

Deposit Stew

9:15

10:00

Break

10:00

10:15

UDAAP and Deposits

10:15

11:15

Managing Complaints

11:15

12:00

Lunch

12:00

1:00

Compliance Management Essentials

1:00

1:45

Financial Crime: A new look

1:45

2:30

Break

2:30

2:45

Cybersecurity: Not just an IT issue

2:45

3:30

Key BSA/AML and Lending Examiner Trends

9:00

9:30

Customer Due Diligence: Really getting to know your customer

9:30

10:15

Break

10:15

10:30

Building a Robust BSA/AML Compliance Risk Assessment

10:30

11:15

Protecting our Service members: The Military Lending Act

11:15

12:00

Lunch

12:00

1:00

RESPA Section 8: Are you sure your Marketing Service Agreement is compliant?

1:00

1:45

Regulation O: Insider lending

1:45

2:30

Break

2:30

2:45

Flood Escrows

2:45

3:15

HMDA vs. Regulation B: What’s the difference?

3:15

4:00

HMDA: Haven or Havoc Presentation

9:00

12:00

Lunch

12:00

1:00

HMDA: Haven or Havoc Workshop

1:00

4:00

TRID & the Construction Loan

9:00

10:00

30 min Break / Check-out

10:00

10:30

TRID Monitoring

10:30

11:15

TRID: Calculating Cash to Close

11:15

12:00

Lunch

12:00

1:00

TRID Bucket Challenge

1:00

2:30

Day 2: BSA/AML and Lending

Day 3: HMDA Workshop Breaks will be provided throughout session

Day 4: Lending

2016 Temenos KnowledgeShare Topics

DESCRIPTIONS

Day 1 – Deposits and Compliance Management DEPOSIT STEW Where new regulations are still pending and issues still arising under existing rules, this session will be filled with deposit issues and examiner trends with remittance transfers, opt-in/opt-outs, FCRA and disclosure errors. UD(A)AP AND DEPOSITS We will look at both UDAP and UDAAP, including current examiner trends. Then, we will take a fresh look at the basics of promoting your deposit products but focus on the best practice for additional disclosures – the ones not specified in the rules, which can be the ones that hurt the most. MANAGING COMPLAINTS: AN EFFECTIVE COMPLAINT MANAGEMENT PROGRAM When Mr. or Mrs. Jones had an issue, you took care of it; end of story. But, with today’s vast technology and apps along with the CFPB’s taunt of “Complain Here,” institutions must have a strong Complaint Management Program to ensure an effective response process. We will look at key components of an effective complaint management program, including distinguishing complaint vs. inquiry vs. error resolution. COMPLIANCE MANAGEMENT ESSENTIALS Join us as we review the requirements for a compliance management program, regulatory change management control and order of rule precedence. With the volume of regulatory changes, it is essential to re-assess your compliance management program to ensure it is commensurate with your size, offerings, etc. FINANCIAL CRIME: A NEW LOOK Structuring and kiting were easy to identify when compared to the innovative evolution of today’s financial crimes. The proliferation of hacking, identity theft, human trafficking and terrorist financing, to name but a few, gives rise to red flags for new crimes and new criminals that institutions need to consider. Join us as we explore new considerations for your BSA/AML program to fight financial crime. CYBERSECURITY: NOT JUST AN IT ISSUE No matter where we look these days, cybersecurity is a leading topic in the financial services industry. Despite its title, cybersecurity is not just about technology. Chances are a breach in your institution’s technology may very well impact a number of compliance and BSA areas. We will explore the impact cybersecurity issues have on compliance and BSA, such as privacy, unauthorized transactions and more.

Day 2 - BSA and Lending KEY BSA/AML AND LENDING EXAMINER TRENDS Join us to gain insight on the latest examiner trends, consent orders, feedback and insight in the BSA/AML areas as well as Lending.

2016 Temenos KnowledgeShare Topics

DESCRIPTIONS

CUSTOMER DUE DILIGENCE: REALLY GETTING TO KNOW YOUR CUSTOMER When was the last time you reexamined your customer due diligence and enhanced due diligence policies and procedures? Have you considered the anticipated customer due diligence proposals? Getting to know your customer is a critical component of any BSA/AML program. One key challenge BSA officers face is the “That’s too personal; I’m not going to ask the customer that” syndrome. This session will highlight key considerations of CDD that both deposit and lending staff need to know to ensure compliance with BSA/AML rules and your institution’s policy. BUILDING A ROBUST BSA/AML COMPLIANCE RISK ASSESSMENT BSA/AML scrutiny is on the rise – and with good reason. Failure to thoroughly identify the institution’s BSA/AML risk could leave one open to unwittingly participating in financing terrorism, money laundering or other criminal activity. A meaningful risk assessment is a key tool to identify, prioritize and ultimately manage the institution’s risk. There are numerous elements to consider when creating a risk assessment. Join this session to look at key considerations for a robust BSA/AML compliance risk assessment. PROTECTING OUR SERVICE MEMBERS: THE MILITARY LENDING ACT In recent years, we have seen the crackdown on unfair, deceptive and abusive acts and practices inflicted on our brave men and women. The regulatory agencies and state actions send a clear message to the lending industry: Federal and State agencies will be vigilant about holding financial institutions accountable for providing the protections our service members and veterans have earned through their selfless service to our nation. And actions speak louder than words. The Military Lending Act will close many of the loopholes that allowed such unscrupulous lenders to skirt the rules but unfortunately impact all lenders. Join us as we look at what is required to ensure compliance this October 2016 with the new MLA rules. RESPA SECTION 8: ARE YOU SURE YOUR MARKETING SERVICES AGREEMENT IS COMPLIANT? When it comes to mitigating risk, most institutions go above and beyond to avoid a RESPA Section 8 violation. Depending on the structure and the practices that follow a marketing service agreement, your institution could be exposed to substantial risks of violating the prohibition on kickbacks and referrals. We will examine the CFPB’s 2015-05 Bulletin on RESPA Section 8 as well as the key consent order making lenders reconsider their “partnerships” and “preferred providers.” REGULATION O: INSIDER LENDING Lending to insiders can be a challenge from definitions to dollar amounts, and examiners have a critical eye when it comes to insider abuse. During this session, we will break down the definitions, which apply when, dollar limits and more.

2016 Temenos KnowledgeShare Topics

DESCRIPTIONS

FLOOD ESCROWS The new flood escrow requirements have many exceptions and exemptions. However, qualifying for certain exemptions is not a once and done; ongoing monitoring is required. We will review the new escrow requirements, what you need to be doing to ensure compliance and what happens if you no longer meet an exemption. HMDA VS. REGULATION B: WHAT’S THE DIFFERENCE? Between withdrawn, denied, incomplete and completing GMI, the grey lines between Regulation B (ECOA) and C (HMDA) are often confusing. Join us as we explore the differences and define those lines.

Day 3 – The New HMDA Workshop HMDA: HAVEN OR HAVOC – A WORKSHOP TO GET YOU READY FOR THE NEW HMDA Join Leah Hamilton, Chief Compliance Officer, and Cindy Prince, Senior Compliance Advisor, from Temenos Compliance Services as they take you through the soon to be new world of HMDA. The duo will step you through the rule, educate on how to calculate race and ethnicity, and provide insights on how to get ready now to minimize current and potential new errors. Temenos Compliance Services has developed several tools and materials to take you from “Where do I start?” to “I am on my way.” In addition, the team will provide insight on your action plan, not just for HMDA but also for Fair Lending.

Day 4 - Lending TRID & THE CONSTRUCTION LOAN You have a construction/perm loan with a one-time close; a regulation that is not so friendly to accommodate. What should you do? We will step through completing the LE and the CD for a one-time construction loan during the session and provide a completed example for you to follow along and take back for reference. TRID MONITORING You have been so caught up in making sure the disclosures were coming out right that you have not had a chance to really go back and monitor or audit your TRID processes and disclosures. We will help you identify key areas to be monitoring to ensure compliance and document potential civil exposure. TRID: CALCULATING CASH TO CLOSE The regulation requires specific math calculations that are impractical for real-world loans. We will explore the alternative ways to completing the cash to close section on the Loan Estimate and Closing Disclosure to ensure your numbers are disclosed correctly. TRID BUCKET CHALLENGE What fees go where and when and oops there may be a cure to go with that – the pangs of TRID still abound. Join us as we look at key scenarios to review which fees are subject to which tolerance buckets and when.

9/19/2016

Deposit Stew

© 2016 Temenos USA. All rights reserved.

Compliance Services

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Compliance Services

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What you will learn  Expedited Funds Availability  Electronic Funds Transfer  Fair Credit Reporting Act  Truth in Savings  UDAAP  Privacy

 Lotteries

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Expedited Funds Availability

NEXT DAY ITEMS ARE:    

 If deposited into the account of the

Cash ACH Wires

payee and in person to an employee of institution  Cashier’s Checks  Official Checks  Certified Checks  On Us Checks  U.S. Treasury Checks  U.S. Postal Money Orders  Federal Reserve Bank Checks  Federal Home Loan Bank Checks  (Your) State or Local Gov. Checks

If deposited into the account of the payee 

Treasury Checks

Compliance Services

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Expedited Funds Availability WHEN TO MAKE THEFUNDS AVAILABLE

Hold Types

Next Day Items

Other Items $200 Next business day.

CASE-BY-CASE

Next business day. The rest on the 2nd businessday.

REPEATED OVERDRAFT REDEPOSITED ITEM EMERGENCY CONDITION

7th business day. On Us 2nd business day. Other next-day items 7th business day. (No $200 Next business day.)

REASONABLE CAUSE

First $5,000 Next business day. $200 Next business day. Then; LARGE DEPOSITS On Us 2nd business day. Other next-day items 7th business day. First $5,000 Next business day. The rest on the 9th businessday. NEW ACCOUNT

(Include traveler’s checks as next-day items, but not On Us checks.)

Next $4,800 2nd business day. The rest on the 7th businessday. Nth business day (no regulatory maximum, but number of days must be disclosed in account disclosures). (No $200 Next business day.)

Compliance Services

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Electronic Funds Transfer  Current Issues 







Dispute timing issues are still a problem (Slides 6 and 7) Make sure required error resolution notices are included on any electronic statements as provided with mobile banking, online banking, or email Examiners are requiring institutions to receive affirmative consent when they opt-in to an ODP program. Institutions are required to obtain opt in for ATM and one time POS transactions 

Opt-in requirement.  1.(1) General. Except as provided under paragraph (c) of this section, a financial institution holding a consumer's account shall not assess a fee or charge on a consumer's account for paying an ATM or one-time debit card transaction pursuant to the institution's overdraft service, unless the institution: • • • •

i.(i) Provides the consumer with a notice in writing, or if the consumer agrees, electronically, segregated from all other information, describing the institution's overdraft service; ii.(ii) Provides a reasonable opportunity for the consumer to affirmatively consent, or opt in, to the service for ATM and one-time debit card transactions; iii.(iii) Obtains the consumer's affirmative consent, or opt-in, to the institution's payment of ATM or one-time debit card transactions; and iv.(iv) Provides the consumer with confirmation of the consumer's consent in writing, or if the consumer agrees, electronically, which includes a statement informing the consumer of the right to revoke such consent.

Compliance Services

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Electronic Funds Transfer 

Error Resolution Investigation of errors – timelines



 







If customer/member notifies the institution within 60 calendar days of sending the periodic statement, institution must conclude the investigation within 10 business days (20 business days for new accounts). institution may extend time to conclude investigation to 45 calendar days (in total) if it:  Provisionally credits customer/member's account for amount of claimed error (with interest) within 10 business days of receiving notification from the customer/member.  Notifies customer/member of credit within 2 business days, AND  Gives customer/member full use of credit during investigation institution may extend time to conclude investigation to 90 calendar days (in total) if:  The transaction was not initiated within a state  the transaction was a POS  the transaction occurred within 30 calendar days after the first deposit to the account If the customer/member does not notify the institution within 60 calendar days, the institution is not required to comply with the 10 business day / 45 calendar day investigation rules BUT late notice does not excuse the institution from liability; the institution remains liable for unauthorized EFTs within the first 60 calendar days Extent of Investigation - The "Four Walls Rule" (§1005.11(c)(4)) defines the extent of an investigation. The institution’s review of its own records is satisfactory if:  The alleged error concerns a transfer to or from a third party; and  There is no agreement between the institution and the third party Compliance Services

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Electronic Funds Transfer– Error Resolution 

Resolving the error 



If no error occurred:  Mail or deliver a written explanation within 3 business days of concluding the investigation. Must include explanation that customer/member may request supporting documents.  Notify customer/member that provisional credit reversed, honor payment orders for 5 business days. If error occurred:  Correct error within 1 business day  Report to customer/member within 3 business days  Provide notice provisional credit is final (if applicable)

Compliance Services

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Electronic Funds Transfer – Remittance Transfer  Not a once and done 

You must continue to monitor to ensure do not trigger threshold  

100 Remittance Transfers International transfer transactions

 Remember Procedures 

Disclosures 

 

Use the model forms in Regulation E Appendix A (30-41)

30 minute cancellation right Error Resolution

Compliance Services

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Electronic Funds Transfer – Remittance Transfer  Some Common Questions 

Do I count incoming and outgoing international wires? 



Is a PayPal transfer considered a remittance transfer as defined by the Rule? 



No, only outgoing international wires are counted if they are sent by a consumer to a designated recipient in a foreign country

No, PayPal is not considered a remittance transfer.

If my customer/member is in England and requests a transfer from their account at my financial institution to be sent to their Aunt in Italy, is that considered a Remittance Transfer? 

Yes, because the stateside account is being debited and funds transferred to a designated recipient in a foreign country, the transaction would be considered a remittance transfer. Compliance Services



Reward Checking Accounts 

Truth in Savings

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Dividends/Interest must be paid (cannot eliminate interest due to not meeting qualifications); Disclosures must match institution practice on qualifications (timing, transaction types, etc.); Tied to §1030.7(c) 





Date interest begins to accrue. Interest shall begin to accrue not later than the business day specified for interest-bearing accounts in section 606 of the Expedited Funds Availability Act (12 U.S.C. 4005 et seq.) and the Board of Governors of the Federal Reserve System's implementing Regulation CC (12 CFR part 229). Interest shall accrue until the day funds are withdrawn.

§1030.7(a)(2)-6 

Dormant accounts.



Institutions must pay interest on funds in an account, even if inactivity or the infrequency of transactions would permit the institution to consider the account to be “inactive” or “dormant” (or similar status) as defined by state or other law or the account contract.

§ 707.7(c) 

(c) Date dividends begin to accrue. Dividends shall begin to accrue not later than the day specified in section 606 of the Expedited Funds Availability Act (12 U.S.C. 4005) and implementing Regulation CC (12 CFR part 229). Dividends shall accrue on funds until the day funds are withdrawn.

FDIC SCANS BULLETIN NUMBER: CHIRO-05-2007 Potential Violations of Truth in Savings Associated with “Rewards” Checking Products Financial institutions have begun offering deposit products with higher-than-market interest rates, which can be earned by customers if they meet specific transactionbased criteria. Often, these specific criteria involve conducting a certain number or dollar amount of debit card transactions, utilizing an automatic bill pay service, or conducting a certain level of internet banking transactions, all on a monthly basis. However, some such programs condition the earning of interest on these criteria in violation of Regulation DD, which implements the Truth in Savings Act.

A bank may pay a higher rate of interest for meeting debit card, internet, or automatic transaction requirements, but may not completely eliminate the payment of interest on interest bearing accounts for not meeting these specific requirements. Similarly, a bank may have a requirement for 10 such transactions, but may not specify that each transaction be at least $100 or more, for example. Important points to remember are:

• Banks may not eliminate the payment of interest on anything other than minimum balance requirements. • Banks may not require that transactions be of a certain dollar value (individually or in aggregate). • Banks may implement bona fide tiered rate deposit accounts, where a higher rate may be obtained if conditions other than a minimum balance are met. • Banks may require a certain number of transactions in a given account cycle in a bona fide tiered rate account to obtain a higher level of interest. Banks with existing Rewards Checking programs should ensure that their programs comply with the important points identified above and Regulation DD. Examiners have cited violations of Regulation DD for failure to comply with the above restrictions. Banks considering these types of deposit products should perform appropriate due diligence to ensure they meet regulatory requirements.

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Truth in Savings  Software Updates 

TISA Disclosures - Review your TISA disclosure with each software update to the new deposit platform. Since this is a lower risk area generally and not audited as frequently, errors have been noticed due to platform systems. Hardcoded items have been lost with system updates

 Frequent errors with required subsequent disclosures for CDs greater

than 1 year  Renewal notices 



For time accounts having terms > 1 year,  A new set of account disclosures is required

Post-maturity notices 

Not required, unless you state you will provide in TISA disclosure or deposit agreement Compliance Services

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Compliance Services

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Fair Credit Report Act - FCRA 12

 If the financial institution requires any credit report or

score in relation to opening deposit account, FCRA applies – examples ChexSystems, Qualifile, TeleCheck  Must have a permissible purpose and consent  Must send FCRA adverse action notice if deposit account opening declined 

Must retain records for a minimum of 25 months

 Accuracy and integrity 

Dispute information

 Identity theft

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9/19/2016

UDAAP  Examples of Deposit Account UDAAP Issues  

 



Continuous fees for overdrafts and when and how they are charged Continuous fees if the overdraft is made up of ATM and one time POS transactions ODP program description must be accurate If the ODP program is revoked or not allowed, it could be considered a UDAAP violation if you continue to charge for ATM and one time POS transactions. customer/member cannot participate in ODP until 30 days after account is opened, could be considered a UDAAP violation if you charge for those ATM and one time POS transactions before they are allowed to enroll in the program. Compliance Services

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Compliance Services

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Privacy  Privacy Disclosures 

Be sure to include types of affiliates and non-affiliates in the disclosures

 Refer A Friend Programs 

Publishing pictures of institution customer/members without consent is a violation

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Deposit Reconciliation  Guidance further clarifies existing requirements and does not impose any new

requirements.  Agencies Expectations 







Adopt deposit reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve discrepancies such that customer/members are not disadvantaged. Effectively manage deposit reconciliation practices to comply with Regulation CC and other applicable laws or regulations and to prevent potential harm to customer/members. Ensure accurate information is provided to customer/members regarding deposit practices. Implement effective compliance management systems that include appropriate policies, procedures, internal controls, training, and oversight and review processes to ensure compliance with applicable laws and regulations, and fair treatment of customer/members. Compliance Services

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Deposit Reconciliation  Policy Preparation 







Enforcement and Oversight: A statement of who is responsible for the ensuring the policy is compliant and reporting to the board of directors; Audit and Monitoring: A statement of who is responsible for auditing and/or monitoring the institution’s compliance with the policy and reporting the results to the board of directors. It is not enough to just monitor for compliance with the regulations; examiners also consider whether or not you are following your policy; Training: A statement reflecting who is responsible for ensuring training on the policy is provided to new and existing employees; and Record Retention: A statement as to the institution’s record retention policy for the applicable area(s) covered by the policy. Compliance Services

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Deposit Reconciliation  Recent Enforcement Action 

The CFPB, FDIC, and OCC asserted that the FIs and the holding company failed to investigate and correct credit discrepancies that fell below certain thresholds, in violation of the prohibition on UDAAP.   



The FI credited the amount listed on the consumer’s deposit slip, rather than the actual amount of money deposited into the consumer’s account. The FI’s practice of implying that all consumer deposits were verified and corrected was a deceptive act or practice. Civil Money Penalties  $3 million by the FDIC (First FI)  $10 million by the OCC (Second FI)  $7.5 million by the CFPB (Holding Company). Both FIs and the Holding Company were also required to pay redress to affected consumers, including any associated fees due to the discrepancy (e.g., overdraft, insufficient funds, and monthly maintenance fees) and interest. Compliance Services

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Compliance Services

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Lotteries  What is a Lottery? 





Three or more people contribute something of value and one or more will win something of greater value Winner selected by some random method If no purchase necessary, then it is not a lottery

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Lotteries  A financial institution may not



Conduct a lottery Advertise a lottery



Participate in a lottery in any way



 Considerations 

Charitable Raffles

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Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

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9/19/2016

UDAAP and Deposits

© 2016 Temenos USA. All rights reserved.

Compliance Services

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What You Will Learn  What is UDAP/UDAAP  How UD(A)AP Relates to Deposit Products and Regulation DD  Issues to Watch for in Promoting Deposit Products

Compliance Services

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Marketing in Today’s Compliance Environment 3

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Compliance Services

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UDAAP History  FTC Act (1933) 

Original consumer protection law 



Counter to “caveat emptor”

Section 5 prohibits  

“unfair or deceptive acts and practices in or affecting commerce” Consumer and commercial customers

 Dodd-Frank Act codified FTC law 

Added the “A” abusive standard

 New regulator interest and emphasis on UDAAP issues

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Definition: Unfair act or practice  Three-prong test:   

Causes or is likely to cause substantial injury to consumers The injury is not reasonably avoidable by consumers The injury is not outweighed by countervailing benefit to consumers or to competition

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Causes or likely to cause substantial injury  Substantial injury usually involves monetary harm 



A small amount of harm to a large number of people may be deemed substantial injury An injury need not be actual, a significant risk of concrete harm is sufficient for a finding of substantial injury

 Trivial or merely speculative harms insufficient  Emotional impact and subjective harms not ordinarily unfair 

Except in unreasonable debt collection harassment cases

Compliance Services

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Injury is not reasonably avoidable  Consumers cannot reasonably avoid injury if act or practice interferes

with ability to effectively make decisions or to take action to avoid an injury  Unfair to withhold or alter material price information until after purchase

decision or to prevent an informed decision  Unfair to subject consumers to undue influence or coerce into

purchasing unwanted products or services  Unfair where transaction occurs without consent or even their

knowledge

Compliance Services

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Compliance Services

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No countervailing benefit  Net effect must be injurious  Not outweighed by any offsetting

benefits to consumers or competition  Offsetting benefits may include lower

prices or a wider availability of products and services

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Unfairness key

Does the behavior hinder the consumer’s ability to make an informed decision?

Compliance Services

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Definition: Deceptive act or practice  An act or practice is deceptive if



The representation, omission, or practice misleads or is likely to mislead the consumer Consumer’s interpretation is reasonable under the circumstances



Misleading representation, omission, act or practice is material



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Representation, omission or practice  Representation may be in the form of express or implied claims or

promises  Representation may be written or oral  Omission of information may be deceptive if disclosure of the omitted

information is necessary to prevent a consumer from being misled

Compliance Services

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Representation, omission, or practice  Statement, representation, or omission is not to be evaluated in

isolation  Evaluate context of the entire advertisement, transaction, or course of dealing to determine whether it is deceptive  Written disclosures may not be sufficient to correct a misleading

statement or representation  Especially where consumer is directed away from qualifying limitations in the text or is counseled that reading the disclosures is unnecessary

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Representation, omission, or practice  Oral disclosures or fine print may be

insufficient to cure a misleading headline or prominent written representation  A deceptive act or practice may not be

cured by subsequent truthful disclosures

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Reasonable consumer perspective  Consumer’s interpretation of or reaction to the representation,

omission, or practice must be reasonable under the circumstances and in light of the claims made  When representations or marketing practices are targeted to a specific

audience, standard is based upon the effects of the act or practice on a reasonable member of that group  

Elderly Financially unsophisticated

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Reasonable consumer perspective  If a representation conveys two or more meanings to reasonable

consumers and one meaning is misleading, the representation may be deceptive  Even if the consumer’s interpretation is not shared by a majority of the

consumers in the relevant class, so long as a significant minority of such consumers is misled, it is deceptive

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Compliance Services

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Materiality  The representation, omission, or practice

must be material 





A representation, omission, or practice is material if it is likely to affect a consumer’s choice of the product or decision regarding the product or service Information about costs, benefits, or restrictions on the use or availability of a product or service is presumed material

When express claims are made with respect to a financial product or service, the claims will be presumed to be material

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The Four Ps of Deception 

Prominence 



Placement 



Provide disclosures in a place where consumer is expected to look/and at volume speed that can be heard (audio)

Presentation  



Do not bury disclosures in a tiny footnote

Place disclosures in easy to understand language, given when consumer’s attention is not otherwise distracted Look at the format, look at the wording and overall appearance

Proximity 

Disclosure should be close to the terms or triggers it qualifies to be considered effectively given Compliance Services

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Deception key

Look at the entire advertisement, transaction, or course of dealing to determine how a reasonable consumer would respond

Compliance Services

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Definition: Abusive  Materially interferes with consumer’s ability to understand a term or

condition of a consumer financial product or service; or  Takes unreasonable advantage of a consumer’s 





lack of understanding of the material risks, costs, or conditions of the product or service; or inability to protect his or her own interests in selecting or using a consumer financial product or service; or reasonable reliance on a covered person to act in the consumer’s interests

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How UDAAP differs from Lettered Regulations

Lettered Regulations

Technical  Have I included everything? 

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Brief Review of Regulatory Considerations  What is an Advertisement  Advertisement Possibilities  Rules, Regulations, Guidance

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What is an Advertisement?

A notice designed to attract public attention or patronage

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Advertisement Possibilities  Periodic statements  Welcome to your New Home letters  Thank you letters  Rate sheets  Institution newsletters  Social Media (e.g., Twitter, Facebook)

Compliance Services

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Compliance Services

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Deposit Advertising Rules, Regulations and Guidance  Multiple Regulatory Requirements      

FDIC/NCUA advertising Non-deposit investment products Regulation Z Regulation DD FTC advertising & CAN-SPAM Telemarketing

 Common sense – know your target audience

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Deposit advertising  Using the word “free” or “no cost” 

Activity or maintenance fee cannot be charged to account 

Maintenance fees  



Activity fees  



Monthly service charges Minimum balance fees Fee for exceeding a specified number of transactions Per check charges

Reasonably expect to incur

Totally Free Checking Compliance Services

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How UDAAP Differs from Lettered Regulations  UDAAP 



Principles  Consumer oriented Is it unfair or deceptive or abusive?

 No easy checklists 

Always fact specific and subjective

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Where to Look for UDAAP issues  UDAAPs can occur in all products and services at every stage 

Product development and rollout 



Advertisements and direct marketing 





Most often involve deception, misleading statements, omissions Also conflicts and/or inconsistencies between advertisement and account disclosure

Disclosures 



Failure to consider consumer

Discrepancies

Policies, procedures and practices 

Failure to follow Compliance Services

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Where to Look for UDAAP issues  Contracts



Inconsistencies with advertisements Misleading



Omissions



 Account statements   

Inconsistencies with advertisements Misleading Omissions

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Where to Look for UDAAP issues  Billing  

Inconsistencies between advertisements and disclosures First year, 12 months, 12 billing cycles

 Third-party service providers



Privacy Act violations Inconsistencies between advertisements and disclosures



Incentive problems



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How to spot UDAAP issues  Key factors to look for:    

Information is complete and understandable Clear on timing of any costs, fees and penalties Clear on any benefits/risks to consumer Effect on consumer   

Advantageous Disadvantageous Poses UDAAP risk

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Example 1  RBS Citizens Bank, N.A. (“RBS”) failed to credit consumers the

full amount of their deposits  When amount scanned on the deposit slip less or more than the

amount of checks and cash deposited, RBS credited consumer’s account with amount on deposit slip, not sum of money actually deposited  From 2008 to 2012 RBS only investigated and fixed errors greater than

$50 and in 2013 only for errors greater than $25

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CFPB v RBS  RBS falsely claimed it verified deposits resulting in UDAAP

violation  RBS told consumers deposits subject to verification, implying RBS

would take steps to ensure correct crediting of deposit amount  RBS practice not to verify and correct deposit inaccuracies unless they

reached $25 or $50 threshold  Some consumers benefited but others lost money and were harmed by

unfair and deceptive practice

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CFPB v RBS  Pay approximately $11 million dollars restitution to victims  Pay $7.5 million civil penalty  RBS required to make a significant technology investment to address

and correct deficiencies:  properly review Compliance Management System to ensure no further violations relating to processing of deposits  must not misrepresent its processing practices 

must incorporate corrective actions if the bank fails to process deposits consistent with federal consumer financial law

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CFPB v RBS  RBS separately ordered by the FDIC to pay restitution and a $3 million

penalty  RBS separately ordered by OCC to pay restitution and a $10 million

civil penalty  In total, RBS must pay $11 million in consumer refunds and $20.5

million in penalties  A copy of the CFPB consent order is available at:

http://files.consumerfinance.gov/f/201408_cfpb_consent-order-rbscitizens.pdf

Compliance Services

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Example 2  M&T Bank management decided to offer a “free” checking account called

“M&T Free” checking

 Customers required to have minimum activity of 10 deposits or

withdrawals or combination thereof each monthly statement cycle  If no activity for 90 consecutive days, M&T Free Checking automatically

converted to a M&T First checking account (“M&T First”)

 M&T First account balance requirement of more than $1,500 or combined

balances more than $1,500  Balances below charged $8 dollar monthly maintenance fee  Management decides to waive the maintenance fee on these converted

accounts for the first month Compliance Services

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CFPB v M&T Bank  Marketing’s campaign for “M&T Free Checking” made statements such

as  “How does Free checking sound to you? There’s no minimum balance requirement and no monthly service charge”  “Liberate yourself from monthly service fees. Get a Free Checking account at M&T. No strings attached” 



“Leave monthly service fees behind. Get Free Checking from your friendly M&T Bank;” “M&T Free Checking. No minimum Balance. No monthly service charge.”

Compliance Services

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CFPB v M&T Bank  M&T Free checking customers received 



an account opening disclosure for M&T Free checking including minimum activity requirements and the automatic conversion feature to M&T First checking account when minimums are not met also account opening disclosures for M&T First checking disclosing the monthly maintenance fee

 No notice of the conversion to the M&T First account given at time of

conversion  Only visible change is to heading on statements, web banking, online

account pages, ATM screens and receipts from M&T Free Checking to M&T First checking which likely go unnoticed Compliance Services

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CFPB v M&T Bank  Failure to give conversion information in ads results in UDAAP and

Regulation DD violations for misleading deceptive advertising and for misrepresenting a depository institution’s deposit contract in ad

 Bank required to pay a total of $ 2.9 Million dollars in reimbursement

and a $200,000 dollar civil money penalty  The M&T consent order can be found at:

http://files.consumerfinance.gov/f/201410_cfpb_consent-order_m-t.pdf

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Example 3  Add-On products and Vendor Management  Multi-agency action against J.P. Morgan Chase N.A. (“Chase”)

resulted in  

$309 million dollars in refunds and restitution to customers $20 million dollar civil money penalty

Compliance Services

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Multi-Agency Action v Chase  Chase enrolled consumers in credit card “add-on” products that

promised to monitor customer credit and alert consumers to potentially fraudulent activity  To obtain credit monitoring services, consumers generally must provide written authorization  Chase engaged in unfair billing practices by charging monthly fees to

consumers for add on products as soon as they enrolled and before having written authorization  Or without ever receiving authorization

Compliance Services

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Multi-Agency Action v Chase  Customers paid for services they did not receive – sometimes for

several years  Unfair monthly fees resulted in some customers exceeding their credit

card account limits leading to payment of additional fees and interest charges  Consumers believed their credit monitored for fraud and identity theft

when services not being performed at all or only partially performed

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Multi-Agency Action v Chase  Under separate consent order from

OCC Chase must pay $60 million in civil money penalties in addition to the $20 million dollar civil money penalty ordered by the CFPB 

That’s $ 80 million CMP and $309 million restitution

 The full text of the CFPB’s Consent

Order is available at: http://www.consumerfinance.gov/f/2013 09_cfpb_jpmc_consent-order.pdf

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Focus on UDAAP during Product Lifecycle  Key Considerations     

Product Features System capabilities Advertising / Marketing Disclosures Training

 Engage compliance early in development

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Three Essential Take-Aways  UDAAP issues can appear anywhere, not just in advertisements

 Be mindful of the consumer at every point in your product lifecycle

 Give consumer information about product or service 

Include both the good and the bad

Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

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Complaint Management

© 2016 Temenos USA. All rights reserved.

Compliance Services

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Compliance Services

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What you will learn  Complaint management  Regulator expectations  Origin of complaints

 What is a complaint  Complaint Management Program  Risk impact

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Complaint Management  Complaint resolution is the basic

principle for maintaining customer relationships  Resolve issues early; uncover and

manage shortcomings  Identify potential disconnects between

customer perception and bank perception  Discover compliance weaknesses in a

function or department of institution  Differentiate from the competition  Customer can be advocate for

institution when addressed properly Compliance Services

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Compliance Services

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Regulator expectations  CFPB’s active solicitation for complaints  



Consumer complaints a primary focus Designates collection, investigation and response to consumer complaints as on its 6 primary functions Foundational component of its duties

 All regulator expectations



4th pillar of CMS  Robust policies, procedures, controls Streamlined and collaborative



Centralized for enterprise-wide data capture



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Origin of complaints  Various channels  Mail  Email  In-Person  Through Regulators  Prudential banking regulators, State Attorney General, state licensing authorities, CFPB’s Consumer Response Program, Federal Trade Commission  Through a service provider, third party vendors  Social media  Facebook, Twitter, Instagram  Institution website  A direct dispute regarding information in a consumer report  An indirect dispute through a consumer reporting agency  Via e-OSCAR System regarding information in a consumer report Compliance Services

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What is a Complaint  No ‘legal’ definition

 Merriam-Webster  An expression of grief, pain, or dissatisfaction; something that is the cause or subject of protest or outcry; a formal allegation against a party  CFPB definition  Submissions that express dissatisfaction with, or communicate suspicion of wrongful conduct by, an identifiable entity related to a consumer’s personal experience with a financial product or service 

CFPB’s Consumer Response Annual Report (January 1 – December 31, 2012, p. 4, footnote 1)

 You define in your institution’s policy  A verbal or written statement from a customer or non-customer that expresses dissatisfaction with any of the institution’s products, services, policies, or fees; or a claim of being misled, deceived, or treated unfairly  Compliance Services

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Examples of complaints  Consumer states that he or she wishes to file a complaint  Consumer states an institution’s practice or employee

interaction was misleading  Allegation of discrimination  Criticism of institution’s CRA performance

 Consumer threatens to file suit against institution  Alleges institution violated a specific law or regulation or

questions about legality of a policy or procedure  Complaint letters sent by an attorney on behalf of a customer  All complaints received from the institution’s regulatory agency

or any government agency Compliance Services

7

What is not a Complaint  Define what is not a Complaint in your policy 

Disputes resolved according to a dispute resolution process that already in place (ATM, MasterCard, Credit Bureau, billing errors, etc.) 

 

 

No second complaint

Address corrections/changes Account inquiries or requests for assistance (balancing their checking account) Request(s) for refund of fee(s) ANY of the above if normal procedures do not satisfy the customer’s concern Compliance Services

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Distinguish inquiry vs. complaint  Inquiry vs. Complaint 

Determine the types of inquiries to track based on the potential risk to the institution

 Advisable to track, trend and report negative trends as a complaint  

“When did you start charging for____?” “When did the ________fee go up?” Okay to document Compliments, too!

Compliance Services

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Risks for not managing complaints  Compliance 



Regulatory citations, fines, reduced ratings Scrutiny

 Operational  Legal

 As with any business,

identifying and assessing risk is a critical component to ensure compliance  Complaint management is an essential function of compliance management

 Litigation

 Reputation  Financial Compliance Services

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Pulling it all together Risk assessment

Partnering with consumer advocacy groups and regulators

Publication of the consumer complaint management program to the public

Written policies and procedures

Centralized complaint management

Internal communications and training

Root cause analysis

Monitoring and tracking of complaints and issue escalation

Testing

Compliance Services

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Compliance Services

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Complaint Management Program  Risk Assessment  

Identify and assess risk areas High risk regulations 



High risk customers 





Elderly, servicemembers,

Regulator hot buttons 



Fair lending

Fair Debt Collections Practices Act (FDCPA)

Always include UDAP/UDAAP Commensurate with size, complexity, appetite for risk, etc.

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Complaint Management Program  Polices and procedures  

Establish and maintain policies, processes and procedures Comprehensive, detailed       

 

Identify complaints Identify origin of complaints How/where to record complaints Categorize complaints How to process and investigate complaints Who, what, when and how to respond to complaints Identify course of remedial action, including escalation Specifies record retention requirements Incorporates complaint monitoring and/or audit Compliance Services

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Compliance Services

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Complaint Management

Your Institution

Technology vs. paper

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Complaint Management Program  Root cause analysis 



Require minimum amount of data to be collected Through data capture, able to: 

Identify root cause(s)  Unique to this customer  Systemic failure

 Monitoring and tracking 

Identify trends    

   

Complaint type/category Product/service Branch, department Geographical region

Early warning signs Leverage data proactively to avoid systemic issues Quality control Incorporate public database information 

CFPB, BBB, social media Compliance Services

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Complaint Management Program  Testing 

Compliance testing  



Analytics 



High-risk issues Issues subject to public and/or regulatory scrutiny  Fair lending, UD(A)AP, financial exploitation of the elderly, servicemembers, students  Data breaches  Fraud Ensure testing includes resolution and corrective actions

Identify weaknesses in controls 

Re-examine risk assessment as appropriate Compliance Services

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Complaint Management Program  Internal communications  

No hoarding of data allowed … share it! Board and senior management support 

 

Customer-centric culture of awareness and understanding  Proactive and responsive

Customer ‘Bill of Rights’ Report data results   

Board, senior management Staff Vendors

 Training, training, training 

Create real-life examples reference Compliance Services

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Compliance Services

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Complaint Management Program  Public 

Make policy and process visible to the public 

 

Ensure easy access

Manages reputational risk Builds customer relationships

 Partner 

Consider teaming with  



Consumer advocacy groups Regulators

Avoid issues vs. adversarial approach

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Pulling it all together Risk assessment

Partnering with consumer advocacy groups and regulators

Publication of the consumer complaint management program to the public

Written policies and procedures

Centralized complaint management

Internal communications and training

Root cause analysis

Monitoring and tracking of complaints and issue escalation

Testing

Compliance Services

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Compliance Services

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One last consideration …  Complaints drive … regulatory change!

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Questions?

© 2016 Temenos USA. All rights reserved.

Compliance Services

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8/29/2016

Compliance Management Essentials: Is Your CMS Good Enough?

© 2016 Temenos USA. All rights reserved.

Compliance Services

1

What You Will Learn  Purpose and function of a Compliance Management System (CMS)  Necessary Components of a comprehensive CMS

Compliance Services

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8/29/2016

Introduction to CMS  Assess quality of an institution’s compliance management system (CMS)

for implementing federal consumer protection statutes and regulations  Initiate appropriate and effective supervisory action when elements of

CMS deficient or significant violations of law found  Board of Directors and management ultimately responsible for compliance  Expectation that CMS in place to effectively manage compliance risk  Formality and complexity of CMS varies consistent with institution size and

product mix  Consumer protection a strategic company business goal across all

operations and functions  Commitment to Compliance from Board, CEO and top management,

otherwise CMS not likely to succeed Compliance Services

3

Purpose and Function of a CMS  Purpose of a CMS is to:   

 

Establish compliance responsibilities Communicate compliance responsibilities to employees Ensure legal requirements and internal policies are met by incorporation into business processes Review operations to ensure compliance responsibilities performed Take corrective action and update tools, systems, and materials as necessary

Compliance Services

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Purpose and Function of a CMS  “Establish compliance responsibilities” means that Board of Directors

and top management:  Serious about compliance  Set tone for compliance throughout institution   

Establish policies governing institution’s CMS Allocate necessary resources for properly functioning CMS Direct senior management to oversee implementation of CMS

Compliance Services

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Purpose and Function of a CMS  Senior management working together with compliance officer create

specific processes, systems, disclosures and related documents to create CMS  Chief Compliance Officer provides required subject matter expertise to

manage CMS  All staff responsible for compliance in their own departments  Follow compliance rules related to their particular job category and

function

Compliance Services

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8/29/2016

Purpose and Function of a CMS  “Communicate compliance responsibilities to employees” means: 







Create written policies and procedures employees are expected to follow Frequent review of procedures and practices in each department to ensure compliance Employee job descriptions include specific compliance responsibilities Employee evaluations assess compliance knowledge and adherence

Compliance Services

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Purpose and Function of a CMS  Incorporating legal requirements and internal policies into business

processes helps ensure compliance  Clear comprehensive written procedures for each business process  Tools, aids, checklists and automation of processes 

Training on using tools and aids

Compliance Services

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8/29/2016

Purpose and Function of a CMS  Review operations to ensure compliance responsibilities performed

and legal requirements met  Measure employee performance against compliance requirements  Monitor on periodic basis with adequate documentation by persons

knowledgeable in subject area  Independent reviews  Thorough risk-based testing documented adequately and reported to

management and Board

Compliance Services

9

Purpose and Function of a CMS  Take corrective action and update tools, systems and materials, as

necessary  If testing uncovers issues or shortcomings in compliance, corrective

action must be taken  

Identify and correct cause of compliance failure Validate correction to assure and demonstrate effectiveness of corrective action

Compliance Services

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8/29/2016

Components of a CMS  An effective compliance management system commonly has 4

interdependent control components:  Board and management oversight  Compliance program  

Response to consumer complaints and Compliance audit

Compliance Services

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Board Responsibilities for CMS  Have Board and senior management: 

 



Demonstrated clear expectations about compliance within entity and to service providers Adopted clear policy statements regarding consumer compliance

Appointed appropriately qualified experienced chief compliance officer(s) with sufficient authority and accountability Established compliance function to set policies, procedures and standards

Compliance Services

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Board Responsibilities for CMS  Appropriately allocated compliance resources commensurate with  

Size and complexity of operations and practices, Federal consumer financial laws and regulations

 Addressed consumer compliance issues throughout    

Product development Marketing Account administration Addressing consumer complaints and inquiries

 Required audit coverage of compliance matters and reviewed results

 Provided for recurring Board reports of compliance risks, issues and

resolution Compliance Services

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Compliance Services

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Compliance Program  Compliance program must include:



Policies and procedures Training



Monitoring and corrective action



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Policy and Procedure  Compliance policies and procedures:     

Consistent with Board-approved policies Maintained current and up-to-date Serve as reference for employees Address applicable Federal consumer financial laws Cover product or service lifecycles

Compliance Services

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Policy and Procedure  Update policies and procedures for new consumer financial products

or services  Tailor policies and procedures to institution  Procedures follow actual practices  Double check policies and procedures for products with heightened

consumer risk for UDAAP or Fair Lending:   

Employee compensation incentives Discretion over price or product selection Distinctions based on geography or prohibited basis Compliance Services

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Policy and Procedure 







Policies and procedures to ensure third party service provider compliance Automated tools or business unit procedures reviewed by qualified compliance personnel Testing procedures to confirm that actual practices follow adequately written policies Written policies and procedures as reference guides

Compliance Services

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Training on CMS  Board of Directors  

Sufficient information to understand the institution’s responsibilities Adequate resource allocation

 Management and staff get specific, comprehensive training to:  

Reinforce and implement written policies and procedures Learn compliance requirements of Federal consumer financial laws, including unlawful discrimination and UDAAP

Compliance Services

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8/29/2016

Training on CMS  Document compliance training for Board members and executive

Polici stand

officers, compliance professionals, management and staff  Date of training  Training agenda, schedule, record of completion  

Copies of training materials Active involvement of compliance officer

 Document service providers are appropriately trained

Compliance Services

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Compliance Services

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Monitoring

 Promptly identify and correct procedural or training weakness  More frequent less formal than compliance audit  Does not require same degree of independence as audit

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Elements of Monitoring Program  Scheduled and completed monitoring results in timely corrective action,

where appropriate  Determines whether transactions, consumer contacts addressed

according to policies and procedures  Considers results of risk assessments for prioritizing reviews  Addresses deficiencies identified in internal or external audits  Follows Board or management’s directives on resolving deficiencies  Findings escalated to management and to the Board of Directors, if

appropriate  In any event, Board must be informed of compliance status

Compliance Services

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Monitoring  Role of compliance officer in monitoring  Monitoring schedule  Risk assessments leading to the monitoring and testing program plan  Monitoring/testing of service providers having contact with consumers  Monitoring includes calculation tools, consumer disclosures and

notices, marketing materials, scripts or guides for employee contacts with consumers  Reports for compliance monitoring, testing and corrective action

completed during a selected period of time.

Compliance Services

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Consumer Complaint Response  Generally, an effective CMS:   

Ensures institution responsive to consumer complaints Acts responsibly in addressing consumer complaints, inquiries Intelligence collected from consumer complaints or inquiries organized, retained and used in CMS

Compliance Services

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Consumer Complaint Response  Consumer contacts/complaints



Shared within institution Included in compliance management reporting to Board and senior management



Used in modifying policies, procedures, training and monitoring



Compliance Services

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Compliance Audit  Function of compliance audit:   



Review institution’s compliance with Federal consumer financial laws Review institution’s adherence to internal policies and procedures Determines whether policies and standards provide level of compliance and consumer protection established by board Identifies significant gaps in board policies and standards

 Compliance audit independent of both the compliance program

personnel and business functions personnel, including customer sales or service

Compliance Services

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Compliance Audit  Examiners will seek to determine whether:  







Audit independent and reports to Board Audit addresses compliance with all applicable Federal consumer financial laws

Audit schedule, scope of coverage appropriate to size of institution, consumer financial product offerings, manner of conducting business All appropriate compliance and business unit managers receive timely copies of audit reports Audit results lead to appropriate, timely corrective action

Compliance Services

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Compliance Audit  Examiners will look at the following items: 





Institution’s audit plans and schedules for the prior year, current year, following year Where audit performed by third party, engagement letters or contracts covering prior year and current year Documents establishing  



Whether reporting is to Board or audit committee or other Board committee Basis for audit plan, schedule, scope Prior audit reports, work papers

Compliance Services

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SUMMARY  Successful CMS program  Strong commitment to compliance from top of the organization

 If “customer first” part of the institution’s corporate culture   

compliance less a policing function more of overall business strategy a win-win for both institution and customer

Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

Compliance Services

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8/29/2016

Financial Crime: A New Look

© 2016 Temenos USA. All rights reserved.

Compliance Services

1

Compliance Services

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What you will learn  What is financial crime  Who commits financial crime  The new face of financial crime 

Cybercrimes

 Risk impact  What can you do

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8/29/2016

What is financial crime  Any non-violent offense

committed by or against an individual or corporation and results in a financial loss  When financial institution involved, the crime is referred to as “financial sector crime”

 Dishonest generation of wealth  

Exploitation of information Acquisition of another’s property by deceit for material benefit

 Protect what’s already been

taken

Compliance Services

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Common examples of financial crimes  Fraud  Electronic crime  Money laundering  Terrorist financing  Bribery and corruption  Market abuse and insider dealing

 Information security

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Who commits financial crimes  Organized criminals, including terrorist groups, are increasingly perpetrating large-scale

frauds to fund their operations  Corrupt government leaders may use their position and powers to loot the coffers of their

(often impoverished) states  Business leaders or senior executives manipulate or misreport financial data in order to

misrepresent a company’s true financial position

 Employees from the most senior to the most junior steal company funds and other

assets  From outside the company, fraud can be perpetrated by a customer, supplier, contractor

or by a person with no connection to the organization  Increasingly, the external fraudster is colluding with an employee to achieve bigger and

better results more easily  Finally, the successful individual criminal, serial or opportunist fraudsters in possession

of their proceeds are a further group of people who have committed financial crime 5

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The new face of financial crime

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8/29/2016

Why the change  Reliance on technology to drive customer business 

Increased vulnerabilities   



Software/hardware Telecomm People

Techno-savvy   

Organized Sophisticated Specialized skill sets

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Cybercrimes  Account takeovers 

 

 

Exploit system users vs. system itself Money transfers

Counterfeiting access cards/devices Phishing emails/links Keylogging programs

 Third party payment processors 





Compromise computer networks Money and non-public personal information Counterfeiting access cards/devices

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4

8/29/2016

Cybercrimes  Securities/Market Trading



Exploitation of markets Market manipulation



Unauthorized stock trades



 ATM Skimming & POS

schemes  Prevalent global issue  Skimmers upgraded to look like improved technology  



Sniffer programs Collect card and PIN info at ATMs, gas stations Sell counterfeit cards

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Cybercrimes  Mobile banking exploitation  





Money transfers Man-in-the-middle attacks via cell phones

Access multi-factor authentication codes Bypass security through malicious code

 Insider access      

Intellectual property theft Insider information Data theft or compromise Identity theft Market manipulation Software compromise

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8/29/2016

Cybercrimes  Supply chain infiltration 

Compromising third party vendors 

 

Software/hardware packaging and distribution Software, equipment Services



Install before delivery



Pre-coded malware

 Telecommunications     



Disruption of services Delay transactions Mimicking / phishing Spoof phone numbers Spoof voice response messaging systems Text messages with malware

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Risk impact  Compliance  Legal  Operational  Financial  Reputational

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What can you do  Compliance must be part of the financial crime team/group  

Technology is not the only player Compromise = Client impact

 Know your customer  

Training, training, training Emphasize real examples 

It could happen to us

 Know your vendors  

Look for long-term, scalable solutions Doesn’t just solve issues of today

 Complaint management 

Leverage resources to identify trends, issues Compliance Services

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Using your ecosystem for help

Collaborate, share information and build strategies

Industry experts, regulators, vendors Continuous improvement

A problem shared is a problem halved

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8/29/2016

The opportunities, understanding the tools you have

Balance

Accuracy

  

Screening methods Data handling Entity control

  

Know your customers Control costs Continuously improve

Collaboration

   

Share information Talk to regulators Talk to vendors Training

Financial institutions must accurately and efficiently control their changing regulatory landscape Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

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8/29/2016

Cybersecurity: More than just an IT issue

© 2016 Temenos USA. All rights reserved.

Compliance Services

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What you will learn  Cybersecurity  Cybercrime  More than just an IT issue  BSA/AML  Privacy  Fraud  Unauthorized transactions  Excess transactions  Complaint management  Incident response

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Did you know …  Malicious code is often distributed months before an

attack

 Most cyber attacks go undetected for months Compliance Services

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Cybersecurity  Cyberspace and its underlying infrastructure 

Vulnerable to wide range of risk stemming from both physical and cyber threats and hazards

 Sophisticated cyber actors and nation-states exploit vulnerabilities  

Steal information, money Developing capabilities to disrupt, destroy or threaten delivery of essential services

 Many traditional crimes are now being perpetrated through cyberspace  

 

Banking and financial fraud Production and distribution of child pornography and child exploitation conspiracies Intellectual property violations All of which have substantial human and economic consequences Compliance Services

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2

8/29/2016

Cybersecurity  Our world is more

interconnected than ever before  For all its advantages, increased connectivity brings increased risk of theft, fraud and abuse  The greater the reliance on modern technology, the more vulnerable to cyberattacks Compliance Services

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Cybersecurity  Cyberspace is particularly difficult to secure due to a number of

factors  Ability of malicious actors to operate from anywhere in the world  Linkages between cyberspace and physical systems  Difficulty of reducing vulnerabilities and consequences in complex cyber networks  Growing concern is cyber threat to critical infrastructure 



As information technology becomes increasingly integrated with physical infrastructure operations, risk is increased for widescale or high-consequence events Potential (probable) harm or disruption of services Compliance Services

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Cybersecurity  Complementary cybersecurity and law enforcement capabilities

are critical to safeguarding and securing cyberspace  State, local tribal and territorial (SLTT)  Law enforcement performs an essential role in achieving

cybersecurity objectives  Department of Homeland Security (DHS) works with other federal agencies to conduct high-impact criminal investigations  Disrupt and defeat cyber criminals  Prioritize the recruitment and training of technical experts  Develop standardized methods  Widely share cyber response best practices and tools Compliance Services

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Cybersecurity and financial services  New emphasis on asset protection 



Slightest access to any portion of the network can provide enough footing for a hacker to launch a devastating attack Limited ability to enhance and implement more effective risk reduction techniques

 Financial institutions must adopt culture of security and exceed minimum standards 

All operational areas must partner  



What are the most common sources of threats and weaknesses Where do they reside within the systems, networks, operational areas

Effective action plan     

System downtime Recovering lost, damaged or stolen assets Coordination of internal and external response Replacement of systems, components Fees and costs associated with compliance failure

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8/29/2016

A new world of terminology Aka Cross-site scripting or XSS; attack on web applications in which attackers try to inject malicious scripts to perform malicious actions on trusted websites; executes on the browser side and affects users

Code capable of copying itself; typically has a detrimental effect, such as corrupting or destroying data A computer connected to the internet that has been compromised by a hacker, virus or Trojan horse and can be used for malice intentions

Part of another malware meant to “detonate” at a predetermined time allowing for malware to spread without notice

Creates multiple copies of itself to the point the computer is slowed beyond use

Code that misrepresents itself to appear useful, routine, or interesting in order to persuade a victim to install it; generally, does not attempt to inject itself into other files or otherwise propagate

A lone malware with the sole purpose of replication and then to spread to other computers

Aka back door; provides a secret or at least undocumented method of gaining access to an application, operating system or online service at a later time

Part of another malware meant to “detonate” when certain conditions are met allowing for malware to spread without notice

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Compliance Services

What is a cyber incident  A cyber incident is  

 





a past, ongoing, or threatened intrusion, disruption, or other event that impairs or is likely to impair the confidentiality, integrity, or availability of electronic information, information systems, services, or networks Encouraged to voluntarily report suspected or confirmed cyber incidents to a federal entity

 Should be reported if the incident: 





 



May impact national security, economic security or public health and safety Affects core government or critical infrastructure functions Results in a significant loss of data, system availability or control of systems Involves a large number of victims Indicates unauthorized access to, or malicious software present on, critical information technology systems Violates federal or SLTT law Compliance Services

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8/29/2016

If it comes in through computers, how is not just an IT issue?  Consider this … 





You have stored your tax return data on your computing device You conduct online banking on your computing device

Surprise! You have been hacked.

We have taken over your accounts, your life.

You tell your system to ‘remember passwords for this site’

Now deal with it.

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The impact  BSA/AML    

Structuring Money laundering Wire transfers Suspicious activity reporting (SARs)

 Privacy 

GLBA  



Regulation P (Privacy)  



IT Confidentiality

Confidentiality Promise to safeguard information

Regulation V (FCRA)   

Confidentiality Identity theft Accuracy and integrity Compliance Services

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8/29/2016

The impact  Regulation E (EFT)  

Unauthorized transactions Stop payments

 Complaint management  Vendor management

 Regulation Z (TILA) 

Billing errors

 Regulation D 

Excess transactions

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Incident response

 Be prepared 

Risk assessment to efficiently determine scope and magnitude of the security incident and identify what has been compromised  



Not every incident can be anticipated, but institutions should at least develop containment procedures for reasonably foreseeable incidents Containing and controlling the security incident involves preventing any further access to or misuse of information or information systems

Testing 

Not just on paper

 Notification 

Regulators



Law enforcement



Incident response team



Legal counsel

 Recovery  Lessons learned Compliance Services

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8/29/2016

An ounce of prevention …  Engage with your IT department

 Identify and communicate weaknesses in operations  Operational reports to identify incident impact   

BSA Privacy Fraud

 Train, train, train   

Targeted, job specific training Awareness training All staff, management, Board Compliance Services

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Resources  FFIEC Cybersecurity Assessment Tool 

Handout

 Law Enforcement Cyber Incident Reporting 

Handout

 Regulator websites  

Guidance Videos

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Questions?

© 2016 Temenos USA. All rights reserved.

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Cybersecurity: Handouts

Law Enforcement Cyber Incident Reporting A Unified Message for State, Local, Tribal, and Territorial Law Enforcement Cyber threats from malicious actors are a growing concern across the United States. Voluntary sharing of incident information between state, local, tribal, and territorial (SLTT) law enforcement and the federal government is important to ensuring a safe and secure cyberspace. This document details different ways SLTT law enforcement partners can report suspected or confirmed cyber incidents to the federal government. No matter which “door” SLTT law enforcement uses, information is shared within the federal government to provide an appropriate response while protecting citizens’ privacy and civil liberties under the law.

When to Report to the Federal Government A cyber incident is a past, ongoing, or threatened intrusion, disruption, or other event that impairs or is likely to impair the confidentiality, integrity, or availability of electronic information, information systems, services, or networks. SLTT partners are encouraged to voluntarily report suspected or confirmed cyber incidents to a federal entity. In particular, a cyber incident should be reported if it:  May impact national security, economic security, or public health and safety.

 Provide a synopsis of impacts (business, mission, and operational), including prioritization factors: •

Did the incident impact critical infrastructure essential functions?



Was a control system compromised or manipulated?

 What response actions have already been performed by the affected entity? •

Are they requesting federal technical assistance?



Have they contacted or retained a managed security service provider for mitigation/investigation?



Has your agency opened a law enforcement investigation? Have other law enforcement agencies been asked to investigate? Can you share the other agency’s point of contact information?

 Affects core government or critical infrastructure functions.  Results in a significant loss of data, system availability, or control of systems.  Involves a large number of victims.  Indicates unauthorized access to, or malicious software present on, critical information technology systems.  Violates federal or SLTT law.

What to Report Cyber incidents may be reported at various stages, including when complete information is not available. Gathering as much information as possible will help expedite assistance to your agency and your community.  Your name, organization, address, and phone number.  What entity experienced the incident? Who owns the affected systems? Who is the appropriate point of contact?  What type of incident occurred?  What was the initial entry vector or vulnerability exploited (if known)?  How was the incident initially detected or discovered?  What specific assets appear to be impacted (e.g., systems, networks, data)?

SOCI ATION OF C

H OF P

INTERNAT

FS

I ON

AS

IE

AL

OLI CE ®

SINCE 1893

 If you have them, please share: •

Logs, including destination IP and port and destination URL



Operating software of the affected system(s)



Source ports involved in the attack



Indications (current or historical) of sophisticated tactics, techniques, and procedures (TTPs)



Indications (current or historical) that the attack specifically targeted the asset owner



Status change data and time stamps (including time zone)

How to Report The federal government has several different ways for individuals, businesses, law enforcement partners, and others to report cyber incidents. SLTT law enforcement can report to the federal government in person, by e-mail, by phone, or via online tools. Reports are appropriately shared among relevant federal stakeholders in order to help mitigate the consequences of the incident, evaluate the impact on critical infrastructure, and investigate any potential criminal violations. The table on the next page summarizes these resources.

Law Enforcement Cyber Incident Reporting A Unified Message for State, Local, Tribal, and Territorial Law Enforcement Key Contacts for SLTT Law Enforcement Cyber Incident Reporting Organization and Key Points of Contact

What to Report?

U.S. Department of Homeland Security (DHS) National Protection and Programs Directorate (NPPD) National Cybersecurity and Communications Integration Center (NCCIC) (http://www.dhs.gov/about-national-cybersecuritycommunications-integration-center) [email protected] or (888) 282-0870

Suspected or confirmed cyber incidents that may impact critical infrastructure and require technical response and mitigation assistance

United States Secret Service Secret Service Field Offices (http://www.secretservice.gov/field_offices.shtml) Electronic Crimes Task Forces (ECTFs) (http://www.secretservice.gov/ectf.shtml)

Cybercrime, including computer intrusions or attacks, transmission of malicious code, password trafficking, or theft of payment card or other financial payment information

Immigration and Customs Enforcement Homeland Security Investigations (ICE HSI) ICE HSI Field Offices (http://www.ice.gov/contact/inv/) ICE HSI Cyber Crimes Center (http://www.ice.gov/cyber-crimes/)

Cyber-based domestic or international cross-border crime, including child exploitation, money laundering, smuggling, and violations of intellectual property rights

U.S. Department of Justice (DOJ) Federal Bureau of Investigation (FBI) FBI Field Offices (http://www.fbi.gov/contact-us/field) Cyber Task Forces (http://www.fbi.gov/about-us/investigate/ cyber/cyber-task-forces-building-alliances-to-improve-thenations-cybersecurity-1) Law Enforcement Online Portal (https://www.cjis.gov/CJISEAI/EAIController) or (888) 334-4536

Cybercrime, including computer intrusions or attacks, fraud, intellectual property theft, identity theft, theft of trade secrets, criminal hacking, terrorist activity, espionage, sabotage, or other foreign intelligence activity

Cyber Training and Other Resources for Law Enforcement Personnel  The FBI’s Cyber Shield Alliance (https://www.cjis.gov/CJISEAI/EAIController) provides extensive resources for SLTT partners, including eGuardian (https://www.cjis.gov/CJISEAI/EAIController) access, intelligence sharing, federally sponsored training, and fellowships at the National Cyber Investigative Joint Task Force (http://www.fbi.gov/about-us/investigate/cyber/ncijtf ). The FBI also supports the InfraGard (https://www.infragard.org/) partnership with the private sector.  The U.S. Secret Service operates the National Computer Forensics Institute (https://www.ncfi.usss.gov) to provide federally sponsored training for SLTT partners, including law enforcement, prosecutors, and judges.  The ICE HSI Cyber Crimes Center offers a variety of technical training courses related to cyber investigations and digital forensics on a request basis.  The Computer Crime and Intellectual Property Section (CCIPS) manuals Searching and Seizing Computers and Electronic Evidence and Prosecuting Computer Crimes are available online at http://www.justice.gov/criminal/cybercrime/documents. html.  SLTT partners can also advise the public to file a complaint online (http://www.ic3.gov/default.aspx) with the Internet Crime Complaint Center (http://www.ic3.gov/default.aspx).

If there is an immediate threat to public health or safety, the public should always call 9-1-1.

FFIEC Cybersecurity Assessment Tool Overview for Chief Executive Officers and Boards of Directors In light of the increasing volume and sophistication of cyber threats, the Federal Financial Institutions Examination Council 1 (FFIEC) developed the Cybersecurity Assessment Tool (Assessment), on behalf of its members, to help institutions identify their risks and determine their cybersecurity preparedness. The Assessment provides a repeatable and measurable process for institutions to measure their cybersecurity preparedness over time. The Assessment incorporates cybersecurity-related principles from the FFIEC Information Technology (IT) Examination Handbook and regulatory guidance, and concepts from other industry standards, including the National Institute of Standards and Technology (NIST) Cybersecurity Framework. 2

Benefits to the Institution For institutions using the Assessment, management will be able to enhance their oversight and management of the institution’s cybersecurity by doing the following: • • • • •

Identifying factors contributing to and determining the institution’s overall cyber risk. Assessing the institution’s cybersecurity preparedness. Evaluating whether the institution’s cybersecurity preparedness is aligned with its risks. Determining risk management practices and controls that are needed or need enhancement and actions to be taken to achieve the desired state. Informing risk management strategies.

CEO and Board of Directors The role of the chief executive officer (CEO), with management’s support, may include the responsibility to do the following: • • • • •

Develop a plan to conduct the Assessment. Lead employee efforts during the Assessment to facilitate timely responses from across the institution. Set the target state of cybersecurity preparedness that best aligns to the board of directors’ (board) stated (or approved) risk appetite. Review, approve, and support plans to address risk management and control weaknesses. Analyze and present results for executive oversight, including key stakeholders and the board, or an appropriate board committee.

1

The FFIEC comprises the principals of the following: The Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau, and State Liaison Committee.

2

A mapping is available in Appendix B: Mapping Cybersecurity Assessment Tool to the NIST Cybersecurity Framework. NIST reviewed and provided input on the mapping to ensure consistency with Framework principles and to highlight the complementary nature of the two resources.

June 2015

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FFIEC Cybersecurity Assessment Tool

• •

Overview for CEOs and Boards of Directors

Oversee the performance of ongoing monitoring to remain nimble and agile in addressing evolving areas of cybersecurity risk. Oversee changes to maintain or increase the desired cybersecurity preparedness.

The role of the board, or an appropriate board committee, may include the responsibility to do the following: • • • • • •

Engage management in establishing the institution’s vision, risk appetite, and overall strategic direction. Approve plans to use the Assessment. Review management’s analysis of the Assessment results, inclusive of any reviews or opinions on the results issued by independent risk management or internal audit functions regarding those results. Review management’s determination of whether the institution’s cybersecurity preparedness is aligned with its risks. Review and approve plans to address any risk management or control weaknesses. Review the results of management’s ongoing monitoring of the institution’s exposure to and preparedness for cyber threats.

Assessment’s Parts and Process The Assessment consists of two parts: Inherent Risk Profile and Cybersecurity Maturity. Upon completion of both parts, management can evaluate whether the institution’s inherent risk and preparedness are aligned.

Inherent Risk Profile Cybersecurity inherent risk is the level of risk posed to the institution by the following: • • • • •

Technologies and Connection Types Delivery Channels Online/Mobile Products and Technology Services Organizational Characteristics External Threats

Inherent risk incorporates the type, volume, and complexity of the institution’s operations and threats directed at the institution. Inherent risk does not include mitigating controls. The Inherent Risk Profile includes descriptions of activities across risk categories with definitions for the least to most levels of inherent risk. The profile helps management determine exposure to risk that the institution’s activities, services, and products individually and collectively pose to the institution. Least Inherent Risk

Minimal Inherent Risk

Moderate Inherent Risk

Significant Inherent Risk

Most Inherent Risk

When each of the activities, services, and products are assessed, management can review the results and determine the institution’s overall inherent risk profile.

June 2015

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FFIEC Cybersecurity Assessment Tool

Overview for CEOs and Boards of Directors

Cybersecurity Maturity The Assessment’s second part is Cybersecurity Maturity, designed to help management measure the institution’s level of risk and corresponding controls. The levels range from baseline to innovative. Cybersecurity Maturity includes statements to determine whether an institution’s Innovative behaviors, practices, and processes can support cybersecurity preparedness within the following Advanced five domains: • • • • •

Cyber Risk Management and Oversight Threat Intelligence and Collaboration Cybersecurity Controls External Dependency Management Cyber Incident Management and Resilience

Intermediate Evolving

Baseline The domains include assessment factors and contributing components. Within each component, declarative statements describe activities supporting the assessment factor at each maturity level. Management determines which declarative statements best fit the current practices of the institution. All declarative statements in each maturity level, and previous levels, must be attained and sustained to achieve that domain’s maturity level. While management can determine the institution’s maturity level in each domain, the Assessment is not designed to identify an overall cybersecurity maturity level. The figure below provides the five domains and assessment factors. Domain 3: Cybersecurity Controls

Domain 4: External Dependency Management

Domain 1: Cyber Risk Management & Oversight

Domain 2: Threat Intelligence & Collaboration

Domain 5: Cyber Incident Management and Resilience

Governance

Threat Intelligence

Preventative Controls

Connections

Incident Resilience Planning and Strategy

Risk Management

Monitoring and Analyzing

Detective Controls

Relationship Management

Detection, Response, and Mitigation

Resources

Information Sharing

Corrective Controls

Escalation and Reporting

Training and Culture

June 2015

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FFIEC Cybersecurity Assessment Tool

Overview for CEOs and Boards of Directors

Management can review the institution’s Inherent Risk Profile in relation to its Cybersecurity Maturity results for each domain to understand whether they are aligned. The following table depicts the relationship between an institution’s Inherent Risk Profile and its domain Maturity Levels, as there is no single expected level for an institution. In general, as inherent risk rises, an institution’s maturity levels should increase. An institution’s inherent risk profile and maturity levels will change over time as threats, vulnerabilities, and operational environments change. Thus, management should consider reevaluating the institution’s inherent risk profile and cybersecurity maturity periodically and when planned changes can affect its inherent risk profile (e.g., launching new products or services, new connections). Risk/Maturity Relationship

Inherent Risk Levels

Least

Minimal

Moderate

Significant

Most

Cybersecurity Maturity Level for Each Domain

Innovative Advanced Intermediate Evolving Baseline

Management can then decide what actions are needed either to affect the inherent risk profile or to achieve a desired state of maturity. On an ongoing basis, management may use the Assessment to identify changes to the institution’s inherent risk profile when new threats arise or when considering changes to the business strategy, such as expanding operations, offering new products and services, or entering into new third-party relationships that support critical activities. Consequently, management can determine whether additional risk management practices or controls are needed to maintain or augment the institution’s cybersecurity maturity.

Supporting Implementation An essential part of implementing the Assessment is to validate the institution’s process and findings and the effectiveness and sufficiency of the plans to address any identified weaknesses. The next section provides some questions to assist management and the board when using the Assessment.

Assess maturity and inherent risk

Reevaluate

Identify gaps in alignment

Cybersecurity Management & Oversight • • •

Implement

Determine What are the potential cyber threats to the plans to desired attain and state of institution? sustain maturity maturity Is the institution a direct target of attacks? Is the institution’s cybersecurity preparedness receiving the appropriate level of time and attention from management and the board or an appropriate board committee?

June 2015

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FFIEC Cybersecurity Assessment Tool

• • • • • •

Overview for CEOs and Boards of Directors

Do the institution’s policies and procedures demonstrate management’s commitment to sustaining appropriate cybersecurity maturity levels? What is the ongoing process for gathering, monitoring, analyzing, and reporting risks? Who is accountable for assessing and managing the risks posed by changes to the business strategy or technology? Are the accountable individuals empowered with the authority to carry out these responsibilities? Do the inherent risk profile and cybersecurity maturity levels meet management’s business and risk management expectations? If there is misalignment, what are the proposed plans to bring them into alignment? How can management and the board, or an appropriate board committee, make this process part of the institution’s enterprise-wide governance framework?

Inherent Risk Profile • • • • •

What is the process for gathering and validating the information for the inherent risk profile and cybersecurity maturity? How can management and the board, or an appropriate board committee, support improvements to the institution’s process for conducting the Assessment? What do the results of the Assessment mean to the institution as it looks at its overall risk profile? What are the institution’s areas of highest inherent risk? Is management updating the institution’s inherent risk profile to reflect changes in activities, services, and products?

Cybersecurity Maturity • • • • • •

How effective are the institution’s risk management activities and controls identified in the Assessment? Are there more efficient or effective means for attaining or improving the institution’s risk management and controls? What third parties does the institution rely on to support critical activities? What is the process to oversee third parties and understand their inherent risks and cybersecurity maturity? How does management validate the type and volume of attacks? Is the institution sharing threat information with peers, law enforcement, and critical third parties through information-sharing procedures?

Summary FFIEC has developed the Assessment to assist management and the board, or an appropriate board committee, in assessing their institution’s cybersecurity preparedness and risk. For more information and additional questions to consider, refer to the FFIEC Cybersecurity Assessment General Observations on the FFIEC’s Web site.

June 2015

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8/29/2016

BSA / AML: Examiner trends and emerging risks

© 2016 Temenos USA. All rights reserved.

Compliance Services

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Compliance Services

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What you will learn  Trending and emerging risks  

Usual suspects What’s new

 Preventative measures

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8/29/2016

BSA / AML Program  Trending 

BSA Program 



Failure to adequately detect and report suspicious transactions 

 

Over-reliance on automated tools Failure to conduct manual reviews when risk, customer, transactions warrant

Failure to meet reporting timeframes 



Insufficient policies and procedures commensurate with risk

Insufficient or no follow through in documenting and reporting transactions

Risk assessment  

Insufficient CDD and EDD to identify high-risk customers Failure to monitor customer risk profile for changes (low/med to high) Compliance Services

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Compliance Services

4

BSA / AML Program  Still trending 

Inadequate human and technical support 



Insufficient resources and training

Failure to keep pace with institution’s growth and risk profile

2

8/29/2016

Know-Your-Customer (KYC)  Trending  

Privately owned ATMs Exempt customers

 Still trending 

Inadequate CDD and EDD   



Inadequate policies and procedures  Failure to follow Insufficient risk assessments Failure to understand with relative certainty the types of transactions in which customer likely to engage

Failure to identify, monitor, report suspicious activity 

Lack of meaningful alerts Compliance Services

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Compliance Services

6

Cybercrimes  Lack of internal controls  Insufficient multi-factor authentication  Please the customer rather than follow the process  Lack of customer education and training on cyber threats

3

8/29/2016

Reminder: Insider abuse  Application of dollar thresholds 

Any amount is reportable

Compliance Services

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Compliance Services

8

Understanding the rules  Suspicious activity reporting



Know Suspect



Reason to suspect



 Examples 

 

“Could not confirm” “Could not prove” “Normal transactions for that customer”

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8/29/2016

SARs: Strict Confidentiality  SAR reporting is highly confidential 

  

A SAR, and any information that would reveal the existence of SAR, are confidential and must not be disclosed except as authorized under the safe harbor provision  Never make an affirmative statement of a SAR filing  Never make an affirmative statement that a SAR has not been filed (common mistake) Not public information Cannot tell subject that the SAR is filed Kept under Lock & Key!

 Your risk: 

Lose protections under the law

Preventative measures

Compliance Services

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 BSA Program



Identify higher risk customers Perform enhanced due diligence (EDD)



Conduct manual transaction testing



   

Document unusual activity  

 

Review reports for CTRs Who’s moving most cash in/out Look for transaction trends Does cash/ACH match up on privately owned ATMs Monitor monetary instruments

Report suspicious activity as needed Document everything, even if decided not to file a report Compliance Services

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5

Preventative measures

8/29/2016

 FinCEN Advisory on Culture of Compliance, FIN-2014-A007  

Strengthen BSA/AML compliance culture Make it clear to employees that they should never be intimidated by a customer to bypass internal controls because customer feels they should receive preferential treatment

 Ensure proper third party qualifications, scope, testing  FFIEC’s free Cybersecurity Self-Assessment Tool  

Inherent risk profile Cybersecurity maturity

 Incorporate cybersecurity into BSA operations  Train, train, train  

Staff Customers Compliance Services

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Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

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8/29/2016

Customer Due Diligence: Really getting to know your customer

© 2016 Temenos USA. All rights reserved.

Compliance Services

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What You Will Learn  What is Customer Due Diligence  Tailoring CDD to Your Institution  Routine CDD Monitoring  “Asking Uncomfortable CDD Questions” Scenarios  What’s New – Beneficial Ownership Rule and Prepaid Card Guidance  Examples of Examiner Criticisms

Compliance Services

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8/29/2016

What is Customer Due Diligence  A function of whether or not institution wants to do business with

customers that present risk  Essential to ensure institution does not participate in, or become a

victim of, criminal activity  Finding balance between: 

Products and services;



Community service; and



Institution’s appetite for risk Compliance Services

3

What is Customer Due Diligence  Consists of answering routine questions  

predict future activity specifically identify customers who may need enhanced due diligence due to higher risk

 Subjective 

should be able to prove your point if someone disagrees with your assessment

Compliance Services

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2

8/29/2016

Consumer Account Risk Sample Questions  Is the expected cash, wire

transfer, and ACH activity deemed unusual?  Will there be any foreign wire

or ACH activity?  Is the account opened in

person with all signers present?

 Is this a Non-Resident Alien?

 Does the customer reside in

this county or area?  Does it make sense for the customer to do business with us?  Is one or more accountholders

a new customer to the institution?  Will the customer utilize

internet banking and bill pay? Compliance Services

5

Consumer Account Risk Sample Questions  Is the customer presenting a

U.S. military identification?  Is the customer a Politically

Exposed Person (PEP)?  Was the customer referred by

an officer of our institution?

Did the customer refuse or attempt to avoid providing any of this information?

 If this is a Private Banking or

Trust customer, what are the source of assets?

Compliance Services

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3

8/29/2016

Business Account Risk Sample Questions  Is this a Professional Service

Provider?  Is this a Non-Governmental

Organization?  Is this a Non-Bank Financial

Institution?  Is this a Cash Intensive

Business (e.g. check cashing, money order sales, prepaid access cards, or travelers check sales)?

 Is this a Third Party Payment

Processor?  Does the business have a

Privately Owned ATM?  Are there multiple business

locations?  Does customer have multiple

dba’s?  Is the type of business on the

BSA high risk list? Compliance Services

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Business Account Risk Sample Questions  Was the entity organized

under this state?  Is this a start-up business

 Does the customer engage in

any sort of internet gambling or lottery sales?

within the last 12 months?  Has control of the business

changed in the last 12 months?  Is the principal place of

business located in HIDTA or HIFCA?

Did the customer refuse or attempt to avoid providing any of this information?

Compliance Services

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4

8/29/2016

Loan Account Risk Sample Questions  Is this loan secured by a

savings account or CD?  Is this a loan to a Foreign

National? 



Historically, mortgage definition of foreign national is understood to be an overseas buyer of U.S. vacation homes and U.S. rental properties increasing in popularity

Did the customer refuse or attempt to avoid providing any of this information?

Compliance Services

9

Tailoring CDD To Your Institution  Minimum criteria still exists for customers such as elderly, disabled,

Amish or specific religious community, students, trust department customers, but the financial institution needs to establish alternate forms of identification for those customers  Business decisions based on the institution’s appetite for risk  May request account statements from a previous financial institution

relationship  Adapt program to accommodate both loans and deposits 

different products



different customer due diligence Compliance Services

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8/29/2016

Tailoring CDD To Your Institution  If a scoring system is used to risk rate customers, similar scoring

should be used to de-risk customers  Some Phase I customers are excluded from the definition of customer

(31 CFR 1020.315 (b) (1) through (4)):   

Banks Government entities Publicly traded companies listed on a major exchange (e.g. Walmart)

Compliance Services

11

CDD Monitoring Reports  New accounts/New loans  Average balance  Kiting  Large fluctuations  Check/debit volume changes  Electronic banking and

payment activity

 Query against Loans with the

Same Address and Different Names leads to:  Who is controlling these entities  May be a service agent  May trigger “Alpha Co”  Mortgage fraud  Loans with early payoffs  Loans Secured by CDs  Account Analysis Statements 

show what services are used Compliance Services

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8/29/2016

“Asking Uncomfortable CDD Questions” Scenarios

Handout in session Compliance Services

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CDD New Rule: Beneficial Ownership  Clarifies CDD now includes (4) core elements:   



Identifying and verifying the identity of the customers; Understanding the nature and purpose of customer relationship; Conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions; and Identifying and verifying the beneficial ownership of legal entity customers (new and not retroactive)

Compliance Services

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8/29/2016

CDD New Rule: Beneficial Ownership  Requirement to identify and verify any individual who owns 25% or

more of a legal entity, and an individual who exercises significant control over the legal entity  Option to collect beneficial ownership info on standardized format

(Appendix A) from individual opening account on behalf of legal entity customer to: 



identify and provide basic information for any beneficial owners of legal entity customer, and certify the genuineness of the information provided

Compliance Services

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CDD New Rule: Beneficial Ownership  Legal Entity Customer 



 

Includes corporation, LLC, or other entity created by a filing with a Secretary of State or similar office, or entity formed under the laws of a foreign jurisdiction Includes Charities and Nonprofit Entities – subject to the control prong Excludes Trusts, except a Trustee can be a BO when a trust owns 25% of more of a legal entity customer Excludes Bank Holding Companies

Compliance Services

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8/29/2016

CDD New Rule: Beneficial Ownership  Common Business

Classifications include:  Sole Proprietorship  Corporation – (Corp) 



Subchapter S Corporation – “S” Election (S Corp) Limited Liability Company (LLC)

  



General Partnership (GP) Limited Partnership (LP) Limited Liability Partnership (LLP) Professional Association (PA)

Compliance Services

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CDD New Rule: Beneficial Ownership

Implementation May 11, 2018 https://www.federalregister.gov/articles/2016/05/11/201610567/customer-due-diligence-requirements-for-financial-institutions

Compliance Services

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8/29/2016

New Guidance: Prepaid cards and CDD

Interagency Guidance on Applying CIP Requirements to Holders of Prepaid Cards

https://www.fincen.gov/statutes_regs/guidance/pdf/InterAgencyGuidance2 0160318.pdf

Compliance Services

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New Guidance: Prepaid cards and CDD  Prepaid Cards include:  

Sold and distributed by third-party program managers Cards used to provide employee wages (payroll cards), healthcare (HSA, FSA), and/or government benefits

Compliance Services

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10

8/29/2016

New Guidance: Prepaid cards and CDD  Risks of Prepaid Cards:    

Easy access Ability to use them anonymously Potential for high volumes of funds moving Vulnerable to criminal abuse

Compliance Services

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New Guidance: Prepaid cards and CDD  Determine existence of an “account” 

Defined in CIP rule as a formal banking relationship established to provide or engage in services, dealings, or other financial transactions, including a deposit account, a transaction or asset account, a credit account or other extension of credit 



Includes a relationship established to provide a safety deposit box or other safekeeping services or to provide cash management, custodian or trust services

Does not include products and services for which a formal banking relationship is not generally established with a person, such as check cashing, wire transfer or the sale of a check or money order Compliance Services

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8/29/2016

New Guidance: Prepaid cards and CDD  Account Features  

Ability to reload funds Ability to access credit or overdraft the card

Compliance Services

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New Guidance: Prepaid cards and CDD  Contracts with third-party program managers should:  





Outline CIP obligations of the parties; Ensure right of issuing institution to transfer, store or otherwise obtain immediate access to all CIP information collected by thirdparty program manager on cardholders; Provide for issuing institution’s right to audit third-party program manager and to monitor its performance; and Indicate the relevant regulatory body has the right to examine thirdparty program manager

Compliance Services

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12

8/29/2016

CDD Examiner criticisms  Risk Assessment and CIP profiles were different forms and should be

merged into one collective scoring document  Did not update identification when an existing customer opened a new

account (e.g. expired drivers’ license. If there is indication of a potential change in the customer's risk profile (e.g., expected account activity, change in employment or business operations), management should reassess the customer risk rating)

 Lending area was not performing due diligence and CIP relying on fact

that it must be there if borrower already has deposit relationship  Did not perform risk assessments at account opening and allowed

automated AML system to risk rate customers over a period of transaction history Compliance Services

25

CDD Examiner criticisms  Relied on lending arrangements with dealers who submitted loans for

approval for CDD (a financial institution is permitted to arrange for a third party, such as a car dealer or mortgage broker, acting as its agent in connection with a loan, to verify the identity of its customer, however, the institution is ultimately responsible for that third party’s compliance with the requirements of CIP)  Rules built into automated AML system not tweaked to fit the institution  Lack of training specific to the institution on how the institution was going

to comply with the regulations  Management should maintain a list of cash intensive businesses, non-

bank financial institutions served, and non-governmental organizations  NACIS codes – 8000’s Compliance Services

26

13

8/29/2016

CDD Examiner criticisms  Employee job descriptions and performance reviews should be enhanced to more

specific and measurable BSA requirements  Tellers must complete CTRs  Customer service representatives must risk rate customers at account opening  Institution has a customer in the gaming industry. Onsite periodic visits are

necessary to adequately evaluate the business’ BSA program and adequacy of employee training procedures in areas such as filing CTRs and SARs

 Board minutes indicate Board received BSA training for 16 minutes. Given the

limited time and number of other topics covered, these sessions may not have allowed directors sufficient time to receive appropriate BSA/AML training  BSA Policy should be enhanced to include standards for new account

documentation, both to meet the minimum standards in regulation and to capture appropriate data for customer due diligence, with specification of the time and responsibility for obtaining missing documentation Compliance Services

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Compliance Services

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Summary

CIP CDD

EDD

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8/29/2016

Questions?

© 2016 Temenos USA. All rights reserved.

Compliance Services

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15

Customer Due Diligence: Handout

“Asking Uncomfortable CDD Questions” Scenarios 1. The financial institution had a CD issued to Mary and John Jones, and John’s elderly mother, Margaret for $25,000 for a term of 36 months. Margaret was recently in a car accident and came into the institution last week in a wheelchair with a broken arm. That CD was closed out early with a penalty the beginning of this week, and now two days later, another was opened for $30,000 cash solely in the names of Mary and John Jones, omitting Margaret. 2. Harry Smith has had an existing revolving HELOC loan which has carried an average balance of $35,000 for the past five years. Loan Operations staff know Harry who works as a part time maintenance man, sometimes even for the Bank. Although payments have been regular and current, advances on the loan have basically offset any payments. Yesterday, the entire loan balance was paid off in cash. 3. The 30 year old Loan Operations clerk calls the BSA Officer and says the loan she was given to book by the Branch Manager looks odd. She knows the retired borrower from their mutual attendance at church, but the Social Security number listed to add to the system is a newer sequence than hers. 4. Mr. Bridges is an elderly customer who comes in the financial institution a least once a week with Snoopy, his Jack Russell, who greets all the employees and waits for his doggie treat. Today, Mr. Bridges visited his safe deposit box, sat and visited with the CSR while Snoopy ate his dog biscuit, and then made an $8,000 cash deposit to his checking account at the teller line. 5. Don Johnson is a home builder. His wife, Marian, has been the President’s Administrative Assistant at the institution for years. Lately, Don has been coming in with weekly deposits of $20,000 - $25,000 cash and splitting the funds equally in deposits to both his personal and his business account.

9/19/2016

Building a robust BSA/AML Risk Assessment

© 2016 Temenos USA. All rights reserved.

Compliance Services

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Compliance Services

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What you will learn  Pieces of the Puzzle     

Risk Assessment Definition Identify Risk Categories Gather Information Rate Risks Analyze and Report Data

 Put it all together

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9/19/2016

Risk Assessment: Definition  The identification, evaluation and estimation of:



Levels of risks involved in a situation Comparison against benchmarks or standards; and



Determination of acceptable level of risk



Compliance Services

3

Risk Assessment: Definition The identification, evaluation and estimation of: 1.

Identified Risk:

The process for prioritizing risks for subsequent further analysis 

Risk Analysis – Accessing and combining the probability of occurrence and comparing to benchmarks or standards • •

Qualitative – categorizing and describing associated risks and level of impact Quantitative – numerical expression of occurrence and level of impact

Compliance Services

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2

9/19/2016

Risk Assessment: Definition The identification, evaluation and estimation of: 2. Inherent Risk: The risk that an activity would pose if no controls or other mitigating factors were in place (the gross risk or risk before controls) Translation: How bad is it?

Compliance Services

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Compliance Services

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Risk Assessment: Definition The identification, evaluation and estimation of: 3. Residual Risk: The risk that remains after controls are taken into account (the net risk or risk after controls). Translation: How risk is mitigated.

3

9/19/2016

Identify Higher Risk Categories  Products and Services  Customers  Geographic Location  Financial Institution Size/Structure  Financial Institution Operations

Compliance Services

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Compliance Services

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Higher Risk Products and Services  Electronic funds payment services    

  

Prepaid access (prepaid and payroll cards) Funds transfers (domestic or international wires) Payable Upon Proper ID (PUPID) transactions Third-party payment processors Remittance activity ACH transactions ATM transactions

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9/19/2016

Higher Risk Products and Services  Electronic banking  Monetary instruments  Loans secured by cash collateral and marketable securities  Special use or concentration accounts  Non-deposit investment or insurance (NDIP)  Services provided to 3rd party payment processors or senders

Compliance Services

9

Higher Risk Products and Services  Private banking (domestic and international)  Trust and asset management services  Foreign correspondent accounts (bulk shipments of currency, pouch

activity, payable through accounts (PTA), and U.S. dollar drafts)  Foreign exchange  Trade finance

Compliance Services

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5

9/19/2016

Higher Risk Customers  Foreign financial institutions and money services providers 

Casas de cambio



Currency exchanges



Money transmitters

 Nonbank financial institutions 

Money Services Businesses (MSBs)



Casinos and card clubs



Brokers/dealers in securities



Dealers in precious metals, stones, or jewels

Compliance Services

11

Higher Risk Customers  Politically exposed persons (PEP) 

Senior foreign political figures, their immediate family members and close associates

 Foreign corporations and domestic businesses located in higher-risk

locations  Offshore corporations  Shell corporations  Private investment companies 

International business corporations

Compliance Services

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9/19/2016

Higher Risk Customers  Deposit brokers, particularly foreign brokers  Cash-Intensive businesses 

Convenience stores



Liquor stores



Restaurants



Vending machine operators



Retail stores



Privately owned ATMs



Cigarette distributors



Parking garages Compliance Services

13

Higher Risk Customers  Nongovernmental organizations and charities (foreign and domestic)  Nonresident alien (NRA)  Professional service providers    

Attorneys Accountants Doctors Real estate brokers

Compliance Services

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9/19/2016

Higher Risk Geographic Locations  Countries or Jurisdictions      

Subject to OFAC sanctions Supporting international terrorism Those “of primary money laundering concern” to Secretary of Treasury Subject to special measures by Secretary of Treasury Monitored for deficiencies to combat ML and TF (non-cooperative by FATF) Identified in International Narcotics Control Strategy Report (INCSR)

Compliance Services

15

Higher Risk Geographic Locations  Offshore financial centers (OFC)  Other countries identified by your financial institution because of

prior experiences or other known factors  Customers located within:  

High Intensity Drug Trafficking Areas (HIDTA) High Intensity Financial Crime Areas (HIFCA)

Compliance Services

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9/19/2016

Higher Risk Financial Institution Size/Structure  Asset size  Number of full time employees  BSA staff employee turnover rate  Overall staff turnover percentage  Number of locations  Number of states

Compliance Services

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Compliance Services

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High Risk Financial Institution Operations  Core System  Automated, Manual, or Combination BSA Processes  Recordkeeping  Dual Controls  Separation of Duties

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9/19/2016

Gather Information  Quantify Everything! How many? By whom? How much money is involved? How did it change over time? What patterns emerged?

Compliance Services

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Compliance Services

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Higher Risk Products: Wires quantified Wires by Dollar Volume

Number of Wires

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9/19/2016

Higher Risk Customers: Higher Risk quantified  TOTAL High and Medium Risk Customers 

2 = HIGH Risk (businesses)



9 = MEDIUM Risk (7 businesses/2 personal accounts by same person)

 List of higher risk types of customer activity routinely monitored: Customer’s Activity

# Accounts

Purchases money from financial Institution

8

Cashes checks for its customers

32

Registered Money Service Business (MSB)

5

Money Transmitter Agent

10

Non-bank Financial Institution - limited to prepaid cards, money orders, lottery

42

Customer owns & operates private ATM

2

Remote deposit capture – Domestic locations Trade finance – international trade, import/export Wire transfers

3 2 35 Compliance Services

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Compliance Services

22

Higher Risk Geographic Locations

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9/19/2016

Higher Risk Geographic Locations

Compliance Services

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Compliance Services

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Risk Rating  Choose your risk rating scale 

Words ~ Low; Moderate; High 

FFIEC BSA/AML Exam Manual, App J (sample) • • •



LOW Stable, known customer base MODERATE Customer base increasing due to branching, merger, or acquisition HIGH A large and growing customer base in a wide and diverse geographic area

Numbers ~ 0-5 

Consider 0-5 if posting risk rating on your core system, since 0 is field default value

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9/19/2016

Analyze and Report Results  Consolidate risk information  Review risk ratings  

Identify high risk areas Implement additional controls    

Strengthen training Strengthen auditing/monitoring Fine-tune policies, procedures Additional Resources

 Report analysis to management and Board

Compliance Services

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Compliance Services

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Mock Risk Assessment Quantitative Qualitative Analysis

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9/19/2016

Mock Risk Assessment

Compliance Services

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Compliance Services

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Put It All Together

14

9/19/2016

Questions?

© 2016 Temenos USA. All rights reserved.

Compliance Services

29

15

Building a Robust BSA/AML Compliance Risk Assessment: Handout

Low The most recent BSA/AML examination was considered satisfactory with no or minor violations noted. Stable, known consumer customer base.

BSA AML OFAC Sample Risk Indicators Medium The BSA/AML examination was rated as satisfactory, however there were a moderate of violations noted and/or recommendations for improvement. Consumer customer base increasing due to branching, merger, or acquisition.

The bank has a presence in college towns, but has a very limited college student base.

High The BSA/AML examination was less than satisfactory, with a significant number of violations and deficiencies cited. Large and growing consumer customer base in a wide and diverse geographic area.

The bank has a moderate number of customers from local colleges, and the majority of these customers have a permanent US address. Stable, known business customer base. Business customer base increasing due to business strategy, branching, merger, or acquisition. Identified a limited number of high-risk Identified a moderate number of high-risk customers and businesses customers and businesses. These may which may include professional service include check cashers, convenience providers, cash intense business providers, stores, money transmitters, casas de charities and non-governmental cambio, import or export companies, organizations. These customers are offshore corporations, politically exposed identified, assessed and monitored from the person (PEPs), nonresident aliens time the account is opened (NRAs), foreign deposit brokers, foreign corporations and foreign individuals.

The bank has a substantial amount of customers from local colleges whose permanent address is another country.

The bank has few customers with a high level of cash activity meeting the currency transaction reporting (CTR) threshold as well as a low number of exempt customers.

The bank has numerous customers that meet the CTR threshold on a frequent basis and has a high number of exempt customers.

The bank has a moderate number of customers with a high level of cash activity meeting and/or a high number of exempt customers which may be considered high risk customers. The bank only allows accounts for foreigners The bank opens accounts for foreign with all identification documentation issued individuals based on foreign passport ID and by a state or the US government (Permanent a valid US government document (ie: work Resident Card) visa) Business customers are always properly identified and verified based on the type of business and forms of documentation available. No e-banking or Web site is informational or non-transactional.

Large and growing business customer base in a wide and diverse geographic area. Identified a large number of high-risk customers and businesses. These may include check cashers, convenience stores, money transmitters, casas de cambio, import or export companies, offshore corporations, (PEPs), NRAs, foreign deposit brokers, foreign corporations and foreign individuals.

The bank opens accounts for individuals with identification issued by consulates of the foreign governments (Cedular/Matricula Card)

Business customers are generally properly identified and verified based on the type of business and forms of documentation available. Bank is beginning e-banking and offers limited products and services.

Business customers are not properly identified or verified based on the type of business and forms of documentation available. Bank offers a wide array of e-banking products and services (e.g., account transfers, e-bill payment, or accounts opened via the Internet). The bank does offer internet banking The bank has a substantial number of The bank has a large number of internet services, but only allows access to customers using internet banking, but the banking customers and a large portion of predetermined accounts. Customers are not majority only use this service with limited use those customer also use the bill payment premitted to open accounts through this of bill payment. feature. service.

Page 1 of 6

Low The bank offers remote deposit capture, but has a small number of customers and risk is negated by a manual review of the items processed.

BSA AML OFAC Sample Risk Indicators Medium The bank has a moderate number of remote deposit customers with an emphasis on growing the product. Items are processed through parameters.

High The bank has a high number of remote deposit customers and the item processing is automated with review done through parameters.

The bank offers Cash Management and has a relative low number of cash management customers using the ACH and funds transfer products and bill payment is not available. Customers may not open accounts through this service. Face-to-face contact is made with the majority of customers prior to implementing cash management.

The bank has numerous active cash management customers and a moderate number of customers using the ACH function. The bank has customers that are using the bill payment feature of the product. Transactions are limited to domestic.

The bank has a high number of ACH and bill payment users in which the frequency and dollar amount of the transactions are substantial.

The bank has a limited number of ATMs that are located in conjunctions with branch locations and ATMs are cash withdrawal only. In addition, the bank has a contract with another financial institution to allow the bank's customers ATM access in contingent states.

The bank has ATMs that are located in conjunction with branch locations and ATMs have deposit and withdrawal capabilities. In addition, the bank has a contract with FIS/vendor to allow the bank's customers ATM access away from our bank.

The bank has a substantial number of ATM's offsite and allow deposits and withdrawals.

The bank does not offer stored-value or payroll cards. Activity available through ACH is limited and cross border (CBR), telephone (TEL) and web (WEB) based originations are not available. In addition, the current volume of ACH transactions through the Cash Management Program is very limited.

The bank offers stored-value cards on a limited basis. ACH activity can be initiated through one of the following: CBR, TEL, or WEB and there is a substantial number of customers who conduct ACH transactions through the Cash Management system.

Stored-value or payroll cards are widely offered. The bank offers ACH services that includes originations from CBR, TEL and WEB. There is a high number of active customers on the cash management system.

The bank does not have third-party payment The bank has active third-party processors as customers. processors who send originations frequently or the dollar volume of these files is significant. The target clientele is limited to domestic customers. A minimal amount of third-party processors appear on the high risk list.

An active third-party clientele with numerous transactions, high volume amounts. Target clientele is limited to domestic customer. Numerous thirdparty originators are on the high-risk list.

Page 2 of 6

Low The bank offers monetary instruments to customers and only to non- customers in exchange for checks drawn on the institution and requires payee on cashier checks. The Bank has a very low number of transactions in which cash over $3,000 was used to purchase monetary instruments.

BSA AML OFAC Sample Risk Indicators Medium The bank offers these monetary instruments to customers and to non-customers. The Bank has a moderate number of transactions in which cash over $3,000 was used to purchase monetary instruments.

High The bank offers monetary instruments to both customers and non-customers. There is a substantial amount of activity.

The bank does not offer payable upon proper identification (PUPID) transfers.

The bank does not offer payable upon proper identification (PUPID) transfers on a limited basis.

The bank offers payable upon proper identification (PUPID) transfers on a wide basis.

The bank does not engage in any or very little short term financing to facilitate the import or export of goods (letters of credit).

The bank engages in a moderate level of short term financing to facilitate the import or export of goods (letters of credit).

The bank engages in a high level of short term financing to facilitate the import or export of goods (letters of credit).

On the basis of information received from On the basis of information received from the BSA-reporting database, there are few or the BSA-reporting database, there is a no large currency or structured transactions. moderate volume of large currency or structured transactions. Identified a few high-risk customers and Identified a moderate number of high-risk businesses. customers and businesses. No foreign correspondent financial institution Bank has a few foreign correspondent accounts. Bank does not engage in pouch financial institution accounts, typically with activities, offer special-use accounts, or offer financial institutions with adequate AML payable through accounts (PTA), or provide policies and procedures from low- risk U.S. dollar draft services. countries, and minimal pouch activities, special-use accounts, payable through accounts (PTA), or U.S. dollar draft services.

On the basis of information received from the BSA-reporting database, there is a significant volume of large currency or structured transactions. Identified a large number of high-risk customers and businesses. Bank maintains a large number of foreign correspondent financial institution accounts with financial institutions with inadequate AML policies and procedures, particularly those located in high-risk jurisdictions, or offers substantial pouch activities, special-use accounts, payable through accounts (PTA), or U.S. dollar draft services.

Bank offers limited or no private banking services or trust and asset management products or services.

Bank offers limited domestic private banking services or trust and asset management products or services over which the bank has investment discretion. Strategic plan may be to increase trust business.

Few international accounts or very low volume of currency activity in the accounts.

Moderate level of international accounts with unexplained currency activity.

Bank offers significant domestic and international private banking or trust and asset management products or services. Private banking or trust and asset management services are growing. Products offered include investment management services, and trust accounts are predominantly nondiscretionary versus where the bank has full investment discretion. Large number of international accounts with unexplained currency activity.

Page 3 of 6

Low Limited number of funds transfers for customers, noncustomers; limited third-party transactions, and no foreign funds transfers.

BSA AML OFAC Sample Risk Indicators Medium Moderate number of funds transfers. Few international funds transfers from personal or business accounts with typically low-risk countries.

Bank is not in a High Intensity Drug Trafficking Area (HIDTA) or High Intensity Financial Crime Area (HIFCA). No fund transfers or account relationships involve HIDTAs or HIFCAs. No transactions with high-risk geographic locations.

Bank is in a High Intensity Drug Trafficking Area (HIDTA) or High Intensity Financial Crime Area (NIFCA). Bank has some fund transfers or account relationships that involve HIDTAs or HIFCAs. Minimal transactions with high-risk geographic locations.

Low turnover of key personnel or frontline personnel (e.g., customer service representatives, tellers, or other branch personnel). No history of OFAC actions. No evidence of apparent violations or circumstances that might lead to a violation.

Low turnover of key personnel, but frontline personnel in branches may have changed. A small number of recent actions (i.e. actions within the last 5 years) by OFAC, including notice letters or civil money penalties, with evidence that the bank addressed the issues and is not at risk of similar violations in the future.

Multiple recent actions by OFAC where the bank has not addressed the issues, thus leading to an increased risk of the bank incurring similar violations in the future.

Management fully understands the aspects of compliance risk and exhibits strong commitment to compliance.

Management reasonably understands key aspects of compliance and commitment is generally clear and satisfactorily communicated.

Compliance considerations are incorporated into all products and areas of the organization. When deficiencies are identified, management promptly implements meaningful corrective action.

Compliance considerations are overlooked or are weak in one or two areas. Problems can be corrected in the normal course of business without significant investment of money or management attention. Management is responsive when deficiencies are identified. Authority and accountability are defined, but some refinements are needed. Qualified BSA officer has been designated.

Management does not understand or has chosen to ignore key aspects of compliance risk. Importance of compliance is not emphasized or communicated throughout the organization. Compliance considerations are not incorporated into numerous areas of the organization. Errors and weaknesses are not selfidentified. Management may only respond when violations are cited.

Authority and accountability for compliance are clearly defined and enforced, including designation of qualified BSA officer.

High Large number of noncustomer funds transfer transactions and payable upon proper identification (PUPID) transactions. Frequent funds from personal or business accounts to or from high-risk jurisdictions, and financial secrecy havens or jurisdictions. Bank is in a High Intensity Drug Trafficking Area (HIDTA) and an HIFCA. Large number of fund transfers or account relationships involve HIDTAs or HIFCAs. Significant volume of transactions with high-risk geographic locations. High turnover, especially in key personnel positions.

Authority and accountability for compliance has not been clearly established. No qualified BSA officer or an unqualified one may have been appointed. Role of BSA officer is unclear.

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Low Independent testing is in place and is effective. Board has approved a BSA compliance program that includes adequate policies, procedures, controls, and information systems.

Training is appropriate, effective, covers applicable personnel, and necessary resources have been provided to ensure compliance.

BSA AML OFAC Sample Risk Indicators Medium Overall, independent testing is in place and effective. However, some weaknesses are noted. Board has approved a BSA compliance program that addresses most policies, procedures, controls, and information systems but some weaknesses are noted.

Management has identified and developed controls that are applied appropriately to high-risk areas, products, services, and customers of the bank.

Training is conducted and management provides adequate resources given the risk profile of the organization; however, some areas are not covered within the training program. Customer identification processes and account-opening procedures are generally in place but not well applied to all high-risk areas. Management is aware of high-risk areas, products, services, and customers, but controls are not always appropriately applied to manage this risk.

Compliance systems and controls quickly adapt to changes in various government lists (e.g., OFAC, Financial Crimes Enforcement Center [FinCEN], and Other Government Provided List).

Compliance systems and controls are generally adequate and adapt to changes in various government lists (e.g., OFAC, Financial Crimes Enforcement Center [FinCEN], and Other Government Provided List).

Compliance systems and controls effectively identify and appropriately report suspicious activity. Systems are commensurate with risk. Low volume of correspondence from IRS indicates that CTRs are accurate.

Compliance systems and controls generally identify suspicious activity. However, monitoring systems are not comprehensive or have some weaknesses. Volume of correspondence from IRS indicates some errors in CTR reporting.

Effective customer identification processes and account-opening procedures are in place.

High Independent testing is not in place and/or is ineffective. Board may not have approved a BSA compliance program. Policies, procedures, controls, and information systems are significantly deficient. For example, there are substantial failures to file currency transaction reports and/or suspicious activity reports. Training is not consistent and does not cover important regulatory and risk areas.

Customer identification processes and account-opening procedures are absent or ineffective. Management is not fully aware of high-risk areas of the bank. Inadequate policies, procedures, and controls have resulted in instances of unreported suspicious activity, unreported large currency transactions, structured transactions, and/or substantive violations of law. Compliance systems and controls are inadequate to comply with and adapt to changes in various government lists (e.g., OFAC, Financial Crimes Enforcement Center [FinCEN], and Other Government Provided List). Compliance systems and controls are ineffective in identifying and reporting suspicious activity.

Volume of correspondence from IRS indicates a substantive volume of CTR reporting errors.

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Low Appropriate compliance controls and systems are implemented to identify compliance problems and assess performance.

BSA AML OFAC Sample Risk Indicators Medium No shortcomings of significance are evident in compliance controls or systems. Probability of serious future violations or noncompliance is within acceptable tolerance.

High Likelihood of continued compliance violations or noncompliance is high because a corrective action program does not exist or extended time is needed to implement such a program.

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BSA AML OFAC Products and Services Sample Product and Services Risk Indicators Low Moderate Checking account services may not be assigned Checking accounts offered only to consumers, low-risk due to the use of the transaction and to sole proprietors that typically also accounts for entry into the banking system for maintain their personal accounts at the bank furthering illicit activity. are considered moderate-risk.

High An assessment of high-risk is assigned if checking accounts are provided to any other business entities, including highrisk businesses, cash intensive businesses, and money services businesses.

A low-risk is assigned if time deposits are offered toAconsumers moderate-risk only.is assigned if time deposits are A high-risk is assigned if the Bank offered to any other entities, such as to sole markets to foreign entities. proprietorships or other businesses. Correspondent Accounts - Domestic

There is no category that would allow for an assignment of moderate risk. No electronic banking (e-banking) or the website The bank is beginning e-banking and offers is informational or non-transactional. limited products and services.

Correspondent Accounts - On behalf of Non-US Persons or Foreign Banks The bank offers a wide array of ebanking products and services (i.e. account transfers, e-bill payment, or accounts opened via the Internet). Based on a review of currency transaction reports Based on a review of currency transaction Based on a review of currency (CTRs), there are few or no large currency or reports, there is a moderate volume of large transaction reports, there is a significant structured transactions. currency or structured transactions. volume of large currency or structured transactions. No foreign correspondent financial institution The bank has a few foreign correspondent The bank maintains a large number of accounts. The bank does not engage in pouch financial institution accounts, but typically with foreign correspondent financial activities, offer special-use accounts, or offer financial institutions with adequate AML institution accounts with financial payable through accounts (PTAs), or provide U.S. policies and procedures from low-risk institutions with inadequate AML dollar draft services. countries, and minimal pouch activities, special- policies and procedures, particularly use accounts, PTAs, or U.S. dollar draft those located in high-risk jurisdictions, services. or offers substantial pouch activities, PTAs, or U.S. dollar draft services. The bank offers limited or no private banking The bank offers limited domestic private services or trust and asset management products banking services or trust and asset or services. management products or services over which the bank has investment discretion. Strategic plan may be to increase trust business.

The bank offers significant domestic and international private banking or trust and asset management products or services. Private banking or trust and asset management services are growing. Products offered include investment management services, and trust accounts are predominately nondiscretionary versus where the bank has full investment discretion.

Few international accounts or very low volume of Moderate level of international accounts with Large number of international accounts currency activity in the accounts. unexplained currency activity. with unexplained currency activity. A limited number of funds transfers for customers, noncustomers, limited third-party transactions, and no foreign funds transfers.

A moderate number of funds transfers. A few international funds transfers from personal or business accounts with typically low-risk countries.

A large number of noncustomer funds transfer transactions and payable upon proper identification (PUPID) transactions. Frequent funds from personal or business accounts to or from high-risk jurisdictions, and financial secrecy havens or jurisdictions.

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BSA AML OFAC Products and Services Sample Product and Services Risk Indicators Low Moderate High No overseas branches and no correspondent Overseas branches or correspondent accounts Overseas branches or multiple accounts with foreign banks. with foreign banks. correspondent accounts with foreign banks. No other types of international transactions such Limited other types of international A high number of other types of as trade finance, cross-border ACH, and transactions. international transactions. management of sovereign debt. Prepaid cards are single use and offered to Prepaid cards are reloadable and offered to Prepaid cards are reloadable and customers only. limited customer base. customer base is not limited. Management fully understands the Management reasonably Management does not understand aspects of compliance risk and understands key aspects of or has chosen to ignore key exhibits strong commitment to compliance and commitment is aspects of compliance risk. compliance. generally clear and satisfactorily Importance of compliance is not communicated. emphasized or communicated throughout the organization. Compliance considerations are Compliance considerations are Compliance considerations are not incorporated into all products and overlooked or are weak in one or incorporated into numerous areas areas of the organization. two areas. of the organization. When deficiencies are identified, Problems can be corrected in the Errors and weaknesses are not selfmanagement promptly implements normal course of business without identified. Management may only meaningful corrective action. significant investment of money or respond when violations are cited. management attention. Management is responsive when deficiencies are identified. Board has approved a BSA Board has approved a BSA Board may not have approved a compliance program that includes compliance program that BSA compliance program. Policies, adequate policies, procedures, addresses most policies, procedures, controls, and controls, and information systems. procedures, controls, and information systems are information systems but some significantly deficient. For weaknesses are noted. example, there are substantial failures to file currency transaction reports and/or suspicious activity reports. Training is appropriate, effective, Training is conducted and Training is not consistent and does covers applicable personnel, and management provides adequate not cover important regulatory and necessary resources have been resources given the risk profile of risk areas. provided to ensure compliance. the organization; however, some areas are not covered within the training program. Effective customer identification Customer identification processes Customer identification processes processes and account-opening and account-opening procedures and account-opening procedures procedures are in place. are generally in place but not well are absent or ineffective. applied to all high-risk areas. Management has identified and Management is aware of high-risk Management is not fully aware of developed controls that are areas, products, services, and high-risk areas of the bank. applied appropriately to high-risk customers, but controls are not Inadequate policies, procedures, areas, products, services, and always appropriately applied to and controls have resulted in customers of the bank. manage this risk. instances of unreported suspicious activity, unreported large currency transactions, structured transactions, and/or substantive violations of law.

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Low Compliance systems and controls quickly adapt to changes in various government lists (e.g., OFAC, Financial Crimes Enforcement Center [FinCEN], and Other Government Provided List). Compliance systems and controls effectively identify and appropriately report suspicious activity. Systems are commensurate with risk. Appropriate compliance controls and systems are implemented to identify compliance problems and assess performance.

BSA AML OFAC Products and Services Sample Product and Services Risk Indicators Moderate Compliance systems and controls are generally adequate and adapt to changes in various government lists (e.g., OFAC, Financial Crimes Enforcement Center [FinCEN], and Other Government Provided List). Compliance systems and controls generally identify suspicious activity. However, monitoring systems are not comprehensive or have some weaknesses. No shortcomings of significance are evident in compliance controls or systems. Probability of serious future violations or noncompliance is within acceptable tolerance.

High Compliance systems and controls are inadequate to comply with and adapt to changes in various government lists (e.g., OFAC, Financial Crimes Enforcement Center [FinCEN], and Other Government Provided List). Compliance systems and controls are ineffective in identifying and reporting suspicious activity.

Likelihood of continued compliance violations or noncompliance is high because a corrective action program does not exist or extended time is needed to implement such a program.

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8/29/2016

Protecting Our Servicemembers: The Military Lending Act

© 2016 Temenos USA. All rights reserved.

Compliance Services

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Compliance Services

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What you will learn  Military Lending Act        

Effective dates Purpose Coverage Applicability Identification of Covered Borrower Mandatory loan disclosures

Additional prohibitions Penalties for non-compliance

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Military Lending Act (32 CFR 232)  Name Confusion 

Military Lending Act, Talent Amendment, John Warner

 Purpose 

Impose limitations on cost and terms of certain extensions of credit to servicemembers and dependents 



Applies to a broader range of closed-end and open-end credit products

Provide additional protections

 Effective date: October 1, 2015 

Compliance: October 3, 2016 

Exception: For credit cards, October 3, 2017 Compliance Services

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Coverage  Provides the maximum allowable amount of all charges, and types of

charges, that may be associated with a covered extension of consumer credit;  Requires a creditor to provide to a covered borrower a statement of the

Military Annual Percentage Rate (MAPR) before or at the time the borrower becomes obligated on the transaction or establishes an account for the consumer credit;  In addition to any disclosures that must be provided to consumers under the Regulation Z (TILA)  Provides method creditor must use in calculating MAPR; and  Contains such other criteria and limitations as the Secretary of Defense

has determined appropriate Compliance Services

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Coverage  Much broader definition of what constitutes “consumer credit” 



Previously, narrow parameters applied only to payday loans, auto title loans, and tax refund anticipation loans Now, extends to all credit granted for personal, family, or household purposes that is either:  

Subject to a finance charge; or Payable by a written agreement in more than four installments

 Examples 

Vehicle title loans, payday loans, refund anticipation loans, installment loans, unsecured open-end LOCs, credit cards and deposit advance products Compliance Services

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Coverage  Exceptions:  

Residential mortgages Credit extended to finance the purchase of personal property, such as vehicle purchase loans, when secured by such personal property

 Does not apply to current loans  Does not impose obligations to monitor the borrower’s covered status

for the life of the loan

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Exceptions to “consumer credit”  Consumer credit does not mean: 

A residential mortgage = secured by an interest in a dwelling 









Purchase, construction, refinance, HELOC, reverse mortgage

Credit expressly intended to finance purchase of a motor vehicle when credit is secured by vehicle being purchased Credit expressly intended to finance purchase of personal property when credit is secured by property being purchased Credit transaction exempt from Regulation Z (other than a transaction exempt under 12 CFR 1026.29) or otherwise not subject to disclosure requirements under Regulation Z Credit transaction or account for credit for which creditor determines that consumer is not a covered borrower by using a method prescribed under the regulation and by complying with the recordkeeping requirement Compliance Services

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Compliance Services

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Covered borrower  Covered borrower 

A consumer who, at the time the consumer becomes obligated on a consumer credit transaction or establishes an account for consumer credit, is a covered member or a dependent of a covered member 

But see Applicability slide

 Covered member 

A member of the armed forces who is serving on  



Active duty under a call or order that does not specify a period of 30 days or fewer; or Active Guard and Reserve duty; or

A “dependent” with respect to a covered member means a person described in subparagraph (A), (D), (E), or (I) of 10 U.S.C. 1072(2).

 Does not mean a consumer who no longer is a covered member or

a dependent of a covered member

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Applicability  Applicability 

Must be a covered borrower at the time he or she becomes obligated on a credit transaction or establishes an account for credit  



 

Consumer initiates the transaction or 30 days prior to that time; Consumer applies to establish the account or 30 days prior to that time; or Consumer responds to firm offer of credit (e.g., prescreened offer) not later than 60 days after the time creditor provided that offer to the consumer > 60 days, must re-determine

Does not apply to a credit transaction or account relating to a consumer when the consumer no longer is a covered borrower Compliance Services

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Applicability  Examples 

Consumer A is a member of the armed forces but not serving on active duty, and holds an account for closed-end credit with a financial institution. After establishing the closed-end credit account, Consumer A is ordered to serve on active duty, thereby becoming a covered borrower. 

Consumer A then establishes an open-end line of credit for personal purposes (not subject to any exception or temporary exemption) with the financial institution 



MLA applies to the open-end line of credit; not to the closed-end credit account

One year after establishing the open-end line of credit, Consumer A ceases to serve on active duty  

MLA never applied to the closed-end credit account MLA no longer applies to the open-end line of credit Compliance Services

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Identification of Covered Borrower

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No requirement to conduct a covered-borrower check



No restriction on method for covered-borrower check 



Permitted to apply own method to assess whether consumer is a covered borrower

Safe harbor 

Creditor may conclusively determine whether credit is offered or extended to a covered borrower by: 

Department database  Verify status of a consumer by using information relating to that consumer, if any, obtained directly or indirectly from the database maintained by the DOD •

 





https://mla.dmdc.osd.mil/

Requires the entry of the consumer's last name, date of birth and Social Security number Historic lookback prohibited At any time after a consumer has entered into a transaction or established an account involving an extension of credit, a creditor (including an assignee) may not, directly or indirectly, obtain any information from any database maintained by the DOD to ascertain whether a consumer had been a covered borrower as of the date of that transaction or as of the date that account was established

Consumer report from a nationwide consumer reporting agency  Verify status of a consumer by using a statement, code, or similar indicator describing that status, if any, contained in a consumer report obtained from a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis, or a reseller of such a consumer report



and



Maintaining records in accordance with regulation Compliance Services

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Recordkeeping  Covered borrower determination deemed to be conclusive with respect to

that transaction or account provided that 

Creditor must timely create and thereafter maintain a record of that information 

 

A consumer initiates the transaction or 30 days prior to that time; A consumer applies to establish the account or 30 days prior to that time; or If a firm offer of credit (e.g., prescreened offer) includes screening for covered borrower status and consumer responds within 60 days after creditor provides offer to consumer 

Response after 60 days, may rely on consumer’s response •

Best practice to ensure safe harbor is to perform new determination

Compliance Services

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Military Annual Percentage Rate (MAPR)  Cost of consumer credit expressed as annual

rate not to exceed 36 percent  In general, any charge that is a “finance

charge” under Regulation Z and certain other charges that would be covered as “interest” under 10 U.S.C. 987(i)(3), must be included in the calculation of MAPR  Certain bona fide fees may be excluded

Compliance Services

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Charges included in the MAPR  Any credit insurance premium or fee, charge for single premium credit

insurance, fee for a debt cancellation contract, or fee for a debt suspension agreement  Any fee for a credit-related ancillary product sold in connection with credit

transaction for closed-end credit or an account for open-end credit  Finance charges associated with the consumer credit  Any application fee charged to covered borrower, other than certain

application fees charged by a Federal credit union or an insured depository institution (some small amount, short term loans)  Any fee imposed for participation in any plan or arrangement for consumer

credit subject to certain limitations Compliance Services

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Mandatory loan disclosures  Required information 

Before or at the time the borrower becomes obligated on the transaction or establishes an account for the consumer credit:  



A statement of the MAPR applicable to the extension of consumer credit; Any disclosure required by Regulation Z, which shall be provided only in accordance with the requirements of Regulation Z that apply to that disclosure; and A clear description of the payment obligation of the covered borrower, as applicable 

 

A payment schedule (in the case of closed-end credit) or account-opening disclosure (in the case of open-end credit) under Regulation Z satisfies this requirement

One-time delivery

Refinancing or renewal of covered loan requires new disclosures only when the transaction for that credit would be considered a new transaction that requires disclosures under Regulation Z Compliance Services

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Statement of the MAPR  May be satisfied by description of charges creditor may impose relating

consumer credit to calculate MAPR  Not required to describe MAPR as numerical value or describe total

dollar amount of all charges in MAPR that apply to extension of consumer credit  Not required in any advertisement  Model statement provided

Compliance Services

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Model statement

“Federal law provides important protections to members of the Armed Forces and their dependents relating to extensions of consumer credit. In general, the cost of consumer credit to a member of the Armed Forces and his or her dependent may not exceed an annual percentage rate of 36 percent. This rate must include, as applicable to the credit transaction or account: The costs associated with credit insurance premiums; fees for ancillary products sold in connection with the credit transaction; any application fee charged (other than certain application fees for specified credit transactions or accounts); and any participation fee charged (other than certain participation fees for a credit card account).”

Compliance Services

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Delivery  Written disclosures 

In writing in a form the covered borrower can keep

 Oral disclosures 



Must orally provide statement of MAPR and payment schedule Methods to provide oral disclosures  

In person; or A toll-free telephone number in order to deliver the oral disclosures to a covered borrower when the covered borrower contacts the creditor for this purpose 

Toll-free telephone number must be included on • •

Form creditor directs consumer to use to apply for the transaction or account involving consumer credit; or A written disclosure the creditor provides to the covered borrower (model statement)

Oral Disclosures

“For example, a creditor could generally describe how minimum payments are calculated on openend credit plans issued by the creditor and then refer the covered borrower to the written materials the borrower will receive in connection with opening the plan. Alternatively, a creditor could choose to generally describe borrowers' obligations to make a monthly, bi-monthly, or weekly payment as the case may be under the borrowers' agreements.”

Compliance Services

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Additional prohibitions  It is unlawful for any creditor to extend consumer credit to covered borrower where: 





Covered borrower is required to waive the right to legal recourse under any otherwise applicable provision of State or Federal law, including any provision of the Servicemembers Civil Relief Act (50 U.S.C. App. 501 et seq.) Creditor requires covered borrower to submit to arbitration or imposes other onerous legal notice provisions in case of a dispute Creditor demands unreasonable notice from covered borrower as a condition for legal action

Compliance Services

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Additional prohibitions  It is unlawful for any creditor to extend consumer credit to covered borrower where: 

Creditor uses check or other method of access to deposit, savings, or other financial account maintained by covered borrower, except creditor may:   

 



Require an electronic fund transfer to repay a consumer credit transaction, unless otherwise prohibited by law; Require direct deposit of consumer's salary as a condition of eligibility for consumer credit, unless otherwise prohibited by law; or If not otherwise prohibited by applicable law, take a security interest in funds deposited after extension of credit in an account established in connection with consumer credit transaction

Creditor uses title of a vehicle as security for obligation involving the consumer credit Creditor requires as a condition for extension of consumer credit the covered borrower establish an allotment to repay the obligation Covered borrower is prohibited from prepaying consumer credit or is charged a penalty fee for prepaying all or part of consumer credit Compliance Services

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Rollover, Vehicle Title, and Allotment Restrictions  For the rollover and vehicle title restrictions, “creditor” does not include

bank, savings association, or credit union chartered or licensed under Federal or State law  Rollover restriction does not apply to transaction when same creditor extends consumer credit to covered borrower to refinance or renew extension of credit not covered by the MLA because consumer was not covered borrower at time of original transaction  For purposes of the allotment restriction, “creditor” does not include

military welfare societies and the relief societies

Compliance Services

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Penalties for non-compliance  Voiding the underlying contractual obligation;  Actual damages (of not less than $500);  Appropriate punitive damages;  Appropriate equitable or declaratory relief; and  Costs associated with the action, including reasonable attorney’s fees

Compliance Services

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Resources  Final Rule: Limitations on Terms of Consumer Credit Extended to Service Members and Dependents,

80 FR 43559, July 22, 2105 https://www.federalregister.gov/articles/2015/07/22/201517480/limitations-on-terms-of-consumer-credit-extended-to-service-members-and-dependents  Regulatory Text: 12 CFR Part 232 http://www.ecfr.gov/cgi-bin/text-

idx?SID=b026b3b5f06f6e4bbf16e0726aec429c&mc=true&node=pt32.2.232&rgn=div5  DOD’s Military Lending Act Page: https://mla.dmdc.osd.mil/  DOD Interpretative Letter (issued August 26, 2016):

https://www.federalregister.gov/articles/2016/08/26/2016-20486/military-lending-act-limitations-onterms-of-consumer-credit-extended-to-service-members-and

Compliance Services

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Resources  CFPB Credit Card Agreement Database

http://www.consumerfinance.gov/credit-cards/agreements/  The SEC makes public filings available through its Electronic Data

Gathering, Analysis, and Retrieval (EDGAR) system. Information on this system is available at http://www.sec.gov/edgar/aboutedgar.htm.  Call Reports for FDIC-insured institutions: https://cdr.ffiec.gov/public/  Call Reports for credit unions:

http://researchcu.ncua.gov/Views/FindCreditUnions.aspx.

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Questions?

© 2016 Temenos USA. All rights reserved.

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RESPA Section 8: Is your Marketing Service Agreement Compliant?

© 2016 Temenos USA. All rights reserved.

Compliance Services

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Compliance Services

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What you will learn  RESPA Section 8    

The basics Marketing Service Agreements (MSAs) RESPA and unearned fees Key to successful relationships

 Resources

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RESPA Section 8 (12 CFR 1024.14)

Compliance Services

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RESPA Section 8: The basics  No referral fees 

No person shall give and no person shall accept     

any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person

 Any referral of a settlement service is not a compensable service,

unless otherwise excepted  A company may not pay any other company or the employees of

any other company for the referral of settlement service business Compliance Services

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RESPA Section 8: The basics  Referral 

A referral includes        



any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or part of a settlement service when such person will pay for such settlement service or business incident thereto or pay a charge attributable in whole or in part to such settlement service or business

A referral also occurs    

whenever a person paying for a settlement service or business incident thereto is required to use a particular provider of a settlement service or business incident thereto Compliance Services

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RESPA Section 8: The basics  Thing of value 

Broadly defined 



The term “payment” is used throughout is synonymous with the giving or receiving of any “thing of value” and does not require transfer of money

Includes, without limitation,     

  

monies things discounts salaries commissions fees duplicate payments of a charge stock Compliance Services

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More things of value you may not have realized 

dividends





distributions of partnership profits





franchise royalties





 

credits representing monies that may be paid at a future date

the opportunity to participate in a money-making program







retained or increased earnings



increased equity in a parent or subsidiary entity



special bank deposits or accounts special or unusual banking terms services of all types at special or free rates sales or rentals at special prices or rates lease or rental payments based in whole or in part on the amount of business referred trips and payment of another person's expenses reduction in credit against an existing obligation Compliance Services

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RESPA Section 8: The basics  Agreement or understanding 

An agreement or understanding for    



the referral of business incident to or part of a settlement service need not be written or verbalized but may be established by a practice, pattern or course of conduct

Thing of value received repeatedly and connected in any way with volume or value of business referred 

Receipt is evidence that it is made pursuant to an agreement or understanding for the referral of business

Compliance Services

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Marketing Service Agreements  Usually framed as payments

for advertising or promotional services  Oral or written  Disguised as compensation for referrals  Quid pro quo for the referral of business  Review facts and

“MSAs appear to create opportunities for parties to pay or accept illegal compensation for making referrals of settlement service business.”

circumstances  Each case may be unique

~ CFPB, Bulletin 2015-05

Compliance Services

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Impact of MSAs  Steering of business    

Consumers pay higher prices Indirectly undermines consumer’s ability to shop Disguise or hide affiliate relationships Creates tangible legal and regulatory risks for the monitoring and administration of MSAs

 Failure to provide services  

Consumer pays for services not actually performed Reasonable inference can be drawn that MSA is referral arrangement in exchange for kickbacks

 Marketing expenses in exchange for referrals Compliance Services

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Impact of MSAs  Compliance risks 

Individual, creditor   



Financial fines, penalties Injunctive relief Could be subject to imprisonment

Regulator efforts   

Bans on entering into MSAs Ban from working in mortgage industry More than $75 million in penalties  Plus individual penalties

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RESPA Section 8 and unearned fees  No split of charges except for actual services performed 

No person shall give and no person shall accept    

any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed

 A charge by a person for which no or nominal services are performed

or for which duplicative fees are charged is an unearned fee and violates RESPA Section 8  The source of the payment does not determine whether or not a

service is compensable  Nor may the prohibitions be avoided by creating an arrangement

wherein the purchaser of services splits the fee Compliance Services

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RESPA and unearned fees  Payments Must Be for Goods, Facilities or Services  In the determination of whether payments from lenders to mortgage brokers are permissible under Section 8 of RESPA, the threshold question is  whether there were goods or facilities actually furnished or services actually performed for the total compensation paid to the mortgage broker.  In making the determination of whether compensable services are performed, HUD’s letter to the Independent Bankers Association of America, dated February 14, 1995 (IBAA letter) may be useful. http://www.fdic.gov/news/news/financial/1999/FIL9921b.pdf Compliance Services

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 In IBAA Letter, HUD identified the following services normally

performed in the origination of a loan:

Unearned fees

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 (a) Taking information from the borrower and filling out the application;  (b) Analyzing the prospective borrower’s income and debt and prequalifying the prospective borrower to determine the maximum mortgage that the prospective borrower can afford;  (c) Educating the prospective borrower in the home buying and financing process, advising the borrower about the different types of loan products available, and demonstrating how closing costs and monthly payments could vary under each product;  (d) Collecting financial information (tax returns, bank statements) and other related documents that are part of the application process;  (e) Initiating/ordering VOEs (verifications of employment) and VODs (verifications of deposit);

 (f) Initiating/ordering requests for mortgage and other loan verifications;  (g) Initiating/ordering appraisals;  (h) Initiating/ordering inspections or engineering reports;  (i) Providing disclosures (truth in lending, good faith estimate, others) to the borrower;  (j) Assisting the borrower in understanding and clearing credit problems;  (k) Maintaining regular contact with the borrower, realtors, lender, between application and closing to appraise them of the status of the application and gather any additional information as needed;  (l) Ordering legal documents;  (m) Determining whether the property was located in a flood zone or ordering such service; and  (n) Participating in the loan closing

Compliance Services

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Unearned fees 15

 If only provide counseling services  (b), (c), (d), (j), and (k)  Then, must also take the application and  No steering  Counseling gave borrower opportunity to consider products from at least three different lenders;  Entity performing counseling would receive the same compensation regardless of which lender’s products were ultimately selected; and  Any payment made for ‘‘counseling-type’’ services is reasonably related to services performed and not based on the amount of loan business referred to a particular lender Compliance Services

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Compliance Services

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NewDay Financial Consent Order, February 2015

“Respondent, and its officers, agents, servants, employees, and attorneys who have actual notice of this Consent Order, whether acting directly or indirectly, may not violate Section 8 of RESPA, including by providing a thing of value to a third party pursuant to an agreement or understanding to refer real estate settlement service business, including, but not limited to, providing a thing of value in exchange for an endorsement of Respondent that is directed to a person.”

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Keys to successful relationships  No favors   

Deposit accounts, interest rates Preferred loan interest rates Quid pro quo

 Monitor and verify 



Ensure controls in place to prevent existence of formal or informal referral arrangements with counterparties to your MSAs and their employees Develop a defensible estimate of each service’s fair market value 



Document how arrived at that value

Ensure any and all services are actually performed  

Do not pay for services not performed Do not perform services for which you are not paid

 Report issues – promptly 

Terminate relationship Compliance Services

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Compliance Services

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Keys to successful relationships  Word choices 

Preferably expressly written agreement 



Detail requirements for services

Do not call it a ‘referral agreement’ or a ‘referral fee’ 

Call it what it is … payment for ____ services rendered

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Resources  RESPA implementing regulation: 12 CFR 1024.14

 CPFB Compliance Bulletin 2015-05

http://files.consumerfinance.gov/f/201510_cfpb_compliance-bulletin2015-05-respa-compliance-and-marketing-services-agreements1.pdf  In the Matter of NewDay Financial consent order

http://files.consumerfinance.gov/f/201502_cfpb_consentorder_newday-financial.pdf  HUD’s Real Estate Settlement Procedures Act (RESPA) Statement of

Policy 1999–1 Regarding Lender Payments to Mortgage Brokers; Final Rule  HUD’s RESPA Statement of Policy 2001-1: Clarification of Statement

of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees Under Section 8(b) Compliance Services

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Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

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8/29/2016

Regulation O: The Ins and Outs

© 2016 Temenos USA. All rights reserved.

Compliance Services

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Compliance Services

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What you will learn  Regulation O     

Definitions Prohibitions Regulation O Overdrafts Restrictions Reporting Requirements

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Regulation O  The Bert Lance Law 

Governs the lending relationship between a financial institution and its insiders

 Violations will not go undetected

 Violations reflect not only on the financial institution but its insiders as

well

Compliance Services

3

Definitions  Extension of credit 



Virtually any circumstance whereby an insider of a financial institution is or may become indebted to the institution Includes loans directly to the insider, loans which the insider guarantees or pledges collateral for, letters of credit and overdrafts to an insider's deposit accounts

 Exceptions  

Revolving line of credit that does not exceed $15,000 A line of credit not to exceed $5000 that acts as overdraft protection on a deposit account

 Tangible Economic Benefit rule 

Exception is loans to a third party used to purchase merchandise from an insider Compliance Services

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Insiders  Directors  Executive Officers  Principal shareholders  Directors and executive officers of a financial institution's affiliates  Related interests of an insider

Compliance Services

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Directors  Directors are the persons elected by the shareholders to serve on the

institution's board and vote at board meetings  Advisory or honorary directors are not directors

Compliance Services

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Executive Officers  An executive officer is a person who has the authority (other than as a

director) to participate in the major policy making decisions of the bank  There is a presumption that everyone with the title of vice president or

higher and the chairman of the board of directors are executive officers  The board of directors may designate by resolution its executive

officers

Compliance Services

7

Principal shareholder  A principal shareholder is a person that owns, controls or has the

power to vote 10% or more of the bank's voting securities  The stock of a person and the person's spouse are aggregated  If the institution is owned by a holding company, any principal

shareholder of the holding company is a principal shareholder of the institution

Compliance Services

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Related Interests  A related interest is a company controlled by the insider or a political

campaign controlled or for the benefit of an insider  Control exists if a person owns 25% or more of a company or owns 10% or more and is an executive officer of the company  Do not aggregate ownership of a spouse  Has nothing to do with family relationships

Compliance Services

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Insiders of affiliates  A affiliate is a company that owns the bank, and any other company

owned by that company

Compliance Services

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Regulation O Prohibitions  A financial institution may not make a loan to an insider on terms or conditions

more favorable then it would make to a person not an insider similarly situated  An exception is a special loan program available to substantially all of the institution's employees and the insider does not receive a preference  The underwriting standards used to approve the loan must not be less stringent

than those used for person who are not insiders  A financial institution may not make an extension of credit to an insider if the

extension of credit would cause the insider's total indebtedness to the institution to exceed the lesser of $500,000 or 5% of the capital of the bank unless the extension of credit has the prior approval of the institution's board of directors  If an insider's indebtedness to the institution exceeds $500,000 and a portion of the

indebtedness is a credit line the credit line must be reapproved at least every 14 months Compliance Services

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More prohibitions  A financial institution may not make an extension of credit to an insider

if, when aggregated with extensions of credit to the insider's related interests, would exceed the bank's loan to one borrower limit  A financial institution's extensions of credit to all insiders in the

aggregate may not exceed the bank's capital 

Exceptions   

Loans secured by deposits in the bank Loan secured by obligations of the United States Loans secured by a taken-out or guarantee from an agency or department of the United States government

Compliance Services

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Rules for Executive Officers, Directors, Executive Officers and Directors of Affiliates  A financial institution may not pay a overdraft an

executive officer's or director's deposit account  Exception is inadvertent overdraft. Not more than $1000 and account is not overdrawn more than five days  No more than three inadvertent overdrafts in 12 month period  Rule does not apply to accounts of related

interest unless?  Accounts of family members Compliance Services

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Restrictions on Loans to Executive Officers  A bank may make a loan to an

executive officer in an unlimited amount:  For the education of the executive officer's children  To purchase, refinance the purchase or improve a residence  



An executive officer may have only one residence loan at a time Residence need not be the principal residence

If the loan is secured by deposits in the bank, United States government obligations, etc.

 A bank may make a loan to an executive

officer in the amount of the lesser of 

$100,000 or 2.5% of the bank's capital

 All loans to an executive officer must be

preceded by the executive officers current detailed financial statement  All loans to an executive officer must be

promptly reported to the board  All loans to an executive officer must contain

a provision that the loan is callable by the bank if the executive officer becomes indebted to another bank or banks in an aggregate amount greater than the executive officer's bank could lend

Compliance Services

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Reporting Requirements  If a bank is not publicly held, executive

officers and directors must annually report to the board any loans secured by stock in the bank that they own  A bank must disclose upon request a list of any executive officers or principal shareholders who have extensions of credit in excess of $500,000 or 5% of the bank's capital

Compliance Services

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Compliance Services

16

Questions?

© 2016 Temenos USA. All rights reserved.

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8/29/2016

The Flood Escrow Rules: Show Us the Money

© 2016 Temenos USA. All rights reserved.

Compliance Services

1

What you will learn  Brief general review of the RESPA escrow rules as they apply to the

Flood Insurance Escrow requirements  Brief summary of Flood Insurance rules  Requirements of the Flood Escrow rules  

Mandatory Escrow after January 1, 2016 Exceptions to Mandatory Escrow  

Loan Exception Small Lender Exception

Compliance Services

2

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Mandatory Escrow for Flood Insurance 



For consumer loans secured by residential improved real estate or mobile home located or to be located in a Special Flood Hazard Area (SFHA) made, increased, renewed or extended (MIRE) beginning January 1, 2016 Flood rules mandate escrow for flood insurance premium unless  



loan qualifies for flood escrow exemption lender qualifies for small lender exception

For loans outstanding as of January 1, 2016 (or July 1 of first calendar year no longer qualify as a small lender) borrower generally entitled to option to escrow

Compliance Services

3

Brief Summary of General Escrow Requirements  Flood escrow rules follow the escrow rules under RESPA which  



Limit amount borrower required to deposit into escrow Establish reporting and escrow analysis requirements lender provides to borrower

Establish rights and obligations of lender regarding surplus, shortage or deficiency in escrow account

 State laws requiring lender to pay interest on an escrow account

Compliance Services

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How much coverage is required 





Interagency Questions and Answers Regarding Flood Insurance 13. How much insurance is required on a building located in an SFHA in a participating community? Answer: The amount of insurance required by the Act and Regulation is the lesser of:  

The outstanding principal balance of the loan(s); or The maximum amount of insurance available under the NFIP, which is the lesser of: • •

The maximum limit available for the type of structure; or The ‘‘insurable value’’ of the structure.

Compliance Services

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Compliance Services

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NFIP Coverage Limits Regular Program Residential (1-4 family) Building

$250,000

Note: Mandatory Escrow applies

Contents

$100,000

to consumer loans only

Other Residential Building

$500,000

Contents

$100,000

Non-Residential Building

$500,000

Contents

$500,000

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Escrow for Flood Insurance Premiums 

Mandatory escrow for flood insurance premiums for loans made, increased, renewed or extended on or after January 1, 2016   



Two Exceptions to Mandatory Escrow  



Property in an SFHA Secured by residential improved real estate or mobile home Applies to consumer loans only Loan Exception Small Lender Exception

Optional escrow on loans outstanding on January 1, 2016 with escrow notice provided by June 30, 2016 unless exceptions apply Compliance Services

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Exceptions to Mandatory Flood Escrow Requirements  Loan Exception 

A loan is exempt from mandatory escrow if  

Loan is an extension of credit primarily for business, commercial, or agricultural purposes Loan is in a subordinate position to senior lien   

secured by same residential improved real estate or mobile home for which borrower has obtained flood insurance coverage meeting flood insurance requirements



Compliance Services

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8/29/2016

Exceptions to Mandatory Flood Escrow Requirements 

 



Loan is a home equity line of credit (HELOC) Loan has a term of no longer than 12 months Loan is nonperforming (90 or more days past due) and remains nonperforming until permanently modified or until entire amount past due, including principal, accrued interest, and penalty interest incurred is collected or otherwise discharged in full Residential improved real estate or mobile home already has flood insurance policy provided for by condominium, cooperative, homeowner’s association, or other applicable group and premium paid by association or other applicable group as common expense

Compliance Services

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Exceptions to Mandatory Flood Escrow Requirements  If loan loses its exception 

Must comply “as soon as reasonably practical” with mandatory escrow requirements

 You must monitor loans to see if they continue to meet the exception

Compliance Services

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Exceptions to Mandatory Flood Escrow Requirements  Small Lender Exception 

Qualifications:  



Must have total asset size less than $1 billion as of December 31 of either of the two prior calendar years and On July 6, 2012, 

 

was not required to escrow for taxes, insurance, fees or any other charges in escrow for the entire term of the loan and did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for any loans secured by residential improved real estate or a mobile home

Compliance Services

11

Exceptions to Mandatory Flood Escrow Requirements  If an institution loses its small lender exception status (asset size

change)  Must begin requiring escrow of flood premiums and fees for any loan made, increased, renewed or extended on or after July 1 of the first calendar year of changed status “as soon as reasonably practical”  Lose exemption if have assets of $1 billion or more for two consecutive

calendar year ends

Compliance Services

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Small Lender Exception Asset Threshold Example

12/31/14 Year 1 Less than $1B

12/31/15 Year 2 Less than $1B

1/1/2016 Year 3 Small Lender Exception

Compliance Services

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Compliance Services

14

Small Lender Exception Asset Threshold Example

12/31/14 Year 1 Less than $1B

12/31/15 Year 2 More than $1B

1/1/16 Year 3 Small Lender Exception

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8/29/2016

Small Lender Exception not Available

12/31/14 Year 1 More than $1B

12/31/15 Year 2 More than $1B

1/1/16 Year 3 Mandatory Escrow on Loans made on or after 7/1/16

1/1/16 Year 3 Option to escrow outstanding loans as of 1/1/2016 with notice by 6/30/16

Compliance Services

15

Change in Status of Small Lender Exception  Assuming institution meets the threshold “did not escrow” and “did not

have a policy of consistently and uniformly requiring” escrow as of July 6, 2012 

12/31/2014 Less than $1B



12/31/2015 Less than $1B =qualifies for small lender exception 1/1/2016



12/31/2016 More than $1B =still qualifies for small lender exception



12/31/2017 More than $1B =loses small lender exception on 7/1/2018

 Mandatory escrow for all loans made on or after 7/1/ 2018  Optional escrow at borrower’s choice on all loans outstanding as of

7/1/2018 with notice of option given by 9/ 30/ 2019 Compliance Services

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Takeaways  Mandatory escrow for new loans and optional escrow for outstanding

loans unless loan exception or small lender exceptions apply

 Loans can lose their exception and small lender exceptions can be lost

with a increase to asset thresholds so monitoring of status of exceptions required

Compliance Services

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Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

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8/29/2016

ECOA v. HMDA: What’s the difference

© 2016 Temenos USA. All rights reserved.

Compliance Services

1

What you will learn  Dwelling – It’s more than just your home  Applications - Incomplete, Complete, Withdrawn and Denied 

An overview on what they are and how to handle

 Government Monitoring – What to Collect and When, including those

pesky HELOCs

Compliance Services

2

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Dwelling: Defined  Regulation B (ECOA) 



A residential structure containing 1- 4 units, whether or not that structure is attached to real property Includes, but not limited to, individual condominium or cooperative unit and mobile or manufactured home

 Regulation C (HMDA) 

Any residential structure, whether or not attached to real property    



Includes vacation or second homes and rental properties Multifamily and 1 – 4 family structures Individual condominium and cooperative units Manufactured homes

Excludes recreational vehicles such as boats and campers, and transitory residences such as hotels, hospitals, and college dormitories Compliance Services

3

Application: Defined  Regulation B (ECOA)

 Regulation C (HMDA)

Oral or written request for an extension of credit made in accordance with procedures for the type credit requested

Oral or written request for  



home purchase home improvement refinancing

made in accordance with procedures for the type credit requested

Compliance Services

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8/29/2016

Completed Application: Defined  Regulation B (ECOA)

 Regulation C (HMDA)

Application in which creditor has received all information regularly obtained and considered in evaluating applications for amount and type of credit requested

Not defined in HMDA YOU define in your policy

Compliance Services

5

Incomplete Application: How to “Complete”  Regulation B (ECOA) 

Adverse action notice 



Notice of Incompleteness      



Within 30 days of receipt of incomplete application;

OR 

 Regulation C (HMDA)

Within 30 days List of items required Timeframe in which to supply the items Statement “no further consideration will be given to your request” No response – no action necessary Applicant responds  30 days to notify of approval, denial or counteroffer



Do NOT complete Reasons for Denial Type of Action - Code 5 Date of Action Taken - date the file was closed for incompleteness



Type of Purchaser - Code 0



Lien Status - Codes 1, 2, or 3 

based on lien status for property application related to

Compliance Services

6

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8/29/2016

Withdrawn Application: What to Do  Regulation B (ECOA) 

After approval - no contact from applicant within 30 





no further notification is necessary

Applicant expressly withdraws 

 Regulation C (HMDA)

Applicant withdraws before credit decision is made 



No notification necessary under 12 CFR 1002.9

Report as "application withdrawn"

Applicant withdraws after credit decision is made 

Report as "approved but not accepted"

Compliance Services

7

Denied Application: How to “Say” No  Regulation B (ECOA) 

Written adverse action notice      

within 30 days of receipt of completed application include a statement of the action taken the name and address of the creditor the ECOA notice the name and address of the creditor's federal regulator a statement of specific reasons for the action taken; OR  a disclosure of right to reasons within 30 days  Must be requested within 60 days of creditor's notification

 Regulation C (HMDA)  

 

Type of Action - Code 3 Date of Action Taken - date the credit was denied Type of Purchaser - Code 0 Lien Status - Codes 1, 2, or 3  depending on lien status for property related to application

Compliance Services

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8/29/2016

Denied Application: How to “Say” No  Regulation B (ECOA) 

Right to Reasons disclosure must include:   



name address, telephone number of person or office from which the statement of reasons can be obtained If reasons given orally, must also disclose  applicant's right to have reasons confirmed in writing within 30 days of receiving applicant’s written request for confirmation

 Regulation C (HMDA) 



No requirement to inform applicant Denial reasons must be reported for  

OCC Certain FDIC (former OTS) institutions

Compliance Services

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Compliance Services

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Government Monitoring Information (GMI)  Regulation B (ECOA)     

Ethnicity Race Sex Marital Status Age

 Regulation C (HMDA)



Ethnicity Race



Sex



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GMI: HELOCs  Regulation B (ECOA) 



Purchase or refinance of principal residence Secured by that residence

 Regulation C (HMDA) 

Optional reporting 

If you report, you collect

Compliance Services

11

GMI: Home Purchase Loan  Regulation B (ECOA) 



Purchase a principal residence Secured by that residence

 Regulation C (HMDA)  

Purchasing a dwelling Secured by a dwelling 

Does not have to be same dwelling

Compliance Services

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8/29/2016

GMI: Home Improvement Loan  Regulation B (ECOA) 

Do not collect

 Regulation C (HMDA) 

Secured by lien on dwelling 



For repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located

Entire loan amount need not be for the home improvement

Compliance Services

13

GMI: Home Improvement Loan  Regulation B (ECOA) 

Do not collect

 Regulation C (HMDA) 

Non-dwelling secured loan  For repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located and





Must be classified by the institution as a home improvement loan

Entire loan amount need not be for the home improvement Compliance Services

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8/29/2016

GMI: Refinance  Regulation B (ECOA) 



Satisfy and replace existing obligation secured by primary dwelling with a new obligation secured by same dwelling.

 Regulation C (HMDA) 



If refinance of existing credit with same creditor where GMI has been previously collected – not required to collect again

Satisfy and replace existing obligation with a new obligation to the same borrower For coverage:  

the existing obligation is homepurchase loan AND both existing obligation and new obligation are secured by first liens on dwellings

Compliance Services

15

GMI: Refinance  Regulation B (ECOA) 

If refinance of existing credit with same creditor where GMI has been previously collected – not required to collect again

 Regulation C (HMDA) 

For reporting: 

both existing obligation and new obligation are secured by liens on dwellings

Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

Compliance Services

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COLLECTING GOVERNMENT MONITORING (GMI) INFORMATION REGULATION B (ECOA) VS.TILA-RESPA REGULATION C (HMDA) INTEGRATED DISC

Quick Compliance LOANGuide ESTIMATE AND CLOSING D v. 09.01.2015

TERM DWELLING

REGULATION B (ECOA)

REGULATION C (HMDA)

Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property

Dwelling means any residential structure (whether or not attached to real property)

 Includes, but is not limited to, an individual condominium or cooperative unit and a mobile or other manufactured home

 Includes vacation or second homes and rental properties; multifamily as well as one- to-four-family structures; individual condominium and cooperative units; and manufactured homes.  Excludes recreational vehicles such as boats and campers, and transitory residences such as hotels, hospitals, and college dormitories

GOVERNMENT MONITORING INFORMATION (GMI)

Ethnicity, Race, Sex, Marital Status and Age

Ethnicity, Race and Sex

HOME EQUITY LINE OF CREDIT (HELOC)

GMI is required to be collected if the HELOC is for the purpose of:

GMI is required to be collected if report HELOCs

 Purchasing or refinancing the applicant's principal residence; and  The HELOC is secured by that residence

 Reporting is option for lines of credit (HELOC and business LOCs)

If the HELOC is a purchase transaction or a refinance of the principal residence, then, collect GMI

HOME-PURCHASE LOAN

Collect GMI for all loans made for the purpose of purchasing a principal residence secured by that residence

Collect GMI for all loans secured by and made for the purpose of purchasing a dwelling but does not have to be the same dwelling

HOME-IMPROVEMENT

Not applicable

Collect GMI for:

LOAN

 GMI not required to be collected

 All loans secured by either a lien on a dwelling that is for the purpose (whole or part) of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located, or  A nondwelling-secured loan that is: ◦ for the purpose (whole or part) of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located, and ◦ classified by the financial institution as a homeimprovement loan

REFINANCING

 Collect GMI only for those refinance loans that satisfy and replace an existing obligation secured by the borrower's primary dwelling with a new obligation secured by that same dwelling  A creditor that receives an application to refinance an existing extension of credit made by that creditor for the purchase of the applicant’s dwelling may request the monitoring information again but is not required to do so if it was obtained in the earlier transaction

Collect GMI for:

An oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested

An oral or written request for a home purchase loan, home improvement loan, or refinancing made in accordance with procedures used by a financial institution for the type of credit requested

APPLICATION

 A new obligation that satisfies and replaces an existing obligation by the same borrower, in which for coverage purposes: ◦ the existing obligation is a home-purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and ◦ both the existing obligation and the new obligation are secured by first liens on dwellings  For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings

Not intended to be legal, accounting or other professional advice. No representations or warranties are made as to the accuracy or completeness of the contents. Refer to Regulations B and C for complete rules as of September 2015. ©2015. TriNovus, LLC, a Temenos company

COLLECTING GOVERNMENT MONITORING (GMI) INFORMATION REGULATION B (ECOA) VS.TILA-RESPA REGULATION C (HMDA) INTEGRATED DISC

Quick Compliance LOANGuide ESTIMATE AND CLOSING D v. 09.01.2015

TERM

REGULATION B (ECOA)

REGULATION C (HMDA)

COMPLETED APPLICATION

An application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested.

Not applicable

WITHDRAWN APPLICATION

 Once the application is approved, if there is no contact from the applicant within 30 days, the application is assumed to be withdrawn and no further notification is necessary  When an applicant expressly withdraws a credit application, the creditor is not required to comply with the notification requirements under §1002.9

 Report as "application withdrawn" only when the application is expressly withdrawn by the applicant before a credit decision is made  Report as "approved but not accepted" if the credit decision has been made and the applicant decides not to proceed with the transaction

INCOMPLETE APPLICATION

Either:

If applicant does not respond, report as "file closed for incompleteness"

DENIED APPLICATION

Send written adverse action notice within 30 days of receipt of completed application

 Send adverse action notice within 30 days or  Send Notice of Incompleteness within 30 days of incomplete application to applicant: ◦ Written notice to include the specific information needed, designating a reasonable period of time for the applicant to provide the information, and informing the applicant that failure to provide the information requested will result in no further consideration being given to the application  If applicant fails to respond, no further action is necessary  If applicant responds, creditor then has 30 days to take appropriate notification action, such as approve, deny or counteroffer

Notice must include:    

A statement of the action taken; name and address of the creditor; ECOA notice; name and address of the creditor's federal regulator; and  either: ◦ a statement of specific reasons for the action taken; or ◦ a disclosure of the applicant's right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the creditor's notification. ◦ The disclosure shall include the name, address, and telephone number of the person or office from which the statement of reasons can be obtained ◦ If the creditor chooses to provide the reasons orally, the creditor shall also disclose the applicant's right to have them confirmed in writing within 30 days of receiving the applicant's written request for confirmation

 HMDA does not define "completed application

 Do not complete Reasons for Denial  Type of Action = Code 5  Date of Action Taken = the date the file was closed for incompleteness, which is the date of the notice of incompleteness under Regulation B or the date in the notice of incompleteness by which you required the applicant to respond ◦ Institution has discretion to select which date to use but must be consistent  Type of Purchaser = Code 0  Lien Status = Codes 1, 2, or 3 depending on what lien status would have been

 Type of Action = Code 3  Date of Action Taken = the date that the action was taken by your institution or the date the notice was sent to the applicant  Type of Purchaser = Code 0  Lien Status = Codes 1, 2, or 3 depending on what lien status would have been

Not intended to be legal, accounting or other professional advice. No representations or warranties are made as to the accuracy or completeness of the contents. Refer to Regulations B and C for complete rules as of September 2015. ©2015. TriNovus, LLC, a Temenos company

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HMDA: Haven or Havoc Cindy Prince, Senior Compliance Advisor Leah M. Hamilton, Chief Compliance Officer © 2016 Temenos USA. All rights reserved.

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What you get to take home … HMDA flash drive 

Cover documents



HMDA: Haven or Havoc presentation



HMDA Workshop Scenarios and Answers (single slides)



HMDA Guide to Collecting the Data



HMDA Cross Reference Guide

 HMDA DataSource Worksheets   

 HMDA Worksheets  



HMDA Frequently Asked Questions (FAQs)



HMDA Quick Reference Guide Booklet  Who Reports  Regulatory Actions and Criteria  Key Definitions  Ethnicity and Race  Ethnicity and Race Examples  Action Plan  Action Plan Example

Commercial Consumer Open-end Consumer Closed-end



All data elements GMI only Register example

 Editable files to customize to your

institution included on disk: HMDA Action Plan QCG (Word)  HMDA Action Plan Example QCG (Word)  HMDA Data Source Worksheets (Excel Workbook)  HMDA Worksheets (Excel Workbook) 

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What you will learn  Overview of changes to reporting requirements 

Who reports starting when

 Key definitions  Data to collect or calculate 

54 total data fields to be reported

 What the changes mean to you  Data collection 

Tools to get you started

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Where Did We Land?  Final rule published October 15, 2015 

26 ½ months to prep for havoc

 Published July 1, 2016 

CFPB’s Filing Instruction Guide (FIG) for 2017 and 2018

 Effective January 1, 2017 

“Low-volume depository institution” exemption

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Where Did We Land?

Let the real fun begin???

 Effective January 1, 2018    





New reporting definition Uniform loan volume thresholds New coverage definition Collect new/updated data elements Report 2017 data via CFPB electronic submission tool Disclosure Statement requirement modified (lobby notice and CRA file) Compliance Services

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Where Did We Land?  Effective January 1, 2019  

Appendix A removed from regulation Report new/updated data elements using the CFPB’s revised procedures and electronic submission tool

 Effective January 1, 2020 

Quarterly reporting for “large institutions”

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Overview - 2017  Low volume threshold for depository financial institution 

In each of the two preceding calendar years originated at least 25 home purchase loans (consumer and commercial), including refinancings of home purchase loans, that are not: 

  

 

Loans originated or purchased by the financial institution acting in a fiduciary capacity (such as trustee); Loans on unimproved land; Temporary financing (such as bridge or construction loans); The purchase of an interest in a pool of loans (such as mortgageparticipation certificates, mortgage-backed securities, or real estate mortgage investment conduits); The purchase solely of the right to service loans; or Loans acquired as part of a merger or acquisition, or as part of the acquisition of all of the assets and liabilities of a branch office Compliance Services

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Overview - 2018  Reporting threshold for all financial institutions

Originate 25 or more covered closed-end mortgage loans in each of the past two calendar years; - OR  Originate 100 or more covered open-end lines of credit in each of the past two calendar years 

 Transactions subject to reporting   

Include all dwelling-secured loans Include HELOCs and reverse mortgage Commercial loans 

home purchase, home improvement or refinance purpose

 Exempt home improvement loans not secured by a dwelling  New data as well as changes to existing data fields 

“Modified” versus “new” Compliance Services

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Overview - 2019  Submission of HMDA-LAR info 

Web-based data submission

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Overview - 2019  Disclosure Statement upon

request no longer required  Provide notice that disclosure statement and modified LAR are available on the CFPB’s website  Model language for both CRA Public File and lobby notice included in Final Rule

Home Mortgage Disclosure Act Notice The HMDA data about our residential mortgage lending are available online for review. The data show geographic distribution of loans and applications; ethnicity, race, sex, age and income of applicants and borrowers; and information about loan approvals and denials. These data are available online at the Consumer Financial Protection Bureau's Web site (www.consumerfinance.gov/hmda).

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Overview - 2020  Require certain large institutions to file reports quarterly  

Report at least 60,000 loans annually But all institutions must have data current within 30 days of each calendar quarter close

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Categories of Data  New 

33 new elements to be collected

 Modified 

11 revised from the current requirement

 No Change 

10 remain the same

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Key Definitions  Dwelling: a residential



structure, whether or not attached to real property  includes but is not limited to: 

  

detached home, an individual condominium or cooperative unit, a manufactured home or other factory-built home or a multifamily residential structure or community

Clarify when dwelling no longer used as residence 





No RVs or houseboats, even if used as a residence Service or medical component 



Homes converted for commercial purposes, such as a daycare or professional office

Assisted living vs. nursing home  Determine primary use

Mobile homes will only be referred to as manufactured homes (consistent with HUD) Compliance Services

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Key Definitions  Multifamily dwelling 



A dwelling, regardless of construction method, that contains five or more individual dwelling units Additional information will also be required such as number of individual income-restricted units pursuant to Federal, State, or local affordable housing programs

 Home improvement loan 



A closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which the dwelling is located Must be secured by a dwelling 

no more unsecured home improvement loans

 Assumption 



A transaction in which an institution enters into a written agreement accepting a new borrower in place of an existing borrower as the obligor on an existing debt obligation, even if new borrower merely assumes the existing debt obligation and no new obligation is created Includes successor-in-interest transactions, in which individual succeeds prior owner as the property owner and then assumes the existing debt secured by the property Compliance Services

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Application  Quick Reference Guide

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54 Data Elements

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How we organized the data to be collected  Parallels the Temenos “HMDA Worksheet”     

Leverages Reportable Data Element Grouping General Information Applicant Information Property Information Loan Information

 Our materials are designed for practical data collection 

Can be leveraged regardless of reporting format

 CFPB has published a (final) reporting format 

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CFPB: (Dis)Order



Regardless of any reporting format (uploading), institutions should leverage tools that are best suited for data collection Reportable data typically extrapolated from systems vs. entering data in the order to be reported

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General Information: Application Date

 Date application was received OR date on application form 

Need not use same approach throughout 





If reporting date shown on form and retaining multiple versions of form, report date shown on first form received that constitutes an application For application not submitted directly to institution, may report:   



Be consistent by routinely using one approach within particular division or for category of loans

Date application was received by party that initially received application, Date application was received by institution, or Date shown on application form

For reinstated counteroffer (or reconsidered application that was denied, withdrawn, or closed for incompleteness) the reportable application date depends on how the request is treated:  

If treated as new transaction with new ULI, report date of request If not treated as new transaction and using previous transaction’s ULI, report original application date Compliance Services

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General Information: Preapproval

 Preapproval (Home Purchase)   

Preapproval requested Preapproval not requested Must be preapproval request for home purchase loan under preapproval program

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General Information: Application Channel – NEW! 

Whether or not application was submitted directly to institution 





If reporting actions taken by agent, agent is not considered institution If applicant contacted and completed application with broker or correspondent that forwarded application to institution for approval, application was NOT submitted directly to institution

Whether or not obligation arising from loan or application was or would have been initially payable to institution 

Obligation is initially payable to institution if obligation is initially payable either on face of note or contract to institution that is reporting loan or application

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General Information: Unique Identifiers – NEW!

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General Information: Unique Identifiers – NEW!  Loan Entity Identifier  20-digit alphanumeric institution identifier  Issued by:  A utility endorsed by LEI Regulatory Oversight Committee; or  A utility endorsed or otherwise governed by Global LEI Foundation (GLEIF) (or any successor of the GLEIF) after GLEIF assumes operational governance of global LEI system.  Obtained from Global LEI Foundation website: https://www.gleif.org/services/louservices/issue-new-lei  Universal Loan Identifier  Unique number used to identify loan  Must consist of up to 23 letters, numerals or combination of both  Must not include any information that could be used to directly identify applicant or borrower  Follows LEI and ends with “check digit”

 MLO’s numeric NMLSR ID# 







“NA” if MLO is not required to obtain and has not been assigned NMLSR ID Report MLO’s NMLSR ID#, regardless of whether he/she is required to obtain NMLSR ID for transaction being reported, such as commercial loan If more than one MLO associated with transaction, report NMLSR ID# of individual MLO with primary responsibility for transaction as of date of action taken Establish and follow reasonable, written policy for determining primary responsibility as of date of action taken

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Calculating the Unique Loan Identifier – NEW!

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Applicant Information: Applicant/Co-Applicant Age – NEW!

 Obtained from date of birth provided by applicant/co-applicant on

application form  Optional reporting for purchased loans  No rounding

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Applicant Information: Credit Score – NEW!

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Applicant Information: Credit Score – NEW!  If relying on multiple scores (e.g., by relying on scoring grid that considers

each score separately without combining all into composite score):  Report one of the credit scores relied on in making the credit decision. 

In choosing which credit score to report, need not use same approach throughout, but should be generally consistent (e.g., by routinely using one approach within a particular division or for a category of loans).

 More than one applicant and relying on a single credit score: 

Report that credit score for either the applicant or the first co-applicant.

 If the transaction involves more than one applicant and relying on separate

credit scores for each applicant:  Report the credit score relied on for the applicant and the credit score relied on for the first co-applicant

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Applicant Information: Automated Underwriting System/Results – NEW!

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Applicant Information: Automated Underwriting System/Results – NEW!  Report name of Automated Underwriting System (AUS) used to

evaluate application and result generated by that AUS  Report only if an AUS was used to evaluate application  Must report regardless of whether intention is to sell loan or retain

loan in portfolio  For example, if an AUS developed by a private securitizer was used to evaluate an application but the loan was not sold, and, instead, was held in portfolio, the name of the AUS used to evaluate the application and the result generated by that system must be reported

Automated Underwriting System (AUS) and Results – NEW!

Applicant Information:

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If more than one AUS is used to evaluate an application or if one AUS is used to evaluate an application but it generated multiple results, determine which AUS or AUSs and which result or results to report. To do so, use following steps in exact order they are presented below: 1.

Determine whether an AUS used to evaluate application matches loan type reported for application or loan

2.

If AUS matches loan type (such as TOTAL Scorecard for an FHA loan), determine whether only one result was obtained from that AUS. If only one result was obtained from AUS that matches loan type, report AUS that matches loan type and result obtained from that AUS

3.

If AUS was not used that matches loan type or if more than one result was obtained from AUS that matches loan type, determine whether AUS used to evaluate application matches purchaser, insurer, or guarantor (if any) for loan

4.

If AUS was used that matches purchaser, insurer, or guarantor (such as Desktop Underwriter for loan that Fannie Mae purchased), determine whether only one result was obtained from that AUS. If only one result was obtained from AUS that matches purchaser, insurer, or guarantor, report AUS that matches and the result obtained from that AUS

5.

If an AUS was not used that matches purchaser, insurer, or guarantor or multiple results were obtained from an AUS that matches purchaser, insurer, or guarantor or loan type, report result obtained closest in time to credit decision and AUS that generated that result, unless multiple results were obtained closest in time to credit decision

6.

If multiple results are obtained simultaneously closest in time to credit decision, report each of the multiple AUSs that generated each of those results, up to a total of five AUSs

 For example, institution obtains multiple results closest in time to the credit decision if it obtains two results at noon on the day immediately before it makes the credit decision and does not obtain any results at a later time 

Never report more than five AUSs 

If more than five AUSs were used, choose five AUSs to report

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Applicant Information: Income and Ratios

 Gross annual income relied on in processing application or relied

on in making credit decision  Ratio of the applicant's or borrower's total monthly DTI ratio relied

on in making credit decision – NEW!  CLTV ratio relied on in making credit decision – NEW!

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Applicant Information: Action Taken and Reasons for Denial

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Applicant Information: Action Taken and Action Taken Date  Loan originated

 Application denied

Loan closing or account opening  Later date of:  Initial funds disbursement;  Date institution acquired loan from party that initially received application; OR  Date loan converts to permanent financing if constructionpermanent  Application approved but not accepted  Any reasonable date, such as:  Approval date,  Deadline for accepting offer, or  Date file was closed

Date application is denied or Date notice sent to applicant  Application withdrawn by applicant  Date express withdrawal was received or  Date shown on notification form (if written withdrawal)  File closed for incompleteness (Preapproval request closed for incompleteness not HMDA reportable)  Date file was closed or  Date notice sent to applicant



 

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Applicant Information: Action Taken and Action Taken Date  Purchased loan 

Date of purchase

 Preapproval request denied 

Date preapproval request was denied or



Date notice sent to applicant

 Preapproval request approved but not accepted 



Any reasonable date, such as: 

Approval date,



Deadline for accepting offer, or



Date file was closed

Must report origination as occurring in year in which origination goes to closing or account is opened Compliance Services

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Property Information

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Property Information: Address and Value  Street, city, state and zip code for property used as collateral – NEW!  

Applications not resulting in origination: use property address proposed For originated loans: use property address identified in legal obligation

 State, county, and census tract only if property is located in MSA or MD in

which institution has home or branch office or if required to report data on small business, small farm, and community development lending under CRA  Value of property securing loan – NEW!  

If obtaining multiple values, report value relied on in making credit decision Report “NA” if:   

File was closed for incompleteness Application was withdrawn before a credit decision was made, even if property value had been obtained Credit decision is made without relying on the property value Compliance Services

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Property Information: Lien Status  Report lien status on property securing the loan or property to

which loan or application relates  Purchased loans 

Lien status determined by reference to best information readily available to the institution at the time of purchase

 Applications and originations 

Lien status determined by reference to best information readily available at the time final action is taken, such as: 

 

Information obtained from a title search The applicant’s statement on the application form The applicant’s credit report Compliance Services

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Property Information: Occupancy Type  If buying or building new dwelling that will become principal residence

within year (or upon completion of construction), the new dwelling is considered the principal residence 

Purchased loans: May report occupancy type as “principal residence” unless loan documents or application indicate property not occupied as principal residence

 Second residence if is or will be occupied by applicant or borrower

for only portion of the year and is not applicant’s or borrower’s principal residence, such as a vacation home

 Investment property if applicant or borrower does not occupy

property at all. For example, if a person purchases property, does not occupy the property, and receives income by renting the property, the property is investment property Compliance Services

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Property Information: Construction Method – NEW!  Multifamily dwelling 

Report construction method as “site-built” unless multifamily dwelling is a manufactured home community

 If manufactured home community, report construction method as

“manufactured home”

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Property Information: Total Units – NEW! 

Report number of individual dwelling units related to property securing loan Application: report the number of individual dwelling units related to property proposed to secure loan  Application or loan secured by a manufactured home community: include total number of manufactured home sites that secure loan and available for occupancy, regardless of whether sites are occupied or have manufactured homes attached  For loan secured by single manufactured home that is or will be located in manufactured home community, report one individual unit  For a loan secured by condominium or cooperative complex, report total number of individual dwelling units securing loan or proposed to secure loan in the case of an application 





May include recreational vehicle pads, manager apartments, rental apartments, site-built homes, or other rentable space that are ancillary to operation of secured property if such units are considered in underwriting guidelines or investor guidelines, or if number of such units are tracked for internal purposes May rely on the best information readily available at time action is taken, such as: Reasonably believed information provided by applicant that is reasonably believed  Information contained in property valuation or inspection  Information obtained from public records 

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Property Information: Multifamily Affordable Units – NEW!  If property securing loan or proposed to secure application includes multifamily dwelling, provide

number of individual dwelling units that are income-restricted pursuant to Federal, State, or local affordable housing programs  Affordable housing income-restricted units 



individual dwelling units that have restrictions based on occupants’ income level pursuant to restrictive covenants encumbering the property. Covenants may be evidenced by use agreement, regulatory agreement, land use restrictions, or a similar agreement. Rent control or rent stabilization laws, the acceptance of Housing Choice Vouchers, and other similar forms of portable housing assistance that are tied to occupant and not individual dwelling unit are not affordable housing income-restricted dwelling units for purposes of reporting

 May rely on the best information readily available to it at time final action is taken, such as:  



Information provided by applicant that is reasonably believed Information contained in property valuation or inspection Information obtained from public records

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Property Information: Manufactured Home (Secured Property Type) – NEW!  Report that loan is or would have been secured only by

manufactured home and not land the loan is not secured by the land, even if the manufactured home is considered real property under applicable State law

 NOTE: A manufactured home community that is a multifamily

dwelling is not reportable under these data elements

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Property Information: Manufactured Home (Land Property Interest) – NEW! 

Report information about applicant’s or borrower’s property interest in land on which manufactured home is or would have been located



Direct ownership: Applicant or borrower has more than a possessory real property ownership interest in land, such as fee simple ownership



Indirect ownership – Applicant or borrower is or will be member of resident-owned community structured as housing cooperative in which occupants own entity that holds the land underlying the manufactured home community. 



Applicant or borrower may still have lease and pay rent for the lot on which his or her manufactured home is or will be located, but property interest type should be reported as indirect ownership if applicant is or will be a member of cooperative that owns the manufactured home community’s underlying land

Paid leasehold – Applicant resides or will reside in resident-owned community structured as a housing cooperative in which occupants own an entity that holds the land underlying the manufactured home community.  Applicant or borrower may still have a lease and pay rent for the lot on which his or her manufactured home is or will be located, but property interest type should be reported as paid leasehold if applicant is not or will not be a member of cooperative that owns the manufactured home community’s underlying land 

For example, borrower locates manufactured home on lot on which he or she does not have an ownership interest; has a written lease for the lot; and lease specifies rent payments



Unpaid leasehold – Borrower locates manufactured home on land owned by family member, does not have written lease, and does not have an agreement regarding rent payments



NOTE: A manufactured home community that is a multifamily dwelling is not reportable under these data elements

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Loan Information

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Loan Information: Loan Amount, Type, and Purpose 

Loan Amount Closed-end loan, other than purchased loan, an assumption, or a reverse mortgage: Report amount to be repaid as disclosed on legal obligation











Purchased closed-end loan or assumption of closed-end loan: Report unpaid principal balance at time of purchase or assumption



Whether or not loan is reverse mortgage – NEW!



Whether or not loan is open-end line of credit – NEW!



Open-end line of credit, other than a reverse mortgage open-end line of credit: Report the amount of credit available to the borrower under terms of plan For reverse mortgage: Report the initial principal limit, as determined pursuant to Section 255 of the National Housing Act and implementing regulations and Mortgagee Letters issued by HUD

Loan Type 

Whether the loan is or application was for: Conventional, Insured by FHA, Guaranteed by VA, or Guaranteed by the RHS or the FSA

   

Loan Purpose Home purchase  Construction-permanent  Assumptions  Home Improvement  No more unsecured loans  Refinancing  Cash Out Refinancing – NEW!  Refinancing “classified” as a cash out refinancing  Other – NEW! 



Whether or not loan is business or commercial purpose – NEW!  May rely on Regulation Z 12 CFR 1026.3 for guidance

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Loan Information: General Terms and Interest Rate – NEW!  Report the term of the loan as the scheduled number of months after which the

legal obligation will mature or terminate or would have matured or terminated If the loan includes a schedule with repayment periods other than “months,” report the loan term in months using an equivalent number of whole months without regard for any remainder



 For fully amortizing loans, enter the term of the loan in months, ending with the final

payment due date. Loans that do not fully amortize during the maturity term, such as loans with a balloon payment, are reported using the maturity term rather than the amortization term  For a purchased loan, report the number of months after which the legal obligation

matures as measured from the loan’s origination

 For an open-end line of credit with a definite term, report the number of months

from account opening until the account termination date, including both the draw and repayment period (if any)  For a loan or application that does not have a definite term, such as a reverse

mortgage, “Not Applicable”

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Loan Information: General Terms and Interest Rate – NEW!  Interest Rate 



May use a decimal separator Report the interest rate applicable to a loan or to an application that is approved but not accepted

 Report the introductory rate period as the number of months from loan closing or account

opening until the first date the interest rate may change For an application, report the number of months from loan closing or account opening until the first date the interest rate could have changed under the proposed terms



 There is no requirement to report introductory interest rate periods based on preferred rates

unless the terms of the legal obligation provide for an expiration date for the preferred rate  Preferred rates include loan terms that provide that the initial underlying rate is fixed but that it

may increase or decrease upon the occurrence of some future event, such as: An employee leaving the employ of the institution  The borrower closing an existing deposit account with the institution  The borrower revoking an election to make automated payments 

 Report the term of any prepayment penalty period in months Compliance Services

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Loan Information: Special Loan Product Features – NEW!  Balloon Payment: 

One that is more than two times amount of regular periodic payment

 Interest Only payments: 

One or more periodic payments may be applied solely to accrued interest and not to loan principal

 Negative Amortization: 

Payment of periodic payments that will result in increase in principal balance

 Must report whether or not loan

contains any other contractual terms which would allow for any payments other than fully amortizing payments Compliance Services

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Loan Information: Costs and Credits

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Loan Information: Costs and Credits – NEW!  For loans subject to Regulation Z’s Closing Disclosure (CD) requirements: 

Report total of all itemized origination charges that are designated borrower paid at or before closing as disclosed in Block A of the Closing Costs Details page of the CD 



If amount changes because revised CD is issued during same reporting period in which loan closing occurred, report revised amount annually and/or quarterly, as may be applicable

Report total discount points paid to creditor to reduce interest rate as disclosed on Block A, Line .01 of the Closing Cost Details page of the CD 



Report amount of lender credits disclosed in the second row in Block J on the Closing Cost Details page of the CD 

 

If amount changes because revised CD is provided during same reporting period in which loan closing occurred, report revised amount annually and/or quarterly, as may be applicable

If amount changes because revised CD is provided during same reporting period in which loan closing occurred, report revised amount annually and/or quarterly, as may be applicable

Report total loan costs if a CD was provided for the loan Report N/A for any fields that are “Not Applicable” Compliance Services

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Loan Information: Costs and Credits – NEW!  For loans subject to the ability-to-repay provisions of Regulation Z, report the amount of

Total Loan Costs as disclosed in Block D of the Closing Cost Details page of the Closing Disclosure 

If the amount changes because a revised CD is provided during the same reporting period in which the loan closing occurred, report the revised amount annually and/or quarterly, as may be applicable

 If loan is NOT subject to Regulation Z’s CD requirements and is not a purchased loan,

report total points and fees  If it is determined that the transaction’s total points and fees exceeded the applicable

limit and the overage is cured during same reporting period in which closing occurred, report revised amount annually and/or quarterly, as may be applicable 

For example, an institution is required to submit HMDA data quarterly. It closes a loan on January 2, 2020, and cures an overage on January 9, 2020. The institution reports the revised amount of total points and fees in both its quarterly LAR submitted for first quarter data by May 30, 2020, and its annual LAR submitted in 2021 for 2020 data

 If loan is not subject to Regulation Z and there are no costs and/or credits, report “Not

Applicable”

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Loan Information: Rate Spread and HOEPA  Report the difference between the loan’s

annual percentage rate (APR) and a comparable transaction’s average prime offer rate (APOR) as of the date the loan’s interest rate was set  If an application does not result in an

originated loan for a reason other than that the application was approved but not accepted by the applicant, report “Not Applicable”  If an application (including a preapproval

request) was approved but the applicant did not accept, report the difference between the APR of the loan that would have resulted had the applicant accepted it and a comparable transaction’s APOR as of the date the interest rate was set

 Report whether or not a consumer credit

transaction subject to Regulation Z and secured by a principal dwelling is a high-cost mortgage  For an application or loan that is not subject

to HOEPA, report “Not Applicable”

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Loan Information: Type of Purchaser

Compliance Services

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Loan Information: Type of Purchaser 

Report type of purchaser if: 







Loan being reported was both originated and sold within same calendar year Loan being reported was both purchased and sold within same calendar year

If purchaser meets criteria to be private securitizer and also falls within one of the other reportable categories in 6, 71, 72, 8, or 9, report purchaser is a private securitizer

Private securitizer: entity (other than those listed in 1- 4) which is “known or reasonably believed” to securitize the loan



Affiliate institution: company that controls, is controlled by, or is under common control with the institution

Knowledge or reasonable belief based on:  Purchase agreement or other related documents  Previous transactions with purchaser  Purchaser’s role as securitizer (such as investment bank)



Mortgage company: nondepository institution that purchases loans secured by dwellings and, typically, originates loans secured by dwellings



Other: purchaser that is not any of the options provided. Report purchaser type of “Other” if purchaser was bank holding company or thrift holding company that is not a private securitizer and is not an affiliate of institution Compliance Services





If, in selling the loan, it is unknown (or reasonably believed) whether purchaser will securitize loan, and it is known that purchaser frequently holds or disposes of loans by means other than securitization, report loan as purchased by one of the other types of purchasers, as appropriate

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Loan Information: Type of Purchaser  If loan was originated or purchased, but was not sold during

calendar quarter for which data is being recorded, report “Not Applicable”  If the loan is sold in a subsequent quarter of same calendar year, record type of purchaser for quarter in which loan was sold  If loan is sold in succeeding year, do not record or report sale

Compliance Services

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2017: Reporting Requirements  Depository institution    

$43 million in assets (adjusted annually) Home or branch in MSA Federally insured or regulated Originated at least (25) home purchase loans in prior two calendar years (2015/2016) – NEW!  

Including refinancings of home purchase loans Includes consumer and commercial

Compliance Services

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9/19/2016

2018: Reporting Requirements All Financial Institutions Originated at least (25) closed-end mortgage loans in each of the two preceding calendar years - OR Originated at least 100 covered open-end lines of credit in each of the two preceding calendar years

Depository Institution Non-Depository Home or branch office in MSA

$43 million in assets (adjusted annually) Home or branch in MSA Originated at least (1) home purchase or refinance secured by a first lien on a 1-4 dwelling Federally insured or regulated Compliance Services

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2019: Reporting Requirements  Use CFPB’s new data reporting submission tool for new required

dataset  Not developed yet  Will be made available 

http://www.consumerfinance.gov/hmda

Compliance Services

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9/19/2016

2020: Reporting Requirements  Large Institution 



Reported at least 60,000 total applications and/or covered loans (excluding purchased loans) in preceding calendar year Must report quarterly beginning May 30, 2020

Compliance Services

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Compliance Services

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What These Changes Mean to You  Small banks – HOORAY for you!  Costs  

 

Changes to your software systems Changes to policy and procedures Training Time  

Data collection Data verification/scrub

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9/19/2016

Data Collection  Create a HMDA DataSource Worksheet (Handout) 

What are your actual source documents for each data element that must be captured for HMDA reporting? 





For example: Residential mortgage loan, you use the 1003; GMI information is located on page 4 of 5

Next, add a column to indicate what source documents have the correct (and consistent) information Complete this for each type of application 

Compliance Services

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Compliance Services

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HMDA DataSource Worksheet



Residential Mortgage Loans: 1003, GMI, Page 4 of 5 Commercial loans: separate GMI form

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9/19/2016

Data Collection  Create a HMDA Worksheet (Handout)  



List each data field required to be collected Record the information to be inputted in the exact form it is to be inputted (e.g. Purpose of Loan – 1; Action Taken – 3; Reasons for Denial – 3) Attach any copies from FFIEC Calculator or FFIEC Geocoding (or other vendor)

 Benefits 



Compliance Services

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Compliance Services

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Data Collection: HMDA Worksheet



Inputting Accountability Time (Less time digging in files)

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9/19/2016

Data Collection  Key factors to address in procedures    

Who collects the data? When is it collected? Where is it stored? How will it be captured electronically?

Compliance Services

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Compliance Services

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Data Collection  Benefits 

Minimize errors 

  

Inadvertent Fair lending concerns

Consistency Examiners Training

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9/19/2016

Data Collection  Handouts have been provided in editable Excel format for your

convenience

Compliance Services

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Action Plan  Identify all lines of business that will be impacted 

Determine whether you have sufficient staff

 Establish a HMDA Implementation Committee 

Develop a centralized plan/timeline insure your institution is ready to comply by January 1, 2018   

Include members from each line of business, including upper management, and IT Allow time for each step in the process Meet regularly to discuss progress

 Plan now for the increased data capture requirements and remember that data

integrity is essential  Look at your operating systems to see what elements they are missing  Contact your vendors to see what steps they are taking to incorporate these elements  

Ask specifics, such as deadline dates Will there be an additional cost to your institution? Compliance Services

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9/19/2016

Action Plan  Start training early – Today is a GREAT start! 

Identify who needs to be trained 



Don’t forget the Board of Directors

Develop training materials specific for each position (i.e., collection, input, etc.)

 Test staff to identify any areas of confusion and/or weaknesses. Do not wait

until data collection is required  Update policy and procedures 

Nail down any procedures that affect how you will collect and report certain elements

 Update your overall Compliance Risk Assessment 

Re-evaluate risk rating as changes are extensive and errors could cause not only HMDA violations but potential fair-lending violations Compliance Services

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Action Plan  Once data collection begins, conduct self-testing 

Verify accuracy of data collected BEFORE reporting 



Audit data collected and data input at least quarterly to test processes for any weaknesses

Remember all institutions must maintain internal LAR with complete and accurate HMDA data within 30 days of each calendar quarter close

 Conduct assessment of lending practices 

Know what the data shows  



Fair Lending UDAAP

How will you address any problems indicated? Compliance Services

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9/19/2016

Action Plan  We have provided an Action Plan Quick Compliance Guide as well

as an Action Plan Checklist example on your flash drive!

Compliance Services

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Ethnicity, Race and Sex

Welcome to the dark world

How to get a Fair Lending violation without any effort Compliance Services

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9/19/2016

Ethnicity, Race and Sex

Compliance Services

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Ethnicity, Race and Sex  New requirement to report how institution collected applicant’s or

borrower’s ethnicity, race and sex  Whether or not it collected on basis of visual observation or surname  Must permit applicants to self-identify their ethnicity and race using

disaggregated ethnic and racial subcategories  Institutions not permitted to use disaggregated subcategories when

identifying applicant’s ethnicity and race based on visual observation or surname  New Appendix B – Form and Instructions Compliance Services

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9/19/2016

Ethnicity, Race and Sex

Huh???

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Compliance Services

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Appendix B: Collection Form

Compliance Services

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9/19/2016

What are “Disaggregated Subcategories”?  Ethnicity 

Hispanic or Latino   



Mexican Puerto Rican Cuban Other Hispanic or Latino ____________

Compliance Services

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Compliance Services

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What are “Disaggregated Subcategories”?  Race 

American Indian or Alaska Native 



Enrolled or principal tribe ___________

Asian       

Asian Indian Chinese Filipino Japanese Korean Vietnamese Other Asian____________

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9/19/2016

What are “Disaggregated Subcategories”?

Black or African American and White are NOT “Disaggregated Subcategories



Native Hawaiian or Other Pacific Islander  

 

Native Hawaiian Guamanian or Chamorro Samoan Other Pacific Islander____________ Compliance Services

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Compliance Services

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Applicant Information: Ethnicity

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Applicant Information: Ethnicity

 Must offer option of selecting more than one ethnicity and must permit

applicant to self-identify using both aggregate categories (Hispanic or Not Hispanic) and disaggregated subcategories (Mexican, Puerto Rican, Cuban, Other Hispanic or Latino)  Must report every aggregate category and subaggregate category selected  If ‘Hispanic or Latino’ selected, up to four subcategories may be selected:    

Mexican Puerto Rican Cuban Other Hispanic or Latino

 If Other Hispanic or Latino selected, ethnicity not listed in standard

subcategories may be provided  Report both ‘Other Hispanic or Latino’ and additional information provided by applicant  Cannot use the subcategories when identifying ethnicity based on visual

observation or surname Must only use “Hispanic or Latino” or “Not Hispanic or Latino



Compliance Services

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Compliance Services

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Applicant Information: Race

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Applicant Information: Race

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 Must offer option of selecting more than one race and must permit

applicant to self-identify using both aggregate categories ((American Indian or Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander or White) ) and disaggregated subcategories ((Asian Indian, Chinese, Filipino, Japanese, Korean, Vietnamese, Other Asian, Native Hawaiian, Guamanian or Chamorro, Samoan, or Other Pacific Islander)  Must report every aggregate category and subaggregate category

selected, up to total of five  If Other Asian or Other Pacific Islander is selected, applicant must be

permitted to provide race subcategory not provided on collection form  If Other Asian or Other Pacific Islander selected, race not listed in

standard subcategories may be provided  Report both ‘Other Asian’ or ‘Other Pacific Islander’ and additional information provided by applicant  Cannot use the subcategories when identifying race based on visual

observation or surname Must use only the five aggregate categories



Compliance Services

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Compliance Services

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Applicant Information: Sex

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Applicant Information: Sex

9/19/2016

 Applicant can now choose both genders  Differences from Regulation B in collection practices

Compliance Services

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Applicant Information: Ethnicity, Race & Sex

 Must ask for ethnicity, race and gender information regardless

of how application is taken  Cannot require applicant to provide  If application taken in person and ethnicity, race and gender

not provided by applicant, must indicate such and then collect on the basis of visual observation or surname  Must inform applicant that they are doing so  Report non-natural persons as “NA”  Electronic application with video component must be treated

as “in person”  Without video, treated as “accepted by mail”

Compliance Services

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9/19/2016

Applicant Information: Ethnicity, Race & Sex

 May request ethnicity, race and gender when meeting with

applicant in person if applicant begins application by mail, internet, or telephone, but does not provide the requested information and does not select “I do not wish to provide this information”  If applicant does not provide requested information during inperson meeting, information must be collected on basis of visual observation or surname  If meeting occurs after application process is complete (e.g., at loan closing or account opening), there is no requirement to obtain applicant’s ethnicity, race and gender and institution may report as “Not Applicable”  If a loan or application includes a guarantor, ethnicity, race and

gender are not reported for the guarantor  Optional reporting for purchased loans 

If choosing not to collect, report “Not Applicable” Compliance Services

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Compliance Services

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Remember…

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9/19/2016

Consider …

Fair Lending Risk

Ethnicity, race and sex Compliance Services

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Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

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9/19/2016

HMDA Workshop How to Collect and Complete GMI and the HMDA Worksheet

© 2016 Temenos USA. All rights reserved.

Compliance Services

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Compliance Services

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Agenda  Race, Ethnicity and Sex



Workshop Examples Workshop Scenarios



True or False



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9/19/2016

GMI Workshop Tiger Woodlands comes in to apply for a dwelling-secured mortgage loan at your institution. Tiger has a very interesting racial profile in that his father is on AfricanAmerican, Chinese and Native American (Shawnee) descent. His mother is of Thai, Chinese and Dutch descent. He selects:        

Not Hispanic or Latino American Indian – Shawnee Asian Chinese Other Asian – Thai Black or African American White Male

How would you handle completing the GMI Information and the HMDA Worksheet Ethnicity/Race/Sex section based on his selections? Compliance Services

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Compliance Services

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GMI Workshop Jimmy Hernandez comes in to apply for a dwelling-secured mortgage loan at your institution. Jimmy brings his lovely wife, Veronica, along with him and they are applying for joint credit. Jimmy marks “I do not wish to provide” on his side of the application and Veronica completes her side with the following information:      

Hispanic or Latino Mexican Puerto Rican Other Hispanic – Dominican White Female

How do you handle collecting the GMI information for Jimmy and how would you complete the HMDA Worksheet Ethnicity/Race/Sex section for both applicants?

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9/19/2016

GMI Workshop Genny Lopez comes in to apply for a dwellingsecured mortgage loan at your institution. She marks “I do not wish to provide” under all three categories on the GMI collection portion; however, she also selects:  Hispanic  Puerto Rican  Female (nothing marked under Race) How do you handle completing the GMI information and how would you complete the HMDA Worksheet Ethnicity/Race/Sex section? Compliance Services

95

GMI Workshop Keith Rivers calls your office to apply for a dwelling-secured mortgage loan. He tells you that Bryan Marks will be applying jointly and is available to speak to you as well. You complete the application via telephone. You recite the appropriate information and ask for GMI information.

Keith states that he is:       

Not Hispanic or Latino Asian Chinese Native Hawaiian or Other Pacific Islander Native Hawaiian White Male

Bryan states that he is:        

Hispanic or Latino Puerto Rican Asian Filipino Other Asian Cebuano White Male

How do you handle completing the GMI information and the HMDA Worksheet Ethnicity/Race/Sex section for both applicants?

Compliance Services

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9/19/2016

GMI Workshop Ashley Douglas calls in to apply for a dwelling-secured loan at your institution. She is travelling and doesn’t have time to apply in person. You complete the application via telephone. You recite the appropriate information and ask for GMI information. Ashley states that she is:       

Hispanic or Latino Puerto Rican American Indian Sioux Tribe Asian Chinese Filipino

     

Korean Black or African American Native Hawaiian or Other Pacific Islander Native Hawaiian Samoan White

When asked for gender information, Ashley states that she is in the process of transitioning from a female to a male so she would like to choose both Male and Female. How do you handle completing the GMI information and the HMDA Worksheet Ethnicity/Race/Sex section? Compliance Services

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GMI Workshop Samuel Jenson calls in to apply for a dwelling-secured loan at your institution. He would like to start the application process by phone and then come in within a week and finish the application process. His wife, Peggy, will be applying jointly. You complete the application via telephone. You recite the appropriate information and ask for GMI information. Samuel states that he is:             

Not Hispanic or Latino American Indian Cherokee Tribe Asian Japanese Vietnamese Other Asian Thai Native Hawaiian or Other Pacific Islander Native Hawaiian Guamanian White Male

Peggy states that she is: 

Not Hispanic or Latino



Black or African American



Female

How do you handle completing the GMI information and the HMDA Worksheet Ethnicity/Race/Sex section for both applicants?

Compliance Services

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9/19/2016

GMI Workshop Ricky Baggett calls in to apply for a home improvement loan. He wants to add an in-ground pool and update the landscaping around his home. The loan will be secured by a certificate of deposit held with your institution. He tells you he will be in tomorrow to sign the application and bring in any documents you may need for verification purposes. You complete the application via telephone. You recite the appropriate information and ask for GMI information. Ricky states that he is: 

Not Hispanic or Latino



White



Male

How do you handle completing the GMI information and the HMDA Worksheet Ethnicity/Race/Sex section?

Compliance Services

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GMI Workshop Robert Smith calls you to apply for a loan in the name of his business, Smith Products, LLC. Robert says that he will also be applying as a co-applicant on the loan. The loan will be secured by a first lien on Robert’s principal dwelling. You ask the purpose of the loan. Robert states that he is purchasing a vacation home in Destin, Florida and will allow his employees to stay there during their vacations. He may also stay there occasionally. Since this is a loan being made to a business, you treat this as exempt from HMDA as commercial loans are exempt.

How do you handle completing the GMI information and how would you complete the HMDA Worksheet Ethnicity/Race/Sex section? Compliance Services 100

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9/19/2016

GMI Workshop Hayden Pickett comes in to your institution to apply for a loan in the name of her business, Pickett’s Pastries. She will be using her principal residence as collateral for the loan and will be a co-borrower on the loan. You inquire as to the purpose of the loan proceeds. Hayden states that she is going to use the loan to make improvements to both her home and the land where the business is located. She wants to do extensive landscaping projects to both properties. Where she is doing improvement to both properties, you look at how much she has planned to spend on each location and determine that the majority of the funds will be spent on landscaping her personal residence. Where you have a commercial home improvement loan secured by a dwelling, you consider this to be HMDA reportable. You recite the appropriate information and ask for GMI information for Hayden. Hayden states that she is: 

Not Hispanic or Latino



White



Female

How do you handle completing the GMI information and how would you complete the HMDA Worksheet Ethnicity/Race/Sex section? Compliance Services 101

GMI Workshop Cameron Pativ comes in to apply for a dwellingsecured mortgage loan at your institution. Cameron marks “I do not wish to provide” under all three categories on the GMI collection portion. How do you handle completing the GMI information and how would you complete the HMDA Worksheet Ethnicity/Race/Sex section?

Compliance Services 102

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9/19/2016

Ricky Baggett: Bonus round … loan is secured by a dwelling Ricky Baggett calls in to apply for a home improvement loan to his principal dwelling. He wants to add an in-ground pool and update the landscaping around his home. The loan will be secured by his vacation home. He tells you he will be in tomorrow to sign the application and bring in any documents you may need for verification purposes. You complete the application via telephone. You recite the appropriate information and ask for GMI information. Ricky states that he is: 

Not Hispanic or Latino



White



Male

How do you handle completing the GMI information and the HMDA Worksheet Ethnicity/Race/Sex section?

Compliance Services 103

Ricky Baggett: Bonus round … loan is secured by a dwelling  Is it subject to TRID?

 Is it subject to MLA?

Compliance Services 104

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9/19/2016

Scenario 1:

George Adams is approved for a credit request to purchase a new principal dwelling located at 1234 Sycamore Street, Anytown, Anywhere 54321. The credit will be secured by this property in addition to his current principal residence located at 890 Pine Avenue, Anytown, Anywhere 54320. What do you report for property address?

Compliance Services 105

Scenario 2:

Nathan and Jon Wells are approved for a credit request to purchase a single family residence located at 123 Cherrytree Lane, Anytown, Anywhere 54321. The credit will be secured by this property. The purpose on the application form states “investment purposes.” How would you report “Occupancy Type” and “Business or Commercial Purpose” for this credit? Compliance Services 106

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9/19/2016

Scenario 3:

Carrie Glass is approved to refinance the loan secured by her manufactured home only (no real estate), which is located on a lot she leases from her mom and dad. She does not have a formal lease agreement, but pays them $75 each month in rental fees to maintain septic and water utilities for her home. How would you report Construction Method, Manufactured Home Property Type and Manufactured Land Property Interest for this loan? Compliance Services 107

True or False: A home purchase loan includes:  a combined construction-to-permanent loan that is secured by a

Dwelling;  a permanent loan that replaces a construction loan if the

permanent loan is secured by a dwelling; and  a dwelling-secured subordinate mortgage loan that finances some

or all of the home purchaser’s down payment.

Compliance Services 108

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BONUS How would these be coded under TRID? Purchase, Refinance, Construction or Home Equity?  A combined construction-to-permanent loan that is secured by a

Dwelling;  A permanent loan that replaces a construction loan if the

permanent loan is secured by a dwelling; and  A dwelling-secured subordinate mortgage loan that finances some

or all of the home purchaser’s down payment.

Compliance Services 109

True or False: Since the new rules require the borrower’s age, we’re going to have to require applicant’s to bring in their birth certificates.

Compliance Services 110

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9/19/2016

Questions? Don’t forget your HMDA flash drive!

© 2016 Temenos USA. All rights reserved.

Compliance Services 111

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ETHNICITY - APPLICANT 1-----Hispanic or Latino 11---Mexican 12---Puerto Rican 13---Cuban 14---Other Hispanic or Latino Other: ____________ up to 50 characters

2-----Not Hispanic or Latino 3-----Information not provided by applicant in mail, Internet, or telephone application 4-----NA ETHNICITY- VISUAL OBSERVATION OR SURNAME 1-----Collected on basis of visual observation or surname 2-----Not collected on basis of visual obs.or surname 3-----Not applicable RACE - APPLICANT 1-----American Indian or Alaska Native Enrolled or Principal Tribe ___________ 2-----Asian 21---Asian Indian 22---Chinese 23---Filipino 24---Japanese 25---Korean 26---Vietnamese 27---Other Asian Other ______________ 3-----Black or African American 4-----Native Hawaiian or Other Pacific Islander 41---Native Hawaiian 42---Guamanian or Chamorro 43---Samoan 44---Other Pacific Islander Other ________________ 5-----White 6-----Information not provided by applicant in mail, Internet, or telephone application 7-----NA RACE - VISUAL OBSERVATION OF SURNAME 1-----Collected on basis of visual observation or surname 2-----Not collected on basis of visual obs. or surname 3-----Not applicable SEX - APPLICANT 1-----Male 2-----Female 3-----Information not provided by applicant in mail, Internet, or telephone application 4-----NA SEX - VISUAL OBSERVATION OF SURNAME 1-----Collected on basis of visual observation or surname 2-----Not collected on basis of visual obs. or surname 3-----Not applicable

ETHNICITY - CO-APPLICANT 1-----Hispanic or Latino 11---Mexican 12---Puerto Rican 13---Cuban 14---Other Hispanic or Latino Other: ____________ up to 50 characters

2-----Not Hispanic or Latino 3-----Information not provided by applicant in mail, Internet, or telephone application 4-----NA 5-----No Co-applicant ETHNICITY- VISUAL OBSERVATION OR 1-----Collected on basis of visual observation or 2-----Not collected on basis of visual obs.or surname 3-----Not applicable 4-----No co-applicant RACE-CO-APPLICANT 1-----American Indian or Alaska Native Enrolled or Principal Tribe ___________ 2-----Asian 21---Asian Indian 22---Chinese 23---Filipino 24---Japanese 25---Korean 26---Vietnamese 27---Other Asian Other ______________ 3-----Black or African American 4-----Native Hawaiian or Other Pacific Islander 41---Native Hawaiian 42---Guamanian or Chamorro 43---Samoan 44---Other Pacific Islander Other ________________ 5-----White 6-----Information not provided by applicant in mail, Internet, or telephone application 7-----NA 8-----No Co-applicant RACE - VISUAL OBSERVATION OF SURNAME 1-----Collected on basis of visual observation or surname 2-----Not collected on basis of visual obs. or surname 3-----Not applicable 4-----No co-applicant SEX - CO-APPLICANT 1-----Male 2-----Female 3-----Information not provided by applicant in mail, Internet, or telephone application 4-----NA 5-----No Co-applicant SEX - VISUAL OBSERVATION OF SURNAME 1-----Collected on basis of visual observation or surname 2-----Not collected on basis of visual obs. or surname 3-----Not applicable 4-----No co-applicant

ETHNICITY - APPLICANT 1-----Hispanic or Latino 11---Mexican 12---Puerto Rican 13---Cuban 14---Other Hispanic or Latino Other: ____________ up to 50 characters

2-----Not Hispanic or Latino 3-----Information not provided by applicant in mail, Internet, or telephone application 4-----NA ETHNICITY- VISUAL OBSERVATION OR SURNAME 1-----Collected on basis of visual observation or surname 2-----Not collected on basis of visual obs.or surname 3-----Not applicable RACE - APPLICANT 1-----American Indian or Alaska Native Enrolled or Principal Tribe ___________ 2-----Asian 21---Asian Indian 22---Chinese 23---Filipino 24---Japanese 25---Korean 26---Vietnamese 27---Other Asian Other ______________ 3-----Black or African American 4-----Native Hawaiian or Other Pacific Islander 41---Native Hawaiian 42---Guamanian or Chamorro 43---Samoan 44---Other Pacific Islander Other ________________ 5-----White 6-----Information not provided by applicant in mail, Internet, or telephone application 7-----NA RACE - VISUAL OBSERVATION OF SURNAME 1-----Collected on basis of visual observation or surname 2-----Not collected on basis of visual obs. or surname 3-----Not applicable SEX - APPLICANT 1-----Male 2-----Female 3-----Information not provided by applicant in mail, Internet, or telephone application 4-----NA SEX - VISUAL OBSERVATION OF SURNAME 1-----Collected on basis of visual observation or surname 2-----Not collected on basis of visual obs. or surname 3-----Not applicable

ETHNICITY - CO-APPLICANT 1-----Hispanic or Latino 11---Mexican 12---Puerto Rican 13---Cuban 14---Other Hispanic or Latino Other: ____________ up to 50 characters

2-----Not Hispanic or Latino 3-----Information not provided by applicant in mail, Internet, or telephone application 4-----NA 5-----No Co-applicant ETHNICITY- VISUAL OBSERVATION OR 1-----Collected on basis of visual observation or 2-----Not collected on basis of visual obs.or surname 3-----Not applicable 4-----No co-applicant RACE-CO-APPLICANT 1-----American Indian or Alaska Native Enrolled or Principal Tribe ___________ 2-----Asian 21---Asian Indian 22---Chinese 23---Filipino 24---Japanese 25---Korean 26---Vietnamese 27---Other Asian Other ______________ 3-----Black or African American 4-----Native Hawaiian or Other Pacific Islander 41---Native Hawaiian 42---Guamanian or Chamorro 43---Samoan 44---Other Pacific Islander Other ________________ 5-----White 6-----Information not provided by applicant in mail, Internet, or telephone application 7-----NA 8-----No Co-applicant RACE - VISUAL OBSERVATION OF SURNAME 1-----Collected on basis of visual observation or surname 2-----Not collected on basis of visual obs. or surname 3-----Not applicable 4-----No co-applicant SEX - CO-APPLICANT 1-----Male 2-----Female 3-----Information not provided by applicant in mail, Internet, or telephone application 4-----NA 5-----No Co-applicant SEX - VISUAL OBSERVATION OF SURNAME 1-----Collected on basis of visual observation or surname 2-----Not collected on basis of visual obs. or surname 3-----Not applicable 4-----No co-applicant

8/29/2016

TRID and the Construction Loan

© 2016 Temenos USA. All rights reserved.

Compliance Services

1

Compliance Services

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What you will learn  TRID construction loans         

What is a construction loan Closing options Disclosure options Purpose Value Product

Payments Estimated taxes, insurance and assessments Construction fees

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8/29/2016

What are your options

You can run …

You can Hide … Or you can simply cry Compliance Services

3

Compliance Services

4

But the reality is …

Here to stay

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8/29/2016

Construction loans  What is a construction loan 

12 CFR 1026.37(a)(9)(iii) 

If credit is not for  

 

A purchase (acquisition of property) or refinance (replace an existing obligation) and Credit will be used to finance the initial construction of a dwelling on the property identified that secures or will secure the transaction

Then, it is a construction loan

Commentary 

Creditor extends credit to finance 

Only the cost of initial construction



Transactions where a multiple advance loan may be permanently financed by the same creditor



Not renovations to existing dwellings

Compliance Services

5

Options  Closings 

One closing    



Construction-to-perm loan Single disclosure Single, combined disclosure One-time close

Two closings  

Separate construction loan and permanent loan Applications 

One application or two •



In-house vs. secondary market • Department vs. separate legal entity

Disclosure timing •

Be very careful here … if leverage same application, both sets of disclosures are triggered at time (6) items received

Compliance Services

6

3

8/29/2016

Applications and construction loans  Application means the submission of a consumer's financial information for the

purposes of obtaining an extension of credit 

Consists of the submission of the consumer's      

name, consumer's income, consumer's social security number to obtain a credit report, property address, estimate of the value of the property, and mortgage loan amount sought

 Refraining from obtaining or learning estimated value of property 

Construction plans



Be very careful here … what has the consumer requested? 

Open-end, no limit to build my dream home? Compliance Services

7

Compliance Services

8

Options  Disclosures  

One set or two One-time close  



Do you mean construction-to-perm loan? Do you mean only one closing but with two sets of documents?

Two separate closings  

One to start construction One when construction is complete

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Options  Construction statement 

In transactions involving new construction If creditor reasonably expects that settlement will occur more than 60 days after the Loan Estimate disclosures are provided, creditor may revise Loan Estimate provided that creditor





If construction statement not included on initial Loan Estimate, creditor may not issue revised disclosures, unless valid changed circumstance





Clearly and conspicuously states on the Loan Estimate that at any time prior to 60 days before consummation, the creditor may issue revised disclosures

Construction statement is not required Option if want to be able to revise Loan Estimate based on > 60 day settlement Business decision Be sure policy (and practice) reflects decision

  

Construction Loans You may receive a revised Loan Estimate at any time prior to 60 days before consummation. Compliance Services

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Compliance Services

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Purpose  Waterfall methodology 

If loan is not  

 

A purchase or A refinance

Call it “Construction” (and if it is not one of those, call it “Home Equity”)

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Purpose  Construction-to-perm

loan  Call it Purchase if acquisition of property securing or that will secure the loan

 Two closings 

Construction phase  



Acquisition of the property = Purchase Already own property and funds used to build dwelling = Construction

Permanent loan phase 

Refinance  Watch out for HMDA •

A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered “temporary financing” under Regulation C and is not reported

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Property value Sales Price

LE, CD

Prop. Value

LE



For Purchase transactions, Sales Price label must be displayed



For non-Purchase transactions, Prop. Value label must be displayed



If creditor has an appraisal or evaluation that includes the estimated value of the Property it will rely on in its credit decisioning, it is the appraised value



If the estimated includes the value of personal property, include the personal property value if it is comingled and cannot be distinguished; if it can be distinguished, it is only the value of the real property

The appraised value of the property when there is no seller and creditor has obtained an appraisal



For non-Purchase transactions



If creditor has an appraisal or evaluation that includes the estimated value of the Property it will rely on in its credit decisioning, it is the appraised value

The estimated value of the property when there is no seller and creditor has not obtained an appraisal



May use estimate provided by the consumer at application, or if it has performed its own estimate of the property value by the time the disclosure is provided to the consumer, disclose that estimate provided that it was the estimate the creditor used to determine approval of the credit transaction

The contract sales price of the Property for Purchase transactions The estimated value of the Property for no seller involved transactions

How do you get an appraisal before an application? Appraised Prop. Value

CD

Estimated Prop. Value

CD

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Product  There are (2) required pieces of information that must be used to complete

the Product field -- in a required order: 



The duration of any introductory rate or payment period and the first adjustment period, as applicable, immediately followed by a product description of the loan features; and

The duration of any introductory rate or payment period and the first adjustment period, as applicable, of the product type

 Example 

12 mo. Interest only, 3/1 Adjustable rate

 If the transaction has more than one payment feature and/or interest rate,

only the first one of each is selected from the specified orders Compliance Services

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Product 

First applicable payment feature, preceded by duration 









Negative amortization  If the principal balance may increase due to the addition of accrued interest to the principal balance Interest only  If one or more regular periodic payments may be applied only to interest accrued and not to the loan principal



First applicable description of the interest rate, preceded by any applicable adjustment period 



Step payment  If scheduled variations in regular periodic payment amounts occur that are not caused by changes to the interest rate during the loan term Balloon payment  If the terms of the legal obligation include a balloon payment



Adjustable rate  If the interest rate may increase after consummation, but the rates that will apply or the periods for which they will apply are not known at consummation Step rate  If the interest rate will change after consummation, and the rates that will apply and the periods for which they will apply are known at consummation Fixed rate  If the loan product is not an Adjustable Rate or a Step Rate

Seasonal payment  If the terms of the legal obligation expressly provide that regular periodic payments are not scheduled between specified unit-periods on a regular basis Compliance Services

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Product  Construction-to-perm 

Same Product, same rates 



Same Product, different rates 

  

5% Fixed rate, 5% Fixed Rate 6% Fixed rate, 4% fixed rate Step rate (know) Adjustable rate (do not know)

Different Product, same initial rates 

Fixed rate, Adjustable rate 

4%, 5/1 ARM with initial rate at 4%

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Advances  For construction only, creditor

may calculate applicable amounts, such as payments, as either  A single advance of all funds or  Multiple advance loan 

Calculation based on 50% initial advance

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Initial Payments  Appendix D 

Two options 





Part I - Construction Period Disclosed Separately Part II - Construction and Permanent Financing Disclosed As One Transaction

Initial payment calculation 

The initial periodic payment amount that will be due under the legal terms of the obligation

Initial Payment calculation under Appendix D Part I.A.1 and Part II.A.1

Part I.B.1 and Part II.A.2

Interest only on amounts advanced

Interest on entire commitment amount

Loan amount

$100,000

Interest rate

5%

Term

12 mos

1/2 x $100,000

$50,000

Loan amount $100,000 Interest rate Term

5% 12 mos

$50,000 x .05

$2,500

$100,000 x .05

$5,000

$2,500 / 12

$208.33

$5,000 / 12

$416.66

Initial payment

$208.33

Initial payment

$416.67

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Projected Payments  Construction-to-perm 

Appendix D Part II.C.2 

C. The creditor shall disclose the repayment schedule as follows: 



2. For loans under paragraph A.2 of part II and loans under paragraph A.1 of part II that are subject to §1026.19(e) and (f), including any payments of interest only that are made during the construction period

Projected payments table must reflect the interest-only payments during construction phase in first column, followed by appropriate column(s) reflecting amortizing payments for permanent phase

Compliance Services

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Projected Payments

What is the Product?

Compliance Services

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Compliance Services

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Projected Payments  Two separate

Construction

closings  The initial periodic

payment amount that will be due under the legal terms of the obligation

Permanent

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Estimated Taxes, Insurance and Assessments  Construction phase  

Taxes Insurance

 Estimated property taxes and homeowner's

insurance shall reflect: 



The taxable assessed value of the real property securing the transaction after consummation, including the value of any improvements on the property or to be constructed on the property, if known, whether or not such construction will be financed from the proceeds of the transaction, for property taxes; and The replacement costs of the property during the initial year after the transaction, for premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction Compliance Services

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Estimated Taxes, Insurance and Assessments  Construction phase 

Insurance 



Builder’s risk insurance  Borrower paid

 Escrow  

Construction phase Permanent phase

Assessments

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Construction fees  Inspection and draw fees 

Unknown 

Information is considered unknown if it is not reasonably available to the creditor 



Must act in good faith, exercise due diligence

Date specific vs. general timeframe

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The simpler things  When you look at the variances between a ‘regular’ loan and a

construction loan, where is the real heartburn?  Often, it is the software vendor   

System ‘cannot accommodate’ It’s an upgrade that we will have to pay for

Step back and look at each section 

What is the same, what is different 



For example, what is the conceptual difference between a 5/1 ARM with interest only payments for the first 5 years and amortizing over the next 25 and a construction loan fixed for the first year, interest only and then amortizes over the next 29 years with a 5/1 ARM?

Deep breathe! Compliance Services

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Half empty or half full

Compliance Services

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Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

13

TRID & the Construction Loan: Handout

Construction Loan Loan Estimate 123 SE Jamess St

Save this Loan Estimate to compare with your Closing Disclosure.

Anytown, ST 12345

Loan Estimate

LOAN TERM PURPOSE PRODUCT LOAN TYPE LOAN ID # RATE LOCK

01/07/2016 Tom Construction 123 Anywhere Street Anytown, ST 12345 PROPERTY 7000 Ridge Rd Bedford, NH03110 Est. Prop. Value $450,000

DATE ISSUED APPLICANTS

30 years Purchase ce 6 mo. Interest Only, Fixed Rate x Conventional FHA VA _____________ 1234567891330172608 x NO YES, until Before closing, your interest rate, points, and lender credits can change unless you lock the interest rate. All other estimated closing costs expire on 01/22/2016 at 5:00 p.m. MST

Loan Terms

Can this amount increase after closing?

Loan Amount

$417,000

NO

Interest Rate

4.50%

NO

Monthly Principal & Interest

1,563.75

YES

See Projected Payments below for your Estimated Total Monthly Payment

Adjusts every starting in Goes as high as $2,310 in mo. 7 Includes only Interest and no principal until mo. 7 See AP tbable on page 2 for details

Does the loan have these features? Prepayment Penalty

NO

Balloon Payment

NO

Projected Payments Years 1

Years 2-9

Years 10-30

$2,129.86

$2,129.86

Mortgage Insurance

$1,564 min Only Interest - $2,130 max + $250

Estimated Escrow

+

Payment Calculation Principal & Interest

Amount can increase over time

Estimated Total Monthly Payment

Estimated Taxes, Insurance & Assessments Amount can increase over time

+

$246

$225

+

$225

$1,564 - $2,605

$2,601

$225 a month

This estimate includes x Property Taxes x Homeowner’s Insurance Other:

+

---

+

$225

$2,355 In escrow? YES YES

See Section G on page 2 for escrowed property costs. You must pay for other property costs separately.

Costs at Closing Estimated Closing Costs Estimated Cash to Close

$12,441

Includes $8,620 in Loan Costs + $3,821 in Other Costs – $0 i n Lender Credits. See page 2 for details. Includes Closing Costs. See Calculating Cash to Close on page 2 for details.

Visit www.consumerfinance.gov/mortgage-estimate for general information and tools. LOAN ESTIMATE

PAGE 1 OF 3 • LOAN ID # 123456789

Additional Information About This Loan LENDER NMLS/__ LICENSE ID LOAN OFFICER NMLS/__ LICENSE ID EMAIL PHONE

Temenos Institution 1234556 Joe Smith 12345 [email protected] 123-456-7890

Comparisons

Construction LoanEstimate MORTGAGE BROKER NMLS/__ LICENSE ID LOAN OFFICER NMLS/__ LICENSE ID EMAIL PHONE

Use these measures to compare this loan with other loans.

In 5 Years

$148,279 $33,815

Annual Percentage Rate (APR)

5.053%

Your costs over the loan term expressed as a rate. This is not your interest rate.

Total Interest Percentage (TIP)

83.244%

The total amount of interest that you will pay over the loan term as a percentage of your loan amount.

Total you will have paid in principal, interest, mortgage insurance, and loan costs. Principal you will have paid off.

Other Considerations Appraisal

 e may order an appraisal to determine the property’s value and charge you for this W appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.

Assumption

If you sell or transfer this property to another person, we will allow, under certain conditions, this person to assume this loan on the original terms. x will not allow assumption of this loan on the original terms.

Homeowner’s Insurance

This loan requires homeowner’s insurance on the property, which you may obtain from a company of your choice that we find acceptable.

Late Payment

If your payment is more than 15 days late, we will charge a late fee of 5% of the monthly . principal and interest payment.

Loan Acceptance

You do not have to accept this loan because you have received this form or signed a loan application.

Refinance

Refinancing this loan will depend on your future financial situation, the property value, and market conditions. You may not be able to refinance this loan.

Servicing

We intend to service your loan. If so, you will make your payments to us. x to transfer servicing of your loan.

LOAN ESTIMATE

PAGE 3 OF 3 • LOAN ID #123456789

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TRID Monitoring

© 2016 Temenos USA. All rights reserved.

Compliance Services

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Compliance Services

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What you will learn  Regulatory requirement for compliance monitoring 

Monitoring vs. audit   

Transaction testing Summarize results Corrective action plan

 Don’t reinvent the wheel  First things first  Breaking it down  

Leveraging exam manuals Setting up worksheets

 While you are there

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Regulatory Requirement for CMS 3

Reporting

Compliance Identification

Audit

Risk Assessment

Monitoring

Policies & Procedures

Training Compliance Services

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Compliance Monitoring 4

 A proactive approach to identify procedural or training weaknesses in

an effort to avoid regulatory violations  A compliance officer included in the planning, development, and

implementation of business propositions increases the likelihood of success of its compliance monitoring function

Compliance Services

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Compliance Monitoring 5

 An effective monitoring system includes regularly scheduled reviews

of:  disclosures and calculations for various product offerings;  document filing and retention procedures;    

posted notices, marketing literature, and advertising; various state usury and consumer protection laws and regulations; third-party service provider operations; and internal compliance communication systems that provide updates and revisions of the applicable laws and regulations to management and staff. Compliance Services

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Monitor vs. Audit 6

 An independent review and examination of records and activities to

assess the adequacy of system controls, to ensure compliance with established policies and operational procedures and to recommend necessary changes in controls, policies or processes.  Key Words:    



Independent Review/Examination Records Activities Compliance

Compliance Services

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Compliance Audit 7

 The scope and frequency of an audit should consider such factors as:          

 

expertise and experience of various institution personnel; organization and staffing of the compliance function; volume of transactions; complexity of products offered; number and type of consumer complaints received; number and type of branches; acquisition or opening of additional branch(es); size of the institution; organizational structure of the institution; outsourcing of functions to third-party service providers, including a review of agreements signed or made between the institution and vendors; degree to which policies and procedures are defined and detailed in writing; and magnitude/frequency of changes to any of the above Compliance Services

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Compliance Monitoring 8

 Changes to regulations or changes in an institution’s business operations,

products, or services should trigger a review of established compliance procedures  Modifications that are necessary should be made expeditiously to minimize compliance risk  Applicable personnel in all affected operating units should be advised of the changes  Monitoring also includes reviews at the transaction level during the

normal, daily activities of employees in every operating unit of the institution  For example, verification of an annual percentage rate, or a second review of a loan application, before the transaction is completed  Monitoring at this level helps establish management and staff accountability and identifies potential problems in a timely manner Compliance Services

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Compliance Monitoring 9

 Compliance officers should monitor employee performance to ensure that

they are following an institution’s established internal compliance policies and procedures  Frequency and volume of employee turnover should be factored into the schedule for reviews  Critical after problems have been noted during past audits or examinations, regulation changes, new products are introduced, mergers occur, or when additional branch locations are opened

 Compliance monitoring does not have to be performed by the compliance

officer  Engage operational staff  Third party providers Compliance Services

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Compliance Monitoring 10 

What do I do? How do I do it? When do I do it?

 Identify rules/regulations subject to compliance requirements       

Use risk based approach Use your exam manuals Identify which regulations require more frequent reviews Identify staff available to assist in monitoring process Develop templates (or buy) Develop schedule over the course of the year Block off your/staff calendar to ensure time is allocated for timely completion

 Select a period of time (quarterly, annual, monthly, etc.)  Identify volume of transactions for the area to be reviewed that occurred during the period  Gather reports, policies, procedures, staff to interview  

Review materials and interview Make notes of any positives and exceptions Compliance Services

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Compliance Monitoring 11

 Transaction Testing  

Identify # of transactions occurred in the reporting period Use random sampling tool  

 

http://www.bankersonline.com/tools/compliance/az_audit_sampler.html Select your pool of transactions to test You want to be random to avoid slanting your results If you know of problem transactions, you may include

Compliance Services

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Compliance Services

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Transaction testing 12

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Transaction testing  Distinguish originated vs. non-originated  Identify sample for when TRID should not have been used  Applications prior to October 3, 2015 (unless revived withdrawn or

cancelled)  Mobile home only loans post October 3, 2015  

Be sure to include verification that land was not taken in the deal Commercial loans where collateral code identifies possible consumer residential loan

Compliance Services

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Transaction testing 14

 Complete transaction testing 

If errors or exceptions noted  



Print supporting documentation for your work paper binder and leverage for training opportunities Cross reference error back to examination manual or regulation to cite specific violation or technical exception

Be sure to include violations of institution policy and procedures 

May not be a regulatory violation, but you will be criticized by examiners!

Compliance Services

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Summarize results 15

 Summarize your results   

Identify any isolated issues Identify any systemic issues Do you need to expand your transaction testing to validate isolated vs. systemic

 Risk rate the issues 

Identify potential monetary penalties

 Make recommendations for changes and improvements   

How to fix Urgency Training Compliance Services

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Compliance Services

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Corrective action plan 16

 Create the Corrective Action Plan  

What is the action item required? Who’s action item is it?  



Compliance responsibilities Operations responsibilities

When does it need to be resolved?

 Write your monitoring report  Report resolution progress to management and Board 

Follow-up until all items resolved



Assignment to someone to complete is not a resolution!

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Where to start

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Compliance Services

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Compliance Services

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Where to start 18

 Examination manuals



Look at what your examiner is expected to look for Great resource for creating checklists



Look at other agency’s manuals



Handouts

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Organization 

How do you want to break down the review? 

By disclosure (LE/CD/COC/WTP) 

By page (1, 2, 3, etc.)  By category/grouping (General, Loan Terms, Payment Schedule) •

By nuances (formatting, rounding, etc.)



Do you just want to follow along the exam manual?



If you purchased a program, be sure to edit it for your institution’s policies and procedures



Do you want to include the citation?



While you are there, are there additional items for which you can monitor?

 Closed-End Credit

Disclosure Forms – For transactions under 1026.19(e) and (f)  Loan Estimate 

Page 1  General information •



Affiliated business arrangement



ARM disclosure

• • •

Loan terms Projected Payments Costs at Closing Website Disclosure

Compliance Services

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Compliance Services

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Where to start 20





 

Identify how you want to capture data Consider grouping general information data used throughout How many files per worksheet Establish a legend

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Key considerations  Timing  Accuracy  Completeness  Revised disclosures 

Valid changed circumstances 



Documentation

Re-setting the fees

 Tolerance cures

Timely Compliance Services

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Compliance Services

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Leveraging the Exam Manual



11

Leveraging the Exam Manual

8/29/2016

Or you can re-word, summarize based on your needs

Compliance Services

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2

3

4

5

6

7

8

9

23

10

Loan Estimate The following section applies to all applications for closed-end credit to be secured by real property (except reverse mortgages subject to 12 CFR 1026.33) Was the Loan Estimate of charges for settlement services, if required, provided within three business days after an application was received or prepared? 12 CFR 1026.19(e)(1)(iii) Does the Loan Estimate appear in a similar form as in Appendix H to Regulation Z? 12 CFR 1026.37(o)(3)(ii) Model Form H-24 Was the Notice of Intent to proceed with the transaction obtained prior to imposing a fee on the consumer other than a reasonable credit report fee in connection with the transaction? 12 CFR 1026.19(e)(2)(i)(A) Was a Loan Estimate of charges for settlement services provided within three business days after an application is received and delivered within 7 business days of consummation? 12 CFR 1026.19(e)(1)(iii) Does the Loan Estimate appear in a similar form as in Appendix H to Regulation Z? 12 CFR 1026.37(o)(3)(ii) Model Form H-24 Does the purpose of the loan stated on page correct? 12 CFR 1026.37(a) Are all dates (loan term, introductory period of product) disclosed in accordance with the formatting requirements of the rule? 12 CFR 1026.37(a) Does the LE contain all general information in connection with the transaction at the top of the disclosure labeled General Information? 12 CFR 1026.37(a) Is the Notice of Intent to Proceed in file, dated same as LE and signed? 12 CFR 1026.19(e)(2) Was the Notice of Intent to proceed with the transaction obtained prior to imposing a fee on the consumer other than a reasonable credit report fee in connection with the transaction? 12 CFR 1026.19(e)(2)(i)(A) Is the Projected Payments table on page 1 properly disclosed? 12 CFR 1026.37(c)

Compliance Services

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One more consideration  Lookback project 

Still early enough 



Regulator reprieve will not last forever

Identify any errors that may pass muster with regulators 



But leave you with civil liability exposure Report to the Board

Compliance Services

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Compliance Services

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Questions?

© 2016 Temenos USA. All rights reserved.

13

TRID Monitoring: Handout

V. Lending — TILA

From the FDIC Compliance Manual as of November 2015

Closed-End Credit Disclosure Forms Review Procedures Closed-end consumer credit transactions secured by real property, other than a reverse mortgage subject to 12 CFR 1026.33, are subject to the disclosure, timing, and other requirements under the TILA-RESPA Integrated Disclosure rule (TILA-RESPA or TRID). Thus, for most closed-end mortgages, including construction-only loans and loans secured by vacant land or by 25 or more acres, creditors must provide the Loan Estimate and the Closing Disclosure. There is a partial exemption in 12 CFR 1026.3(h) from the requirement to provide the Loan Estimate and Closing Disclosure if the loan is (i) a subordinate lien; (ii) a loan for home buyer assistance, such as down payments or closing costs, rehabilitation loans, energy efficiency assistance, or foreclosure prevention; (iii) a loan that does not require the payment of interest; (iv) a loan for which repayment that is forgiven, deferred for 20 years, or deferred until the property is sold or is no longer the consumer’s principal dwelling; and (v) a loan where the total costs of the transaction are less than one percent of the loan and include fees only for recording, application, and housing counseling. For those transactions, creditors must provide other applicable TILA disclosures. NOTE: a creditor may not use the TILA-RESPA Integrated Disclosure forms instead of the GFE, HUD-1, and Truth in Lending forms for transactions that continue to be covered by the remaining disclosure requirements of TILA or RESPA (e.g., reverse mortgages) or before the effective date of the TILARESPA Integrated Disclosure Rule (October 3, 2015). (12 CFR 1026.19(e), (f)). Closed-End Credit Disclosure Forms – For transactions under 12 CFR 1026.19(e) and (f) I.

For a closed-end credit transaction subject to 12 CFR 1026.19(e) and (f), determine whether the creditor provides disclosures required under 12 CFR 1026.37 (Loan Estimate) and 12 CFR 1026.38 (Closing Disclosure). (12 CFR 1026.19(e) and 12 CFR 1026.19(f))

II. For loans subject to 12 CFR 1026.19(e), determine whether the creditor provides the good faith disclosures in the form required by 12 CFR 1026.37 and conforming to the Loan Estimate in appendix H (12 CFR 1026.19(e), 12 CFR 1026.37(o)). III. For loans subject to 12 CFR 1026.19(f), determine whether the creditor provides the Closing Disclosure in the form required by 12 CFR 1026.38 and conforming to the Closing

V–1.80

FDIC Compliance Manual — November 2015

V. Lending — TILA Disclosure attached at appendix H (12 CFR 1026.19(f), 12 CFR 1027.38(t)). NOTE: Use of the Loan Estimate and Closing Disclosure is mandatory for RESPA- covered transactions. For transactions not covered by RESPA, the Loan Estimate and Closing Disclosure may be considered a model form.

points, and any lender credits may change unless the interest rate has been locked (12 CFR 1026.37(a)(13)). Loan Terms – 12 CFR 1026.37(b) (Page 1 of the Loan Estimate) I.

Loan Estimate – 12 CFR 1026.37(a) (Page 1 of the Loan Estimate) I.

• Loan Amount. (12 CFR 1026.37(b)(1));

Loan Estimate. Determine whether the disclosures required for the Loan Estimate are accurately completed and include the following disclosures on the first page (12 CFR 1026.37(a)). Disclosures are detailed below according to the designations made on the Loan Estimate form:

• Interest Rate. (12 CFR 1026.37(b)(2)); • Principal and Interest. The applicable unit period (i.e., biweekly, monthly, yearly) must precede the label “Principal and Interest” (12 CFR 1026.37(b)(3));

• The statement: “Save this Loan Estimate to compare with your Closing Disclosure” (12 CFR 1026.37(a)(2));

• Prepayment Penalty. A statement of whether the loan contains a prepayment penalty, an affirmative or negative response to the question, the maximum amount of the prepayment penalty that may be imposed, and the date on which the penalty may no longer be applied. (12 CFR 1026.37(b)(4), 12 CFR 1026.37(b)(7)(i)) If the date is disclosed (for an affirmative response), determine whether it is disclosed as the year in which the event occurs, counting from the date of consummation (12 CFR 1026.37(b)(8)(iii);

• Name and address of creditor. (12 CFR 1026.37(a)(3)); • Date Issued. (12 CFR 1026.37(a)(4)); • Applicants. (12 CFR 1026.37(a)(5)); • Property. The property address, including zip code (12 CFR 1026.37(a)(6)); • Sales Price/ Prop. Value (estimated value where there is no seller). (12 CFR 1026.37(a)(7));

• Balloon Payment. A statement of whether the loan contains a balloon payment, an affirmative or negative response to the question, the maximum amount of the balloon payment, and the due date of such payment. (12 CFR 1026.37(b)(5), 12 CFR 1026.37(b)(7)(ii)) If the date is disclosed (for an affirmative response), determine whether it is disclosed as the year in which the event occurs, counting from the due date of the initial periodic payment (12 CFR 1026.37(b)(8)(ii)); and

• Loan Term. Stated in years, months, or both, as applicable (12 CFR 1026.37(a)(8)); • Purpose. Loan purpose, categorized as “Purchase,” “Refinance,” or “Construction.” All other loan purposes must be categorized as “Home Equity Loan” (12 CFR 1026.37(a)(9)); • Product. Product type, including the type of interest rate categorized as “Adjustable Rate,” “Step Rate,” or “Fixed Rate.” This disclosure must be preceded by the type of feature that may change the consumer’s periodic payment, such as “Negative Amortization,” “Interest Only,” “Step Payment,” “Balloon Payment,” or “Seasonal Payment,” with the duration of any introductory rate or payment period and the first adjustment period if applicable (12 CFR 1026.37(a)(10)(i)-(iii)); • Loan Type. Categorized as “Conventional,” “ FHA,” “VA,” or “Other” (12 CFR 1026.37(a)(11)); • Loan ID #. (12 CFR 1026.37(a)(12)); and • Rate Lock. A statement of whether the disclosed rate is locked for a specific period. If so, the date and time (including time zone) that the lock will expire, along with an accompanying statement that the interest rate, any FDIC Compliance Manual — November 2015

Loan Terms. Determine whether, under the heading “Loan Terms,” all disclosures are completed and accurate (12 CFR 1026.37(b)):

• Whether the loan amount, interest rate, or monthly principal and interest can increase after closing (12 CFR 1026.37(b)(6)) and, if so, the information required by 12 CFR 1026.37(b)(6)(i)-(iii) and 12 CFR 1026.37(b)(8)(i)(ii). Projected Payments – 12 CFR 1026.37(c) (Page 1 of the Loan Estimate) 1.

Projected Payments. Determine whether, under the heading “Projected Payments” (12 CFR 1026.37(c))): a.

All required fields in the table are completed, follow the formatting and statement requirements, are accurate, and itemize the periodic payments or range of payments together with an itemized estimate of taxes, insurance, assessments, and payments to be made with escrow account funds (12 CFR 1026.37(c)(1) – (5));

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V. Lending — TILA b.

Each separate periodic payment or range of payments is itemized as follows (12 CFR 1026.37(c)(2)): i.

Principal and Interest. The amount payable for principal and interest, including the term “only interest” if the payment or range of payments includes any interest only payment (12 CFR 1026.37(c)(2)(i)); A. Adjustable Rate Loans. The maximum principal and interest payment must be determined by assuming that the interest rate in effect throughout the loan term is the maximum possible interest rate. The minimum amounts must be determined by assuming that the interest rate in effect throughout the loan term is the minimum possible interest rate (12 CFR 1026.37(c)(2)(i)(A)); B. Adjustable Rate and Negative Amortization Loans. The maximum principal and interest amounts (after the loan term period for which the loan principal balance may increase) must be determined by assuming the maximum principal amount permitted under the terms of the legal obligation at the end of the loan term period. The minimum amounts must be determined by assuming that the interest rate in effect throughout the loan term is the minimum possible interest rate (12 CFR 12 CFR 1026.37(c)(2)(i)(B));

ii.

against liability arising out of ownership or use of property (12 CFR 1026.37(c)(5)(ii)); iv. Total Monthly Payment. The total periodic payment, calculated as the sums disclosed as the “Principal and Interest,” “Mortgage Insurance,” and “Escrow.” (12 CFR 1026.37(c)(2)(iv)); NOTE: The headings noted for the Projected Payments table must be listed under the master heading “Payment Calculation” (12 CFR 1026.37(c)(3)(i)). a.

If the amount of a periodic monthly payment may change, additional, separate periodic payments or range of payments have been disclosed. Events requiring additional disclosure(s) include: (i) the change of the periodic principal and interest payment or range of such payments, (ii) a scheduled balloon payment, (iii) the automatic termination of mortgage insurance, or (iv) the anniversary of the due date of the initial periodic payment or range of payments immediately following the occurrence of a change in the principal and interest payment or range of such payments (12 CFR 1026.37(c)(1)(i));

b.

The creditor has met the following in disclosing a range of payments (12 CFR 1026.37(c)(1)(iii)):

Mortgage Insurance. The maximum amount payable for mortgage insurance premiums corresponding to the principal and interest payment disclosed (12 CFR 1026.37(c)(2)(ii));

iii. Escrow. The amount payable into an escrow account to pay some or all of the charges described in 12 CFR 1026.37(c)(2)(iii). If estimates are used for property taxes and homeowner’s insurance, they must reflect (12 CFR 1026.37(c)(5)):

V–1.82

The creditor has disclosed both the minimum and maximum amount for both the principal and interest payment and the total periodic payment (12 CFR 1026.37(c)(1)(iii));

ii.

The creditor has accurately disclosed a range of payments where multiple events are combined into a single range of payments in order to meet the requirement that only four disclosures may be made (12 CFR 1026.37(c)(1)(iii)(A));

iii. The creditor has accurately disclosed a range of payments where multiple events occur during a single year or an event occurs during the same year as the initial periodic payment or range of payments. If the event occurs during the same year as the initial periodic payment or range of payments, the creditor has disclosed the range that would apply during the year in which the events will occur (12 CFR 1026.37(c)(1)(iii)(B));

A. The taxable assessed value of the real property securing the transaction after consummation, including the value of any improvements on the property or to be constructed on the property if known. The disclosure must be made whether or not such construction will be financed from the proceeds of the transaction for property taxes (12 CFR 1026.37(c)(5)(i)); and B. The replacement costs of the property during the initial year after the transaction, defined as premiums or other charges for insurance against loss of or damage to property, or

i.

iv. The creditor has accurately disclosed a range of payments if the periodic principal and interest payment may adjust based on index rates at the time an interest rate adjustment may occur (12 CFR 1026.37(c)(1)(iii)(C)); c.

The creditor has not disclosed more than four separate periodic payments or ranges of payments. (12 CFR 1026.37(c)(1)( ii)):

FDIC Compliance Manual — November 2015

V. Lending — TILA i.

ii.

If additional separate periodic payments or range of payments disclosures are required after the third separate periodic payment or range of payment disclosure, and the transaction does not involve a balloon payment, determine whether the creditor has disclosed the additional separate periodic payment or range of payments as a single fourth range of payments disclosure. (12 CFR 1026.37(c)(1)(ii));

property; or premiums or charges paid for debt cancellation or debt suspension coverage. (12 CFR 1026.43(b)(8)) ii.

A. The taxable assessed value of the real property securing the transaction after consummation, including the value of any improvements on the property or to be constructed on the property if known. The disclosure must be made whether or not such construction will be financed from the proceeds of the transaction for property taxes (12 CFR 1026.37(c)(5)(i)); and

If additional separate periodic payments or range of payments disclosures are required and the transaction involves a final balloon payment, determine whether the creditor has disclosed the additional separate periodic payment or range of payments as a single range of payments after the second separate periodic payment disclosure. Disclosure of the final balloon payment must appear as the final disclosure, under the heading “Final Payment.” (12 CFR 1026.37(c)(1)(ii)(A), 12 CFR 1026.37(c)(3)(iii)); and

B. The replacement costs of the property during the initial year after the transaction for premiums or other charges for insurance against loss of or damage to property, or against liability arising out of ownership or use of property (12 CFR 1026.37(c)(5)(ii));

iii. The automatic termination of mortgage insurance requires disclosure of an additional separate periodic payment or range of payments only if the total number of separate periodic payments or ranges of payments does not exceed three (12 CFR 1026.37(c)(1)(ii)(B));

iii. A statement of whether the mortgage-related obligations include payments for property taxes; premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property; or as otherwise identified by 12 CFR 1026.43(b)(8). The creditor must disclose whether the amounts will be paid by the creditor using escrow account funds. (12 CFR 1026.37(c)(4)(iv));

iv. Each separate periodic payment or range of payments must be disclosed under a subheading stating the years of the loan during which that payment or range of payments will apply. The years must be disclosed in sequence of whole years from the due date of the initial periodic payment (12 CFR 1026.37(c)(3)(ii));

iv. A statement that the consumer must pay separately any mortgage-related obligations that are not paid by the creditor using escrow account funds (12 CFR 1026.37(c)(4)(v));

NOTE: See the Narrative for further discussion of requirements related to the Projected Payments table. d.

Taxes, Insurance, and Assessments. Determine whether the creditor accurately discloses (12 CFR 1026.37(c)(4)): i.

The sum of all mortgage-related obligations, expressed as a monthly amount, even if no escrow account for the payment of some or any of such charges will be established (12 CFR 1026.37(c)(4)(ii));

NOTE: Mortgage-related obligations, as used here, takes the definition used in 12 CFR 1026.43(b)(8); however, it does not include amounts identified in 12 CFR 1026.4(b)(5). Amounts that must be disclosed as “Taxes, Insurance & Assessment” include premiums or other charges for credit life, accident, health, or loss-of-income insurance; premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of FDIC Compliance Manual — November 2015

A statement that the mortgage-related obligations disclosed can increase over time (12 CFR 1026.37(c)(4)(iii)). If estimates are used for property taxes and homeowner’s insurance, they must reflect (12 CFR 1026.37(c)(5)):

v.

A reference to the escrow account information contained on page 2 of the Loan Estimate, captioned “Initial Escrow Payment at Closing” (12 CFR 1026.37(c)(4)(vi)).

Costs at Closing – 12 CFR 1026.37(d) (Page 1 of the Loan Estimate) 1.

Costs at Closing. Determine whether, under the heading “Costs at Closing” the creditor discloses the Estimated Closing Costs (including Loan Costs and Other Costs, less Lender Credits) and the Estimated Cash to Close (including Closing Costs), based upon the calculations required by 12 CFR 1026.37(f), (g), and (h) (and found on page 2 of the Loan Estimate). (12 CFR 1026.37(d)(1))

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V. Lending — TILA 2.

Optional Alternative Table for Transactions without a Seller. Determine whether, for transactions that do not involve a seller, the creditor chose to use the alternative “Cash to Close” table. If so, determine whether the amount is calculated in accordance with 12 CFR 1026.37(h)(2)(iv) (Calculating Cash to Close), includes a statement of whether the disclosed estimated amount is due from or to the consumer; and includes a statement referring the consumer to the alternative “Calculating Cash to Close” table pursuant to 12 CFR 1026.37(h)(2) and the model form found in appendix H-24(G). (12 CFR 1026.37(d)(2))

to title insurance include “Title” as an introductory description (12 CFR 1026.37)(f)(3)); d.

Total Loan Costs. An accurate sum of the subtotals required to be disclosed under 12 CFR 1026.37(f) as Origination Charges, Services You Cannot Shop For and Services You Can Shop For (12 CFR 1026.37(f)(4)); and

e.

Other than as noted in item 1.a. above, determine that items are ordered alphabetically by label under the applicable subheading. If there are more than the maximum allowable number of line items, determine that the remaining charges are disclosed in the aggregate in the last line as “Additional Charges.” (12 CFR 1026.37(f)(5) and (f)(6))

NOTE: See the Narrative for further discussion of requirements related to the Costs at Closing table. Website Disclosure – 12 CFR 1026.37(e) (Page 1 of the Loan Estimate) 1.

Website Reference. Determine whether the creditor discloses that the consumer may obtain general information and tools on the Bureau’s website and has included a link to the site specified in 12 CFR 1026.37(e). (12 CFR 1026.37(e))

Closing Cost Details: Other Costs – 12 CFR 1026.37(g) (Page 2 of the Loan Estimate) 1.

Other Costs. Determine whether the creditor makes the following disclosures (12 CFR 1026.37(g)): a.

Taxes and Other Government Fees. Accurately itemized to reflect amounts to be paid to state and local governments for taxes and other government fees, including subtotals for recording fees and other taxes. A separate line must be included for transfer taxes paid by the consumer. If not charged to the consumer, these fields must be left blank ((12 CFR 1026.37(g)(1));

b.

Prepaids. Accurately itemized to reflect amounts to be paid by the consumer in advance of the first scheduled payment and the subtotals of all such amounts. The disclosures must follow the required order and include the number of months and the total dollar amount to be paid at consummation for homeowner’s insurance and mortgage insurance premiums; the prepaid interest to be paid at consummation, based on daily interest, number of days, interest rate, and the total to be collected; the number of months for which property taxes are to be paid; and the amount the consumer will pay at consummation. If any of these items are not charged to the consumer, the field must be left blank. A maximum of three additional items may be disclosed (including applicable time period covered by the payment at consummation and total to be paid) as Prepaids (12 CFR 1026.37(g)(2));

c.

Initial Escrow Payment at Closing. Accurately itemized to reflect the amounts that the consumer will be expected to place into an escrow account at consummation to be applied to recurring periodic charges and subtotals of all amounts. The disclosure must provide the amount escrowed each month, the number of months of escrow, and the total amount to be paid into the escrow account by the consumer at consummation. Homeowner’s insurance premiums, mortgage insurance premiums, and property taxes must

Closing Cost Details: Loan Costs – 12 CFR 1026.37(f) (Page 2 of the Loan Estimate) 1.

Loan Costs. Determine on page 2 whether, under the heading “Loan Costs,” the creditor makes the following disclosures (12 CFR 1026.37(f)): a.

Origination charges. Accurately itemized to reflect each amount and a subtotal of all amounts that the consumer will pay to each creditor and loan originator for originating and extending the credit. Determine whether the points paid to the creditor to reduce the interest rate are itemized separately, as both a percentage of the amount of credit extended and a dollar amount, and using the label “__% of Loan Amount (Points).” Determine whether points paid is the first item listed. If points to reduce the interest rate are not paid, this disclosure must be left blank (12 CFR 1026.37(f)(1));

b.

Services You Cannot Shop For. An accurate itemization, limited to 13 items, of each amount and subtotal of all amounts that the consumer will pay for settlement services that the consumer cannot shop for and that are provided by persons other than the creditor or mortgage broker. Determine whether the terms related to title insurance include “Title” as an introductory description (12 CFR 1026.37)(f)(2);

c.

Services You Can Shop For. An accurate itemization, limited to 14 items, of each amount and subtotal of all amounts that the consumer will pay for settlement services that the consumer can shop for and that are provided by persons other than the creditor or mortgage broker. Determine whether the terms related

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FDIC Compliance Manual — November 2015

V. Lending — TILA be separately subtotaled. If any of these items are not charged to the consumer, that field must be left blank. A maximum of five additional items may be disclosed as part of Initial Escrow Payment at Closing (12 CFR 1026.37(g)(3)); d.

e.

f.

Other. An accurate itemization of costs that the consumer is likely to pay, or has contracted with a person other than the creditor or loan originator to pay, at closing and of which the creditor is aware at the time of issuing the Loan Estimate. Determine whether the creditor has used a descriptive label for each such amount and provided the subtotal of all such amounts. Determine whether the terms related to title insurance include “Title” as an introductory description and whether the parenthetical description “(optional)” is used at the end of the label for items disclosing any premiums paid for separate insurance, warranty, guarantee, or event-coverage products. A maximum of five items may be disclosed as “Other” (12 CFR 1026.37(g)(4)); Total Other Costs. An accurate sum of the subtotals for Taxes and Other Government Fees, Prepaids, Initial Escrow Payment at Closing, and Other disclosed pursuant to 12 CFR 1026.37(g)(1) through (4) (12 CFR 1026.37(g)(5));

credits are negative charges to the consumer. (Comment 19(e)(3)(i)-5)). g.

Closing Cost Details: Calculating Cash to Close – 12 CFR 1026.37(h) (Page 2 of the Loan Estimate) 1.

Calculating Cash to Close. Determine whether, under the heading “Calculating Cash to Close,” the creditor has accurately disclosed the total amount of cash or other funds that must be provided by the consumer at consummation, itemized into the following component amounts: (12 CFR 1026.37(h)(1)) a.

Total Closing Costs. The amount must be disclosed as a positive number (12 CFR 1026.37(h)(1)(i));

b.

Closing Costs Financed (Paid from your Loan Amount). The amount of any closing costs to be paid out of loan proceeds, disclosed as a negative number (12 CFR 1026.37(h)(1)(ii));

c.

Downpayment/Funds from Borrower. Disclosed:

Total Closing Costs. Accurate component amounts and sum of the following (12 CFR 1026.37(g)(6)): i. ii.

D+I. A sum of the Total Loan Costs and Total Other Costs (12 CFR 1026.37(g)(6)(i)); and Lender Credits. The amount of any lender credits, disclosed as a negative number. If no such amount is disclosed, this line must be left blank (12 CFR 1026.37(g)(6)(ii)); NOTE: The disclosure of “lender credits,” as identified in 12 CFR 1026.37(g)(6)(ii), is required by 12 CFR12 CFR 1026.19(e)(1)(i). “Lender credits,” as identified in 12 CFR 1026.37(g)(6)(ii), represent the sum of nonspecific lender credits and specific lender credits. Non-specific lender credits are generalized payments from the creditor to the consumer that do not pay for a particular fee on the disclosures provided pursuant to 12 CFR 1026.19(e)(1). Specific lender credits are specific payments, such as a credit, rebate, or reimbursement, from a creditor to the consumer to pay for a specific fee. Non-specific lender credits and specific lender

FDIC Compliance Manual — November 2015

Determine that items follow the alphabetical ordering and addenda restrictions of 12 CFR 1026.37(g)(7) and (g)(8).

d.

e.

i.

for a purchase transaction, as the amount of the difference between the purchase price of the property and the principal amount of the loan, as a positive number;

ii.

for all other transactions, as the estimated funds from the consumer determined in calculating “Funds for Borrower” under 12 CFR 1026.37(h)(1)(v) (12 CFR 1026.37(h)(1)(iii));

Deposit. Disclosed: i.

for a purchase transaction, as the amount that is paid to the seller or held in trust or escrow by an attorney or other party under the terms of the agreement for the sale of the property, as a negative number;

ii.

for all other transactions, disclosed as $0 (12 CFR 1026.37(h)(1)(iv));

Funds for Borrower. Disclosed as the amount of funds for the consumer, determined by subtracting the principal amount of the credit extended (excluding any amount disclosed as closing costs to be financed pursuant to 12 CFR 1026.37(h)(1)(ii)) from the total amount of all existing debt being satisfied in the transaction (except to the extent the satisfaction of such existing debt is disclosed as Other Costs under 12 CFR 1026.37(g)) (12 CFR 1026.37(h)(1)(v)):

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V. Lending — TILA i.

ii.

If the calculation yields a positive number, that amount is disclosed under the heading “Down Payment/Funds from Borrower,” (12 CFR 1026.37(h)(1)(iii)(B)) and $0 is disclosed under the heading “Funds for Borrower,” under 12 CFR 1026.37(h)(1)(v) (12 CFR 1026.37(h)(1)(v)(A)); If the calculation yields a negative amount, the creditor discloses that amount as a negative number under the heading “Funds for Borrower,” (12 CFR 1026.37(h)(1)(v)) and as $0 under the heading “Down Payment/Funds from Borrower under 12 CFR 1026.37(h)(1)(iii)(B)) (12 CFR 1026.37(h)(1)(v)(B));

iii. If the calculation yields “0,” then $0 is disclosed under both headings under 12 CFR 1026.37(h)(1)(iii)(B) and (h)(1)(v) (12 CFR 1026.37(h)(1)(v)(C)); f.

g.

h.

Seller Credits. Determined by totaling the amount the seller will pay for Total Loan Costs under 12 CFR 1026.37(f)(4) and Total Other Costs under 12 CFR 1026.37(g)(5)), to the extent known. This must be disclosed as a negative number (12 CFR 1026.37(h)(1)(vi)); Adjustments and Other Credits. Determined by combining the Total Loan Costs (determined under 12 CFR 1026.37(f)) and Total Other Costs (determined under 12 CFR 1026.37(g)) that are paid by persons other than the loan originator, creditor, consumer, or seller, together with any other amounts that are required to be paid by the consumer at closing pursuant to a purchase and sale contract. Must be disclosed as a negative number (12 CFR 1026.37(h)(1)(vii)); and Estimated Cash to Close. The sum of the amounts of the components required for Calculating Cash to Close disclosed as under 12 CFR 1026.37(h)(1)(i) through (vii) (12 CFR 1026.37(h)(1)(viii)).

b.

Total Closing Costs. Disclosed as a negative number (12 CFR 1026.37(h)(2)(ii));

c.

Total Payoffs and Payments. Disclosed as the total amount of payoffs and payments to be made to third parties that are not otherwise disclosed, as a negative number (12 CFR 1026.37(h)(2)(iii));

d.

Cash to Close. Disclosed as the amount of cash or other funds due from or to the consumer and a statement of whether the disclosed estimated amount is due from or to the consumer. The amount must be calculated as the sum of the amounts disclosed under “Loan Amount,” “Total Closing Costs,” and “Total Payoffs and Payments.” (12 CFR 1026.37(h)(2)(iv));

e.

Closing Costs Financed (Paid from your Loan Amount). Disclosed as the sum of the amounts under “Loan Amount,” and “Total Payoffs and Payments.” The sum is disclosed only to the extent it is greater than “0,” and it is less than or equal to the amount disclosed under “Total Closing Costs.” (12 CFR 1026.37(h)(2)(v))

NOTE: If a creditor chooses to provide the optional Alternative Calculating Cash to Close table for transactions without a seller, the alternative table must also be used in the Closing Disclosure. Closing Cost Details: Adjustable Payment (AP) Table – 12 CFR 1026.37(i) (Page 2 of the Loan Estimate) 1.

Adjustable Payment (AP) Table. For loans where the periodic principal and interest payment may change after consummation based on a factor other than an interest rate adjustment, or for seasonal payment products as described in 12 CFR 1026.37(a)(10)(ii)(E), determine whether the creditor discloses a separate table under the master headings “Closing Cost Details” and “Adjustable Payment (AP) Table” that contains the following information and satisfies the following requirements:

Closing Cost Details: Alternative Calculating Cash to Close Table for Transactions without a Seller – 12 CFR 1026.37(h)(2) (Page 2 of the Loan Estimate)

NOTE: The AP table is not to appear where it is inapplicable because the payments after consummation change for reasons other than an adjustment to the interest rate.

1.

a.

Interest Only Payments. The disclosure states yes or no to the question of whether the transaction is an interest only product under 12 CFR 1026.37(a)(10)(ii)(B) and, if the answer is yes, the disclosure states the period during which interest only periodic payments are scheduled (12 CFR 1026.37(i)(1));

b.

Optional Payments. The disclosure states yes or no to the question whether the terms of the legal obligation expressly provide that the consumer may elect to pay a specified periodic principal and interest payment in an amount other than the scheduled amount of the

Alternative Calculating Cash to Close Table for Transactions Without a Seller. If the transaction does not involve a seller and the creditor has chosen to provide the optional Alternative Calculating Cash to Close table modeled in appendix H-24(G), determine whether the creditor accurately discloses the total amount of cash or other funds that must be provided by the consumer as consummation, itemized into the following component amounts (12 CFR 1026.37(h)(2)): a.

Loan Amount. (12 CFR 1026.37(h)(2)(i));

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FDIC Compliance Manual — November 2015

V. Lending — TILA payment, and, if the answer is yes, the disclosure states the period during which the consumer may elect to make such payments (12 CFR 1026.37(i)(2)); c.

d.

e.

Step Payments. The disclosure states yes or no to the question whether the transaction is a step payment product under 12 CFR 1026.37(a)(10)(ii)(C) and, if the answer is yes, the disclosure states the period during which the regular periodic payments are scheduled to increase (12 CFR 1026.37(i)(3)); Seasonal Payments. The disclosure states yes or no to the question whether the transaction is a seasonal payment product under 12 CFR 1026.37(a)(10)(ii)(E) and, if the answer is yes, the disclosure states the period during which periodic payments are not scheduled (12 CFR 1026.37(i)(4)); Principal and Interest Payments. This label is immediately preceded by the applicable unit period, and the disclosures must contain the following information: i.

ii.

The number of the payment of the first periodic principal and interest payment that may change under the terms of the legal obligation (counting from the first periodic payment due after consummation), and the amount or range of the periodic principal and interest payment for such payment, labeled “First Change/Amount” (12 CFR 1026.37(i)(5)(i)); The frequency of subsequent changes to the periodic principal and interest payment, labeled “Subsequent Changes” (12 CFR 1026.37(i)(5)(ii)); and

iii. The maximum periodic principal and interest payment that may occur during the term of the transaction, and the first periodic principal and interest payment that can reach such maximum, counting from the first periodic payment due after consummation, labeled “Maximum Payment” (12 CFR 1026.37(i)(5)(iii)).

a.

Index + Margin. Disclosed if the interest rate may adjust and the product type is not a “Step Rate” under 12 CFR 1026.37(a)(10)(i)(B). The disclosure must show the index upon which the adjustments to the interest rate are based and the margin that is added to the index to determine the interest rate (12 CFR 1026.37(j)(1);

b.

Interest Rate Adjustments. If the product type is a “Step Rate” and not also an “Adjustable Rate” under 12 CFR 1026.37(a)(10)(i)(A), the disclosure must show the maximum amount of any adjustments to the interest rate that are scheduled and predetermined (12 CFR 1026.37(j)(2));

c.

Initial Interest Rate. The disclosure must show the initial interest rate at consummation of the loan transaction (12 CFR 1026.37(j)(3));

d.

Minimum and Maximum Interest Rates. The disclosure must show the minimum and maximum interest rates for the loan, after any introductory period expires (12 CFR 1026.37(j)(4);

e.

Change Frequency. The disclosure must show the month when the interest rate after consummation may first change, calculated from the date interest for the first scheduled periodic payment begins to accrue, labeled “First Change;” and the frequency of interest rate adjustments after the initial adjustment to the interest rate, labeled, “Subsequent Changes” (12 CFR 1026.37(j);

f.

Limits on Interest Rate Changes. The disclosures must show the maximum possible change for the first adjustment of the interest rate after consummation, labeled “First Change;” and the maximum possible change for subsequent adjustments of the interest rate after consummation, labeled “Subsequent Changes.” (12 CFR 1026.37(j)

Additional Information About This Loan – 12 CFR 1026.37(k) (Page 3 of the Loan Estimate)

Closing Cost Details: Adjustable Interest Rate (AIR) Table – 12 CFR 1026.37(j) (Page 2 of the Loan Estimate)

1.

Additional Information About This Loan. Determine whether the creditor accurately discloses contact and NMLSR information as follows:

1.

a.

Adjustable Interest Rate (AIR) Table. If the interest rate may increase after consummation, determine whether the creditor discloses, as a separate table under the master headings “Closing Cost Details” and “Adjustable Interest Rate (AIR) Table,” the following information and satisfies the following requirements: (12 CFR 1026.37(j)) NOTE: The AIR table is not to appear where it is inapplicable because the interest rate does not adjust after consummation.

FDIC Compliance Manual — November 2015

Lender/Mortgage Broker. The name and “NMLS ID/License ID” for the creditor (“Lender”) and the mortgage broker, if any. If the creditor or mortgage broker has not been assigned an NMLSR ID, the license number or other unique identifier issued to the creditor or mortgage broker by the applicable jurisdiction or regulating body must be disclosed, with the abbreviation for the state of the applicable jurisdiction or regulatory body stated before the word “License” in the label, if any (12 CFR 1026.37(k)(1));

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V. Lending — TILA b.

c.

Loan Officer. The name and NMLSR ID of the individual loan officer of the creditor and the mortgage broker, if any, who is the primary contact for the consumer. If the individual loan officer has not been assigned an NMLSR ID, the license number or other unique identifier issued by the applicable jurisdiction or regulating body with which the loan officer is licensed and/or registered shall be disclosed, with the abbreviation for the state of the applicable jurisdiction or regulatory body stated before the word “License” in the label, if any (12 CFR 1026.37(k)(2)); and Email/Phone (respectively). The email address and telephone number of the loan officer. (12 CFR 1026.37(k)(3))

Additional Information About This Loan: Comparisons – 12 CFR 1026.37(l) (Page 3 of the Loan Estimate) 1.

Comparisons. Determine whether the creditor accurately discloses the following information for comparison purposes and includes the statement “Use these measures to compare this loan with other loans” (12 CFR 1026.37(l): a.

ii.

c.

The total principal, interest, mortgage insurance, and loan costs scheduled to be paid through the end of the 60th month after the due date of the first periodic payment, expressed as a dollar amount, along with the statement “Total you will have paid in principal, interest, mortgage insurance, and loan costs;” and The principal scheduled to be paid through the end of the 60th month after the due date of the first periodic payment, expressed as a dollar amount, along with the statement “Principal you will have paid off;”

Annual Percentage Rate (APR). Expressed as a percentage, and the statement “Your costs over the loan term expressed as a rate. This is not your interest rate.” (12 CFR 1026.37(l)(2)); and

1.

Other Considerations. Determine whether the creditor accurately discloses the following (12 CFR 1026.37(m):

V–1.88

i.

The creditor may order an appraisal to determine the value of the property identified in 12 CFR 1026.37(a)(6) and may charge the consumer for that appraisal;

ii.

The creditor will promptly provide the consumer a copy of any appraisal, even if the transaction is not consummated; and

b.

Assumption. A statement of whether a subsequent purchaser of the property may be permitted to assume the remaining loan obligation on its original terms (12 CFR 1026.37(m)(2);

c.

Homeowner's Insurance. At the option of the creditor, a statement that homeowner's insurance is required on the property and that the consumer may choose the insurance provider (12 CFR 1026.37(m)(3);

d.

Late Payment. A statement detailing any charge that may be imposed for a late payment, stated as a dollar amount or percentage charge of the late payment amount, and the number of days that a payment must be late to trigger the late payment fee (12 CFR 1026.37(m)(4);

e.

Refinance. The following statement: “Refinancing this loan will depend on your future financial situation, the property value, and market conditions. You may not be able to refinance this loan.” (12 CFR 1026.37(m)(5));

f.

Servicing. A statement of whether the creditor intends to service the loan or transfer the loan to another servicer (12 CFR 1026.37(m)(6));

g.

Liability after Foreclosure. If the purpose of the credit transaction is to refinance an extension of credit as described in 12 CFR 1026.37(a)(9)(ii), a brief statement that certain state law protections against liability for any deficiency after foreclosure may be lost, the potential consequences of the loss of such protections, and a statement that the consumer should consult an attorney for additional information (12 CFR 1026.37(m)(7)); and

h.

Construction Loans. In a transaction that involves a new construction, if the creditor reasonably expects settlement will occur more than 60 days after the Loan Estimate is issued and wishes to retain the option to provide a revised disclosure, a clear and conspicuous statement that a revised disclosure may be issued any

Total Interest Percentage (TIP). The total amount of interest that the consumer will pay over the life of the loan, expressed as a percentage of the amount of credit extended and the statement “The total amount of interest that you will pay over the loan term as a percentage of your loan amount” (12 CFR 1026.37(l)(3).

Additional Information About This Loan: Other Considerations – 12 CFR 1026.37(m) (Page 3 of the Loan Estimate)

Appraisal. For transactions subject to 15 U.S.C. 1639h or 1691(e), as implemented in this part or Regulation B, 12 CFR part 1002, respectively, a statement, labeled “Appraisal” that explains (12 CFR 1026.37(m)(1)):

iii. The consumer may choose to pay for an additional appraisal of the property for the consumer's use;

In 5 years (12 CFR 1026.37(l)(l)); i.

b.

a.

FDIC Compliance Manual — November 2015

V. Lending — TILA time prior to 60 days before consummation. (12 CFR 1026.37(m)(8))

ii.

Additional Information About This Loan: Confirm Receipt – 12 CFR 1026.37(n) (Page 3 of the Loan Estimate) 1.

Confirm Receipt. If the creditor choses to provide a signature statement, determine whether the creditor accurately provides the following: “By signing, you are only confirming that you have received this form. You do not have to accept this loan because you have signed or received this form.” If the creditor does not include a line for the consumer's signature, the creditor discloses the following statement (labeled “Loan Acceptance”): “You do not have to accept this loan because you have received this form or signed a loan application.” (12 CFR 1026.37(n))

The dollar amounts for Projected Payments or range of payments required by 12 CFR 1026.37(c)(1)(iii) (i.e., minimum and maximum amounts of principal and interest for projected periodic payments or range of payments);

iii. The dollar amounts for Mortgage Insurance required to be disclosed by 12 CFR 1026.37(c)(2)(ii) (i.e., itemization of maximum amount of mortgage insurance premiums); iv. The dollar amounts for Escrow required to be disclosed by 12 CFR 1026.37(c)(2)(iii); v.

The dollar amounts for Taxes, Insurance, and Assessments required to be disclosed by 12 CFR 1026.37(c)(4)(ii);

Form of Disclosures – 12 CFR 1026.37(o) 1.

vi. The dollar amounts for Loan Costs required to be disclosed by 12 CFR 1026.37(f) (i.e., Origination Charges, Services You Cannot Shop For, Services You Can Shop For, and Total Loan Costs);

Form of disclosures. 35 Determine whether the creditor made the disclosures required by 12 CFR 1026.37 clearly and conspicuously in writing, in a form that the consumer may keep, with disclosures grouped together and segregated from everything else, containing only the information required by 12 CFR 1026.37 (a) through (n), made in the same order, and positioned relative to the master headings, headings, subheadings, labels, and similar designations in the same manner, as shown in form H-24, set forth in appendix H (12 CFR 1026.37(o)(1) and (2): a.

b.

c.

vii. The dollar amounts for Other Costs required by 12 CFR 1026.37(g) (i.e., Taxes and Other Government Fees, Prepaids, Initial Escrow Payment at Closing, Other, Total Other Costs, and Total Closing Costs) except as noted for percentages; viii. The dollar amounts for Calculating Cash to Close required to be disclosed by 12 CFR 1026.37(h);

Form H-24 required. Determine whether, for a transaction subject to 12 CFR 1026.19(e) that is a federally related mortgage loan, as defined in Regulation X, 12 CFR 1024.2, the creditor uses form H-24, set forth in appendix H (12 CFR 1026.37(o)(3)(i)); or Substantially similar disclosures. Determine whether the creditor makes the disclosures with headings, content, and format substantially similar to form H-24, set forth in appendix H for any other transaction subject to 12 CFR 1026.37 and (12 CFR 1026.37(o)(3)(ii))

ix. The dollar amounts for the Adjustable Payment (AP) Table required to be disclosed by 12 CFR 1026.37(i); and x. d.

Rounding - nearest dollar. Determine whether the creditor accurately rounds the following figures to the nearest whole dollar disclosed pursuant to 12 CFR (12 CFR 1026.37(o)(4)(i)(A)): i.

The dollar amounts for Loan Terms required by 12 CFR 1026.37(b)(6)-(7), (i.e., adjustments after consummation and details about prepayment penalty and balloon payments);

35 Limited changes to the disclosure forms are permitted, including substitution of “monthly” with the applicable unit period, making disclosures in languages other than English, and the creditor’s logo in the space allotted for the identification of the creditor. (12 CFR 1026.37(o)(5)).

FDIC Compliance Manual — November 2015

e.

The dollar amounts for Comparisons required to be disclosed by 12 CFR 1026.37(l).

No rounding - dollars. Determine that the creditor did not round the following: (12 CFR 1026.37(o)(4)(i)(A)) i.

The per diem amount required by 12 CFR 1026.37(g)(2)(iii) (prepaid interest paid per day); and

ii.

The figures disclosed pursuant to 12 CFR 1026.37(g)(3)(i)-(iii) (initial escrow payment at closing for homeowner’s insurance, mortgage insurance, and property taxes) and 12 CFR 1026.37(g)(3)(v) (additional escrow items).

Loan amount. Determine that the creditor did not round the loan amount disclosed pursuant to 12 CFR 1026.37(b)(1) and truncated whole numbers at the decimal point. (12 CFR 1026.37(o)(4)(i)(B))

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V. Lending — TILA f.

g.

Total periodic payment. Determine that the creditor accurately rounds the total periodic payment disclosed pursuant to 12 CFR 1026.37(c)(2)(iv), if any of the component amounts of the figures disclosed pursuant to 12 CFR 1026.37(o)(4)(i)(A) are rounded to the nearest whole dollar. (12 CFR 1026.37(o)(4)(i)(C))

Closing Information – 12 CFR 1026.38(a)(3) (Page 1 of the Closing Disclosure) 1.

Percentages. Determine that the creditor does not round the following percentage amounts and discloses them using up to the required number of decimal places (12 CFR 1026.37(o)(4)(ii)): i.

ii.

Three decimal places. The Annual Percentage Rate (APR) disclosed pursuant to 12 CFR 1026.37(l)(2) is disclosed up to three decimal places, and if the amount is a whole number, the amount is truncated at the decimal point. Two to three decimal places. The following percentages are disclosed up to two or three decimal places, and if the amount is a whole number, the amount is truncated at the decimal point for:

Closing Information. Determine whether all fields required by 12 CFR 1026.38(a)(3) are complete and accurate: a.

Date Issued. Indicating the date disclosures are delivered (12 CFR 1026.38(a)(3)(i));

b.

Closing Date. (12 CFR 1026.38(a)(3)(ii));

c.

Disbursement Date. (12 CFR 1026.38(a)(3)(iii));

d.

Settlement Agent. (12 CFR 1026.38(a)(3)(iv));

e.

File #. Disclosing the identification number assigned to the transaction by the settlement agent (12 CFR 1026.38(a)(3)(v));

f.

Property. The address or location of the property as disclosed in the Loan Estimate (12 CFR 1026.38(a)(3)(vi)); and

g.

Sale Price/Appraised Prop. Value. For transactions where there is a seller, the sale price, and where there is no seller, the appraised property value (12 CFR 1026.38(a)(3)(vii)(A)-(B)). If the creditor disclosed an estimated value, the creditor must use the label “Estimated Prop. Value.” (Comment 38.(a)(3)(vii)-1)

A. Interest rate and adjustments after consummation, disclosed pursuant to 12 CFR 1026.37(b)(2) and (6); B. Points as a percentage of the loan amount, disclosed pursuant to 12 CFR 1026.37(f)(1)(i); C. Percentage of prepaid interest to be paid per day, disclosed pursuant to 12 CFR 1026.37(g)(2)(iii);

Transaction Information – 12 CFR 1026.38(a)(4) (Page 1 of the Closing Disclosure) 1.

D. Index + Margin, Initial Interest Rate, Minimum/Maximum Interest Rate, and Limits on Interest Rate Changes (as disclosed on the Adjustable Interest Rate (AIR) Table), disclosed pursuant to 12 CFR 1026.37(j); and E.

Total interest percentage, disclosed pursuant to 12 CFR 1026.37(l)(3).(12 CFR 1026.37(o)(4)(ii)).

Closing Disclosure – 12 CFR 1026.38(a) 1.

Determine whether the disclosures required for the Closing Disclosure are accurately completed and include the following disclosures: a.

Form purpose with the statement: “This form is a statement of final loan terms and closing costs. Compare this document with your Loan Estimate.” (12 CFR 1026.38(a)(2))

V–1.90

Transaction information. Determine whether all fields required by 12 CFR 1026.38(a)(4) are complete and accurate: a.

Borrower. The consumer’s name and mailing address (12 CFR 1026.38(a)(4)(i));

b.

Seller. Where applicable, the seller’s name and mailing address (12 CFR 1026.38(a)(4)(ii));

c.

Lender. The name of the creditor making the disclosure (12 CFR 1026.38(a)(4)(iii)).

Loan Information – 12 CFR 1026.38(a)(5) (Page 1 of the Closing Disclosure) 1.

Loan Information. Determine whether all fields required by 12 CFR 1026.38(5) are complete and accurate: a.

Loan Term. (12 CFR 1026.38(a)(5)(i));

b.

Purpose. (12 CFR 1026.38(a)(5)(ii));

c.

Product. (12 CFR 1026.38(a)(5)(iii));

d.

Loan Type. (12 CFR 1026.38(a)(5)(iv));

FDIC Compliance Manual — November 2015

V. Lending — TILA e.

Loan ID #. (12 CFR 1026.38(a)(5)(v)); and

f.

MIC #. The case number for any mortgage insurance policy, if required by the creditor (12 CFR 1026.38(a)(5)(vi)).

c.

Loan Terms – 12 CFR 1026.38(b) (Page 1 of the Closing Disclosure) 1.

Loan Terms. Determine whether the creditor discloses, in a separate table labeled “Loan Terms,” the information required to be disclosed on the Loan Estimate under 12 CFR 1026.37(b) reflecting the terms of the legal obligation at consummation (12 CFR 1026.38(b)).

Projected Payments – 12 CFR 1026.38(c) (Page 1 of the Closing Disclosure)

Closing Cost Details: Loan Costs – 12 CFR 1026.38(f) (Page 2 of the Closing Disclosure) 1.

Loan Costs. Determine whether the creditor disclosed all costs associated with the transaction, with columns stating whether the charge was borrower-paid at or before closing, seller-paid at or before closing, or paid by others, under the following subheadings: a.

1.

Projected Payments. Determine whether the creditor discloses, in a separate table labeled “Projected Payments,” the projected payments or range of payments (in the same manner as required on the Loan Estimate under 12 CFR 1026.37(c)(1) through (4)(v)) reflecting the terms of the legal obligation at consummation. Determine whether the creditor referred to the Escrow Account disclosure required by 12 CFR 1026.38(l)(7) and calculated the estimated escrow payments (12 CFR 1026.38(c)(1)-(2)): a.

For transactions subject to RESPA, under the escrow account analysis described in Regulation X, 12 CFR 1024.17 (12 CFR 1026.38(c)(1)(i)); and

b.

For transactions not subject to RESPA, either calculated under the escrow account analysis described in Regulation X, 12 CFR 1024.17, or in the manner set forth in 12 CFR 1026.37(c)(5), (12 CFR 1026.38(c)(1)(ii)).

Costs at Closing – 12 CFR 1026.38(d) (Page 1 of the Closing Disclosure) 1.

Closing Costs. Disclosed as the sum of the dollar amounts disclosed on page 2 of the Closing Disclosure, pursuant to 12 CFR12 CFR 1026.38(f)(4) (Loan Costs), 12 CFR 1026.38(g)(5) (Other Costs), and 12 CFR 1026.38(h)(3) (Lender Credits), together with a statement referring the consumer to the disclosures on page 2 (12 CFR 1026.38(d)(i)(A)-(E));

b.

Cash to Close. Disclosed as the sum of the dollar amounts calculated in accordance with the Calculating Cash to Close table (12 CFR 1026.38(i)(9)(ii)), together with a statement referring the consumer to the disclosures on page 2 (12 CFR 1026.38(d)(ii)(A) – (B)); or

FDIC Compliance Manual — November 2015

Origination Charges. Itemized amounts paid for charges disclosed on the Loan Estimate (12 CFR 1026.37(f)(1)) and the total of Borrower-Paid amounts paid at or before closing; together with: i.

The compensation paid by the creditor to a thirdparty loan originator, and

ii.

The name of the third-party loan originator receiving payment (12 CFR 1026.38(f)(1));

b.

Services Borrower Did Not Shop For. Itemized costs for each settlement service the creditor required but did not allow the consumer to shop for, with name of recipient, amount, and total costs designated BorrowerPaid at or before closing. Items listed in the Loan Estimate (12 CFR 1026.37(f)(3)) are disclosed here if the consumer was provided a written list of settlement service providers under 12 CFR 1026.19(e)(1)(vi)(C), and the consumer selected a settlement service provider from that written list (12 CFR 1026.38(f)(2));

c.

Services Borrower Did Shop For. Itemized costs for each service required by the creditor, that the consumer shopped for in accordance with 12 CFR 1026.19(e)(1)(vi)(A), with the amount, the name of recipient, and the total costs designated as BorrowerPaid at or before closing. If these items were disclosed on the Loan Estimate pursuant to 12 CFR 1026.37(f)(3), they are disclosed here if the consumer was provided a written list of settlement service providers and did not select a settlement service provider from that written list (12 CFR 1026.38(f)(3));

d.

Total Loan Costs (Borrower-Paid). The sum of the amounts disclosed under 12 CFR 1026.38(f)(5) as Borrower-Paid for the origination charge, services the borrower did not shop for, and services the borrower did shop for (12 CFR 1026.38(f)(4));

e.

Loan Costs Subtotals. Calculation of the total borrower-paid costs at or before closing, showing each

Costs at Closing. Determine whether the creditor discloses: a.

Cash to Close (Alternative for transactions without a seller). Disclosed as the amount calculated according to 12 CFR 1026.38(e)(5)(ii), together with a statement of whether the amount is due from or to the consumer and a reference to the Alternative Calculating Cash to Close table required pursuant to 12 CFR 1026.38(e), (12 CFR 1026.38(d)(2)(i) – (iii)).

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V. Lending — TILA subtotal for the origination charge, services the borrower did not shop for, and services the borrower did shop for. (12 CFR 1026.38(f)(5)) Closing Cost Details: Other Costs – 12 CFR 1026.38(g) (Page 2 of the Closing Disclosure)

table disclosed under 12 CFR 1026.38(g)(1)-(4) to produce the total. (12 CFR 1026.38(g)(6)) Closing Cost Details: Total Closing Costs – 12 CFR 1026.38(h) (Page 2 of the Closing Disclosure) 1.

1.

Other Costs. Determine whether the creditor disclosed all costs associated with the transaction (other than those disclosed in the “Loan Costs” table) with columns stating whether the charge was borrower-paid at or before closing, seller-paid at or before closing or paid by others, including: a.

Taxes and Other Government Fees. All taxes and government fees to be paid by the borrower at or before closing, including recording fees and transfer taxes, accurately itemized. Determine that the itemized transfer tax is accompanied by the name of the government entity assessing the transfer tax. (12 CFR 1026.38(g)(1)(i)-(ii))

b.

Prepaids. Accurately itemized prepaid charges described in the borrower’s Loan Estimate as required by 12 CFR 1026.37(g)(2); the name of the person ultimately receiving the prepaid payment or the government entity assessing the property tax charged; and the total of all amounts designated as BorrowerPaid at or before closing. (12 CFR 1026.38(g)(2))

c.

Initial Escrow Payment at Closing. Accurate itemizations of each escrow amount required at closing as described on the borrower’s Loan Estimate pursuant to 12 CFR 1026.37(g)(3) (e.g., homeowner’s insurance, mortgage insurance, property taxes, etc.); applicable aggregate adjustments pursuant to 12 CFR 1024.17(d)(2); and the total of all amounts designated as Borrower-Paid at or before closing. (12 CFR 1026.38(g)(3))

d.

e.

f.

Other. All charges, accurately itemized, for services required or related to the borrower’s transaction that are in addition to the charges disclosed in the Loan Costs table (12 CFR 1026.38(f)) and in the preceding 12 CFR of the Other Costs table (12 CFR 1026.38(g)(1)-(3)), for services required or obtained in the real estate closing by the consumer, the seller, or other party and the name of the person ultimately receiving the payment; and the total of all such itemized amounts that are designated Borrower-Paid at or before closing, with the applicable designations for items that are optional or are components of title insurance services. (12 CFR 1026.38(g)(4)(i)-(ii)) Total Other Costs (Borrower--Paid). Accurately totaled and disclosed sum of all amounts disclosed as Borrower-Paid. (12 CFR 1026.38(g)(5)) Other Costs Subtotals. Accurately added individual subtotals in the “Closing Cost Details – Other Costs”

V–1.92

Total Closing Costs (Borrower-Paid). Determine whether the creditor: a.

Follows the description, labeling, and ordering requirements for this table; (12 CFR 1026.38(h)(4)) and

b.

Accurately discloses the following closing costs totals: i.

Total Closing Costs (Borrower-Paid). The sum of subtotals for Closing Costs (12 CFR 1026.38(h)(2)) and Lender Credits (12 CFR 1026.38(h)(3)) (i.e., the following two items in this list). (12 CFR 1026.38(h)(1))

ii.

Closing Costs Subtotals. Consisting of the sum of “Loan Cost Subtotals” (12 CFR 1026.38(f)(5) and the “Other Costs Subtotals” (12 CFR 1026.38(g)(6)), designated as Borrower-Paid at or before closing; and the sum of costs paid at and before closing by the seller or other parties (as disclosed pursuant to 12 CFR 1026.38(f) and (g)). (12 CFR 1026.38(h)(2))

iii. Lender Credits. For general credits from the creditor for closing costs (as described in 12 CFR 1026.37(g)(6)(ii), shown as a negative number, and designated as Borrower-Paid at closing. (12 CFR 1026.38(h)(3)) NOTE: Credits that are for specific charges should be reflected in the Paid by Others column in the Closing Cost Details table (with a notation of “(L)” for lender permitted) under 12 CFR 1026.38(f) and (g). (12 CFR 1026.38(h)(3); Comment 38(h)(3)-1) A. If a refund is provided pursuant to 12 CFR 1026.19(f)(2)(v), determine whether the creditor has provided a statement explaining that the refund (the amount described in the Loan Estimate under 12 CFR 1026.37(g)(6)(ii)) includes a credit for the amount that exceeds the limitations on increases in closing costs under 12 CFR 1026.19(e)(3), and the amount of such credit. Calculating Cash to Close – 12 CFR 1026.38(i) (Page 3 of the Closing Disclosure) 1.

Calculating Cash to Close. Determine whether the creditor, for each of the following items, accurately includes the amount from the Loan Estimate, compared to the amount disclosed in the “Final” column, and provides the necessary FDIC Compliance Manual — November 2015

V. Lending — TILA answer to the question “Did This Change?” (with items in the latter column disclosed more prominently than other disclosures) (12 CFR 1026.38(i)(1)(i)-(iii)): a.

i.

Total Closing Costs. The Total Closing Costs on the Calculating Cash to Close table of the Loan Estimate disclosed under 12 CFR 1026.37(h)(1)(i) compared to the final “Total Closing Costs” disclosed under 12 CFR 1026.38(h)(1), and: i.

If the amounts are different (unless due to rounding), the creditor has provided: (12 CFR 1026.38(i)(1)(i)-(ii))

c.

A. A statement of that fact, and (12 CFR 1026.38(i)(1)(iii)(A)(1)) B. If the difference in the “Total Closing Costs” is attributable to differences in itemized charges that are included in either or both subtotals, a statement that the consumer should see the Total Loan Costs (under 12 CFR 1026.38(f)(4)) and Total Other Costs (under 12 CFR 1026.38(g)(5)) subtotals (together with references to such disclosures), as applicable; and (12 CFR 1026.38(i)(1)(A)(2)) C. If the increase exceeds the limitations on increases in closing costs under 12 CFR 1026.19(e)(3), a statement that such increase exceeds the legal limits by the dollar amount of the excess, and if any refund is provided pursuant to 12 CFR 1026.19(f)(2)(v), a statement directing the consumer to the disclosure required under 12 CFR 1026.38(h)(3). The dollar amount must equal the sum total of all excesses of the limitations on increases in closing costs under 12 CFR 1026.19(e)(3), taking into account the different methods of calculating excesses of the limitations on increases in closing costs under 12 CFR 1026.19(e)(3)(i) and (ii). (12 CFR 1026.38(i)(1)(iii)(A)(3)) ii.

b.

If the amount disclosed under 12 CFR 1026.38(i)(1)(ii) (i.e., amount in the Final column) is equal to the amount disclosed under 12 CFR 1026.38(i)(1)(i) (i.e., amount copied over from the Loan Estimate), a statement of that fact. (12 CFR 1026.38(i)(1)(iii)(B))

Closing Costs Paid Before Closing. Under the subheading “Loan Estimate,” the dollar amount “$0,” compared to the final amount of “Total Closing Costs” disclosed under 12 CFR 1026.38(h)(2) and designated as Borrower-Paid before closing, stated as a negative number, and (12 CFR 1026.38(i)(2)(i)-(iii)):

FDIC Compliance Manual — November 2015

d.

If these amounts are different (unless the difference is due to rounding), the creditor has provided a statement of that fact, along with a statement that the consumer paid such amounts prior to consummation of the transaction (12 CFR 1026.38(i)(2)(iii)(A)); or if the amount disclosed under 12 CFR 1026.38(i)(2)(ii) (i.e., amount in the Final column) is equal to the amount disclosed under 12 CFR 1026.38(i)(2)(i) (i.e., $0), a statement of that fact; (12 CFR 1026.38(i)(2)(iii)(B))

Closing Costs Financed (Paid from your Loan Amount). Under the subheading “Loan Estimate,” the amount disclosed on Calculating Cash to Close table on the Loan Estimate under 12 CFR 1026.37(h)(1)(ii), compared to the actual amount of the closing costs that are to be paid out of loan proceeds, if any, stated as a negative number (12 CFR 1026.38(i)(3)(i)-(iii)); and i.

If the amounts are different (unless the difference is due to rounding), a statement of that fact, along with a statement that the consumer included the closing costs in the loan amount, which increased the loan amount (12 CFR 1026.38(i)(3)(iii)(A)); or

ii.

If the amount disclosed under 12 CFR 1026.38(i)(3)(ii) (i.e., amount in the Final column) is equal to the amount disclosed pursuant to 12 CFR 1026.38(i)(3)(i) (i.e., amount copied over from the Loan Estimate), a statement of that fact. (12 CFR 1026.38(i)(3)(iii)(B))

Down Payment/Funds from Borrower. For purchase transactions, under the subheading “Loan Estimate,” the Down Payment/Funds from Buyer amount disclosed on the Calculating Cash to Close table on the Loan Estimate under 12 CFR 1026.37(h)(1)(iii), compared to the difference between the purchase price of the property and the principal amount of the credit extended, stated as a positive number in the “Final” column. For transactions that are not purchases, the amount in the “Final” column is determined according to 12 CFR 1026.38(i)(6)(iv), discussed below. (12 CFR 1026.38(i)(4)(i)-(ii)) i.

If the amount disclosed under 12 CFR 1026.38(i)(4)(ii) (i.e., amount in the Final column) is different, unless due to rounding, from the amount disclosed under 12 CFR 1026.38(i)(4)(i) (i.e., amount copied over from the Loan Estimate), a statement of that fact, along with a statement that the consumer increased or decreased this payment and can see further details in the “Summaries of Transactions” table (12 CFR 1026.38(i)(4)(iii)(A)); or

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V. Lending — TILA ii.

e.

f.

g.

If the amount disclosed under 12 CFR 1026.38(i)(4)(ii) is equal to the amount disclosed under 12 CFR 1026.38(i)(4)(i), a statement of that fact. (12 CFR 1026.38(i)(4)(iii)(B))

estate closing disclosed on the Summaries of Transactions table pursuant to 12 CFR 1026.38(j)(1)(v) (except to the extent the satisfaction of such existing debt is disclosed under 12 CFR 1026.38(g)), and (12 CFR 1026.38(i)(6)(iv)).

Deposit. Under the subheading “Loan Estimate,” the Deposit amount disclosed on the Calculating Cash to Close table on the Loan Estimate under 12 CFR 1026.37(h)(1)(iv), compared to the amount listed as “Deposit” on the Summaries of Transactions table on the Closing Document pursuant to 12 CFR 1026.38(j)(2)(ii), stated as a negative number, (12 CFR 1026.38(i)(5)(i)-(ii)) and

i.

If the calculation yields a positive number, it is disclosed as described above in the Final Down Payment/Funds from Borrower column under 12 CFR 1026.38(i)(4)(ii)(B), and $0 is disclosed as described above in the Final Funds for Borrower column under 12 CFR 1026.38(i)(6)(ii). (12 CFR 1026.38(i)(6)(iv)(A)) If the calculation under 12 CFR 1026.38(i)(6)(iv) yields a negative number, it is disclosed under 12 CFR 1026.38(i)(6)(ii), as a negative number in the Final Funds for Borrower column described above, and $0 is disclosed as described above in the Final Down Payment/Funds from Borrower column under 12 CFR 1026.38(i)(4)(ii)(B). (12 CFR 1026.38(i)(6)(iv)(B))

i.

If the amounts are different, unless due to rounding, a statement of that fact, along with a statement that the consumer increased or decreased this payment, as applicable, and that the consumer should see the details disclosed under 12 CFR 1026.38(j)(2)(ii) (i.e., in Section L in the Summaries of Transactions table) (12 CFR 1026.38(i)(5)(iii)(A)); or

ii.

ii.

If the amount disclosed under 12 CFR 1026.38(i)(5)(ii) (i.e., amount in the Final column) is equal to the amount disclosed 12 CFR 1026.38(i)(5)(i) (i.e., amount copied over from the Loan Estimate), a statement of that fact. (12 CFR 1026.38(i)(5)(iii)(B))

iii. If the calculation under 12 CFR 1026.38(i)(6)(iv) yields $0, then $0 is disclosed in both the Final Down Payment/Funds from Borrower column under 12 CFR 1026.38(i)(4)(ii)(B) and in the Final Funds for Borrower column described above under 12 CFR 1026.38(i)(6)(ii). (12 CFR 1026.38(i)(6)(iv)(C))

Funds for Borrower. Under the subheading “Loan Estimate,” the amount disclosed on the Calculating Cash to Close table on the Loan Estimate under 12 CFR 1026.37(h)(1)(v), compared to the amount listed in the Final column calculated pursuant to 12 CFR 1026.38(i)(6)(iv) (NOTE: see next item for calculation); (12 CFR 1026.38(i)(6)(i)-(iii)), and

h.

Seller Credits. Under the subheading “Loan Estimate,” the amount disclosed on the Calculating Cash to Close table on the Loan Estimate under 12 CFR 1026.37(h)(1)(vi), compared to the amount listed pursuant to 12 CFR 1026.38(j)(2)(v), stated as a negative number (12 CFR 1026.38(i)(7)(i)-(ii)), and

i.

If the amounts are different, unless due to rounding, a statement of that fact, along with a statement that the consumer's available funds from the loan amount have increased or decreased, as applicable (12 CFR 1026.38(i)(6)(iii)(A)); or

i.

If the amounts are different, unless due to rounding, a statement of that fact, along with a statement that the consumer should see the details disclosed under 12 CFR 1026.38(j)(2)(v) (i.e., in Section L in the Summaries of Transactions table) (12 CFR 1026.38(i)(7)(iii)(A)), or

ii.

If the amount disclosed under 12 CFR 1026.38(i)(6)(ii) (i.e., amount in the Final column) is equal to the amount disclosed 12 CFR 1026.38(i)(6)(i) (i.e., amount copied over from the Loan Estimate), a statement of that fact. (12 CFR 1026.38(i)(6)(iii)(B))

ii.

If the amount disclosed under 12 CFR 1026.38(i)(7)(ii) (i.e., amount in the Final column) is equal to the amount disclosed 12 CFR 1026.38(i)(7)(i) (i.e., amount copied over from the Loan Estimate), a statement of that fact. (12 CFR 1026.38(i)(7)(iii)(B))

Funds for Borrower. Determine whether the creditor accurately calculates the “Funds for Borrower” for non-purchase transactions and the final “Funds for Borrower” by subtracting the principal amount of the credit extended (excluding any amount disclosed pursuant to 12 CFR 1026.38(i)(3)(ii)) from the total amount of all existing debt being satisfied in the real

V–1.94

i.

Adjustments and Other Credits. Under the subheading “Loan Estimate,” the amount disclosed on the Calculating Cash to Close table on the Loan Estimate under 12 CFR 1026.37(h)(1)(vii), compared to the amount listed pursuant to 12 CFR 1026.38(j)(1)(iii) and (v) through (x) (see exam procedures below on Itemization of Amounts Due From Borrower) reduced

FDIC Compliance Manual — November 2015

V. Lending — TILA by the total of the amounts disclosed under 12 CFR 1026.38(j)(2)(vi) through (xi) (see exam procedures below on Itemization of Amounts Already Paid By or On Behalf of Borrower). (12 CFR 1026.38(i)(8)(i)-(ii)) i.

ii.

j.

If the amounts are different, unless due to rounding, statement of that fact, along with a statement that the consumer should see the details disclosed under 12 CFR 1026.38(j)(1)(iii) and (v) through (x) and (j)(2)(vi) through (xi) (i.e., in Sections K and L in the Summaries of Transactions table) (12 CFR 1026.38(i)(8)(iii)(A)); or If the amount disclosed under 12 CFR 1026.38(i)(8)(ii) (i.e., amount in the Final column) is equal to the amount disclosed 12 CFR 1026.38(i)(8)(i) (i.e., amount copied over from the Loan Estimate), a statement of that fact. (12 CFR 1026.38(i)(8)(iii)(B))

c.

Cash to Close. Under the subheading “Loan Estimate,” the amount disclosed on the Calculating Cash to Close table on the Loan Estimate under 12 CFR 1026.37(h)(1)(viii), compared to the amount listed pursuant to 12 CFR 1026.38(i)(1) through (i)(8), and each disclosed more prominently than the other disclosures in this section. (12 CFR 1026.38(i)(9)(i)-(ii))

Determine whether, for transactions without a seller, the creditor uses the alternative table in the Loan Estimate (12 CFR 1026.37(h)(2)), and if so, determine whether the creditor provides, instead of the table described in 12 CFR 1026.38(i), a separate table, “Calculating Cash to Close,” with the statement “Use this table to see what has changed from your Loan Estimate.” Determine whether the table includes: a.

b.

Loan Amount. Disclosed on the Loan Estimate under 12 CFR 1026.37(b)(1) and the final loan amount disclosed under 12 CFR 1026.38(b), disclosed more prominently than other disclosures in this section, with the question “Did this change?” If the amounts are different (unless due to rounding), a statement of that fact along with a statement of whether this amount increased or decreased. If there is no change, a statement of that fact. (12 CFR 1026.38(e)(1)(i) – (iii)) Total Closing Costs. Disclosed on the Loan Estimate under 12 CFR 1026.37(h)(2)(ii) and the final Total Closing Costs disclosed under 12 CFR 1026.38(h)(1), disclosed as a negative number and disclosed more prominently than other disclosures, with the question “Did this change?” If there is no change, a statement of that fact. (12 CFR 1026.38(e)(2)) If the amounts are different (unless due to rounding):

FDIC Compliance Manual — November 2015

A statement of that fact.

ii.

If there is a change because of differences in itemized charges that are included in either or both subtotals, a statement that the consumer should look at the Total Loan Costs and Total Other Costs subtotals disclosed below, together with references to those disclosures (12 CFR 1026.38(e)(2)(iii)(A)(2)); and

iii. If the increase exceeds the legal limits for increases in closing costs under 12 CFR 1026.19(e)(3); a statement of that fact, the dollar amount of the excess; and, if any refund is provided, a reference to the disclosure required for including the refund in a lender credit under 12 CFR 1026.38(h)(3). (12 CFR 1026.38(e)(2)(A)(3))

Alternative Cash to Close Table for Transactions Without a Seller – 12 CFR 1026.38(e) (Page 3 of the Closing Disclosure) 1.

i.

d.

Closing Costs Paid before Closing. Disclosed under the subheading “Loan Estimate,” the amount of $0; and under the subheading “Final,” any amount designated as Borrower-Paid before closing under 12 CFR 1026.38(h)(2), disclosed as a positive number. Determine whether these disclosures are disclosed more prominently than other disclosures, with the question “Did This Change?” If so (unless the difference is due to rounding), a statement of that fact. If there is no change, a statement of that fact. (12 CFR 1026.38(e)(3)) i.

If the amount disclosed under 12 CFR 1026.38(e)(3)(ii) is different than the amount disclosed under 12 CFR 1026.38(e)(3)(i), unless due to rounding, a statement of that fact along with a statement that the consumer paid such amounts prior to consummation (12 CFR 1026.38(e)(3)(iii)(A)); or

ii.

If the amount disclosed under 12 CFR 1026.38(e)(3)(ii) is equal to the amount disclosed under 12 CFR 1026.38(e)(3)(i), a statement of that fact. (12 CFR 1026.38(e)(3)(iii)(B))

Total Payoffs and Payments. Includes the total payoffs and payments disclosed on the Loan Estimate under 12 CFR 1026.37(h)(2)(iii) and the final total amount of payoffs and payments made to third parties not otherwise disclosed under 12 CFR 1026.38(t)(5)(vii)(B), to the extent known, disclosed as a negative number. Determine whether these disclosures are disclosed more prominently than other disclosures with the question “Did This Change?” If so (unless the difference is due to rounding), a statement of that fact. If there is no change, a statement of that fact. (12 CFR 1026.38(e)(4)) i.

If the amount disclosed under 12 CFR 1026.38(e)(4)(ii) is different than the amount

V–1.95

V. Lending — TILA disclosed under 12 CFR 1026.38(e)(4)(i)(unless the difference is due to rounding), a statement that the consumer included the closing costs in the loan amount, which increased the loan amount, along with a reference to the “Payoffs and Payments” table that may be added pursuant to 12 CFR 1026.38(t)(5)(viii)(B)) (12 CFR 1026.38(e)(4)); or ii.

e.

f.

pursuant to 12 CFR 1026.38(j)(1)(ii) (12 CFR 1026.38(j)(1)(iii));

If the amount disclosed under 12 CFR 1026.38(e)(4)(ii) is equal to the amount disclosed under 12 CFR 1026.38(e)(4)(i), a statement of that fact. (12 CFR 1026.38(e)(4)(iii)(B))

Cash to Close. The estimated Cash to Close disclosed on the Loan Estimate, along with the statement of whether the estimated amount is due from or to the consumer, and a disclosure of the final amount due from or to the consumer.(12 CFR 1026.38(e)(5)(i) – (ii) Closing Costs Financed (Paid from your Loan Amount). Disclosed as the sum of the amounts disclosed under 12 CFR 1026.38(e)(1)(ii) and (e)(4)(ii) (i.e., the amounts in the Final Column of the Loan Amount and Total Payoffs and Payments). However, the amount is disclosed only to the extent that the sum is greater than zero and less than or equal to the sum disclosed under 12 CFR 1026.38(h)(1) (Total Closing Costs) minus the sum disclosed under 12 CFR 1026.38(h)(2) designated as Borrower-Paid before closing. (12 CFR 1026.38(e)(6))

Summaries of Transactions: Borrower’s Transaction – 12 CFR 1026.38(j) (Page 3 of the Closing Disclosure)

c.

Closing Costs Paid at Closing. The total amount of closing costs disclosed that are designated BorrowerPaid at closing, calculated pursuant to 12 CFR 1026.38(h)(2) and (h)(3) (see procedure above regarding Closing Costs Subtotals)(12 CFR 1026.38(j)(1)(iv));

d.

A description and the amount of any additional items that the seller has paid prior to the real estate closing, but reimbursed by the consumer at the real estate closing, and a description and the amount of any other items owed by the consumer at the real estate closing not otherwise disclosed pursuant to 12 CFR 1026.38(f), (g), or (j) (12 CFR 1026.38(j)(1)(v));

e.

The description “Adjustments for Items Paid by Seller in Advance” (12 CFR 1026.38(j)(1)(vi));

f.

City/Town Taxes. The prorated amount of any prepaid taxes due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount (12 CFR 1026.38(j)(1)(vii));

g.

County Taxes. The prorated amount of any prepaid taxes due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount (12 CFR 1026.38(j)(1)(viii));

h.

Assessments. The prorated amount of any prepaid assessments due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount (12 CFR 1026.38(j)(1)(ix)); and

i.

A description and the amount of any additional items paid by the seller prior to the real estate closing that are due from the consumer at the real estate closing (12 CFR 1026.38(j)(1)(x)).

Borrower’s Transaction – Itemization of Amounts Due from Borrower at Closing (Page 3 of the Closing Disclosure) 1.

Due from Borrower at Closing. Determine whether the creditor accurately discloses the total amount due from the consumer at closing, calculated as the sum of items required to be disclosed by 12 CFR 1026.38(j)(1)(ii) through (x) (i.e., the items described in this procedure), excluding items paid from funds other than closing funds as described in 12 CFR 1026.38(j)(4)(i). Determine whether the creditor completes the summary of the borrower’s transaction as follows: (12 CFR 1026.38(j)(1)) a.

Sale Price of Property. The amount of the contract sales price of the property being sold in a purchase real estate transaction, excluding the price of any tangible personal property if the consumer and seller have agreed to a separate price for such items (12 CFR 1026.38(j)(1)(ii));

b.

Sale Price of Any Personal Property Included in Sale. The amount of the sales price of any tangible personal property excluded from the contract sales price

V–1.96

Borrower’s Transaction – Itemization of Amounts Paid Already By or On Behalf of Borrower at Closing (Page 3 of the Closing Disclosure) 1.

Paid Already by or on Behalf of Borrower at Closing. Determine whether the creditor accurately discloses the sum of the amounts disclosed in 12 CFR 1026.38(j)(2)(ii) through (xi) (i.e., the items described in this procedure), excluding items paid from funds other than closing funds as described in 12 CFR 1026.38(j)(4)(i). Determine whether the creditor accurately completes the summary of borrower’s transaction as follows (12 CFR 1026.38(j)(2)(i)):

FDIC Compliance Manual — November 2015

V. Lending — TILA a.

Deposit. Any amount that is paid to the seller or held in trust or escrow by an attorney or other party under the terms of the agreement for the sale of the property (12 CFR 1026.38(j)(2)(ii));

b.

Loan Amount. The amount of the consumer's new loan amount or first user loan as disclosed pursuant to 12 CFR 1026.38(b) (12 CFR 1026.38(j)(2)(iii));

c.

Existing Loan(s) Assumed or Taken Subject To. The amount of any existing loans that the consumer is assuming, or any loans subject to which the consumer is talking title to the property (12 CFR 1026.38(j)(2)(iv));

d.

Borrower’s Transaction – Calculation of Borrower’s Transaction (Page 3 of the Closing Disclosure) 1.

Seller Credit. The total amount of money that the seller will provide at the real estate closing as a lump sum not otherwise itemized to pay for loan costs as determined by 12 CFR 1026.38(f) and other costs as determined by 12 CFR 1026.38(g) and any other obligations of the seller to be paid directly to the consumer (12 CFR 1026.38(j)(2)(v));

e.

Other Credits. A description and amount of other items paid by or on behalf of the consumer and not otherwise disclosed pursuant to 12 CFR 1026.38(f), (g), (h), and (j)(2) (12 CFR 1026.38(j)(2)(vi));

f.

The description “Adjustments for Items Unpaid by Seller” (12 CFR 1026.38(j)(2)(vii));

g.

City/Town Taxes. The prorated amount of any unpaid taxes due from the seller to reimburse the consumer at the real estate closing, and the time period corresponding to that amount (12 CFR 1026.38(j)(2)(viii)ix));

1.

h.

i.

j.

County Taxes. The prorated amount of any unpaid taxes due from the seller to reimburse the consumer at the real estate closing, and the time period corresponding to that amount (12 CFR 1026.38(j)(2)(ix); Assessments. The prorated amount of any unpaid assessments due from the seller to reimburse the consumer at the real estate closing, and the time period corresponding that amount (12 CFR 1026.38(j)(2)(x)); and A description and the amount of any additional items which have not yet been paid and which the consumer is expected to pay after the real estate closing, but which are attributable in part to a period of time prior to the real estate closing (12 CFR 1026.38(j)(2)(xi)).

Calculation. Determine whether the creditor accurately discloses the total amount due from, and already paid by, the consumer at closing by the following calculation: (12 CFR 1026.38(j)(3)) a.

Total Due from Borrower at Closing. The amount disclosed in the Closing Disclosure, on the line captioned “Due from Borrower at Closing” (12 CFR 1026.38(j)(3)(i));

b.

Total Paid Already by or on Behalf of Borrower at Closing. The amount disclosed in the Closing Disclosure, on the line captioned “Paid Already by or on Behalf of Borrower at Closing,” if any, disclosed as a negative number (12 CFR 1026.38(j)(3)(ii)); and

c.

Cash to Close. A statement that the disclosed amount is due from or to the consumer, and the amount due from or to the consumer at the real estate closing, calculated by the sum of the amounts disclosed as the “Total Due from Borrower at Closing” and “Total Paid Already by or on Behalf of Borrower at Closing” (12 CFR 1026.38(j)(3)(iii)).

Paid Outside of Closing. Determine whether the creditor discloses other costs that are not paid out of closing costs but would otherwise be disclosed; describes the funds as “Paid Outside of Closing” or the abbreviation “P.O.C.,” and includes the name of the party making the payment. (12 CFR 1026.38(j)(4)(i)) NOTE: For purposes of 12 CFR 1026.38(j), “closing funds” means funds collected and disbursed at real estate closing. (12 CFR 1026.38(j)(4)(ii))

Summaries of Transactions: Seller’s Transaction – 12 CFR 1026.38(k) (Page 3 of the Closing Disclosure) Seller’s Transaction – Itemization of Amounts Due to Seller at Closing (Page 3 of the Closing Disclosure) 1.

Due to Seller at Closing. Determine whether the creditor accurately discloses the total amount due to the seller at the real estate closing, calculated as the sum of items required to be disclosed pursuant to 12 CFR 1026.38(k)(1)(ii) through (ix) (i.e., the items in this procedure), excluding items paid from funds other than closing funds as described in 12 CFR 1026.38(k)(4)(i). Determine whether the creditor accurately completes the summary of seller’s transaction as follows (12 CFR 1026.38)(k)(1)(i)): a.

FDIC Compliance Manual — November 2015

Sale Price of Property. The amount of the contract sales price of the property being sold, excluding the price of any tangible personal property if the consumer and seller have agreed to a separate price for such items (12 CFR 1026.38(k)(1)(ii));

V–1.97

V. Lending — TILA b.

c.

Sale Price of Any Personal Property Included in Sale. The amount of the sales price of any tangible personal property excluded from the contract sales price pursuant to 12 CFR 1026.38(k)(1)(ii) (12 CFR 1026.38(k)(1)(iii)); A description and the amount of other items paid to the seller by the consumer pursuant to the contract of sale or other agreement, such as charges that were not disclosed pursuant to 12 CFR 1026.37 on the Loan Estimate or items paid by the seller prior to the real estate closing but reimbursed by the consumer at the real estate closing (12 CFR 1026.38(k)(1)(iv));

d.

The description “Adjustments for Items Paid by Seller in Advance” (12 CFR 1026.38(k)(1)(v));

e.

City/Town Taxes. The prorated amount of any prepaid taxes due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount (12 CFR 1026.38(k)(1)(vi);

f.

County Taxes. The prorated amount of any prepaid taxes due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount (12 CFR 1026.38(k)(1)(vii));

g.

Assessments. The prorated amount of any unpaid assessments due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding that amount (12 CFR 1026.38(k)(1)(viii)); and

h.

A description and the amount of additional items paid by the seller prior to the real estate closing that are reimbursed by the consumer at the real estate closing (12 CFR 1026.38(k)(1)(ix)).

c.

Existing Loan(s) Assumed or Taken Subject To. The amount of any existing loans assumed or taken subject to by the consumer (12 CFR 1026.38(k)(2)(iv));

d.

Payoff of First Mortgage Loan. The amount of a first lien loan secured by the property being sold that will be paid off at closing (12 CFR 1026.38(k)(2)(v));

e.

Payoff of Second Mortgage Loan. The amount of any loan secured by a second lien on the property that will be paid off as part of the real estate closing (12 CFR 1026.38(k)(2)(vi));

f.

Seller Credit. The total amount of seller funds to be provided at closing as a lump sum that has not otherwise been itemized to pay for loan costs as determined by 12 CFR 1026.38(f) and other costs as determined by 12 CFR 1026.38(g) and any other obligations of the seller to be paid directly to the consumer (12 CFR 1026.38(k)(2)(vii);

g.

A description and amount of all other items paid to be paid by the seller at closing, including any lien-related payoffs, fees, or obligations (12 CFR 1026.38(k)(2)(viii));

h.

The description “Adjustments for Items Unpaid by Seller” (12 CFR 1026.38(k)(2)(ix));

i.

City/Town Taxes. The prorated amount of unpaid taxes due from the seller to reimburse the consumer at the real estate closing, and the time period corresponding to that amount (12 CFR 1026.38(k)(2)(x);

j.

County Taxes. The prorated amount of any unpaid taxes due from the seller to the consumer at the real estate closing, and the time period corresponding to that amount (12 CFR 1026.38(k)(2)(xi));

k.

Assessments. The prorated amount of any unpaid assessments due from the seller to reimburse the consumer at the real estate closing, and the time period corresponding to that amount (12 CFR 1026.38(k)(2)(xii)); and

l.

A description and the amount of any additional items which have not yet been paid and which the consumer is expected to pay after the real estate closing, but which are attributable in part to a period of time prior to the real estate closing (12 CFR 1026.38(k)(2)(xiii)).

Seller’s Transaction – Itemization of Amounts Due from Seller at Closing (Page 3 of the Closing Disclosure) 1.

Due from Seller at Closing. Determine whether the creditor accurately discloses the sum of the amounts disclosed in 12 CFR 1026.38(k)(2)(ii) through 12 CFR 1026.38(k)(2)(xiii) (i.e., the items in this procedure), excluding items paid from funds other than closing funds described in 12 CFR 1026.38(k)(4)(i). Determine whether the creditor accurately completes the summary of the seller’s transaction as follows (12 CFR 1026.38(k)(2)(i)): a.

Excess Deposit. The amount of any excess deposit disbursed prior to closing, (12 CFR 1026.38(k)(2)(ii));

b.

Closing Costs Paid at Closing. The amount of closing costs designated Seller-Paid at closing and disclosed pursuant to 12 CFR 1026.38(h)(2) (12 CFR 1026.38(k)(2)(iii));

Seller’s Transaction – Calculation of Seller’s Transaction (Page 3 of the Closing Disclosure) 1.

V–1.98

Calculation. Determine whether the creditor accurately discloses the total amount due to and from the seller at closing by the following calculation (12 CFR 1026.38(k)(3)):

FDIC Compliance Manual — November 2015

V. Lending — TILA a.

Total Due to Seller Closing. The amount disclosed in the Closing Disclosure, on the line captioned “Due from Seller at Closing” (12 CFR 1026.38(k)(3)(i));

b.

Total Due from Seller at Closing. The amount disclosed in the Closing Disclosure on the line captioned “Due from Seller at Closing,” disclosed as a negative number (12 CFR 1026.38(k)(3)(ii));

c.

Cash. A statement that the disclosed amount is due from or to the seller and the amount due, calculated by the sum of the amounts disclosed as the “Total Due to Seller at Closing” and “Total Due from Seller at Closing” (12 CFR 1026.38(k)(3)(iii)).

b.

Demand Feature. Whether the legal obligation includes a demand feature, and, if it does, a reference to the note or other loan contract for details (12 CFR 1026.38(l)(2));

c.

Late Payment. The dollar amount or percentage charge of any fee designated as a late payment (information required on the Loan Estimate by 12 CFR 1026.37(m)(4)) and the number of days after which such a charge will be triggered (12 CFR 1026.38(l)(3));

d.

Negative Amortization (Increase in Loan Amount). Whether the regular period payments may cause the principal balance to increase, and:

Seller’s Transaction – Items Paid Outside of Closing Funds (Page 3 of Closing Disclosure) 1.

Determine whether the creditor discloses other costs that are not paid out of closing funds but would otherwise be disclosed in the Summaries of Transactions: Seller’s Transaction table; describing the funds as “Paid Outside of Closing” or the abbreviation “P.O.C.,” and including the name of the party making the payment. (12 CFR 1026.38(k)(4)(i))

i.

If the regular periodic payments do not cover all of the interest due, the creditor provides a statement that the borrower’s principal balance will increase, such balance will likely become larger than the original loan amount, and increases in such balance lower the consumer’s equity in the property; and

ii.

If the consumer may make regular periodic payments that do not cover all of the interest due, the creditor provides a statement that, if the consumer chooses a monthly payment option that does not cover all of the interest due, the principal balance may become larger than the original loan amount and the increases in the principal balance lower the consumer’s equity in the property. (12 CFR 1026.38(l)(4)(i)-(ii))

NOTE: For purposes of 12 CFR 1026.38(k), “closing funds” means funds collected and disbursed at real estate closing. (12 CFR 1026.38(k)(4)(ii)) Payoffs and Payments Table for Transactions Without a Seller – 12 CFR 1026.38(t)(5)(vii)(B) (Page 3 of the Closing Disclosure) 1.

Payoff and Payments. For transactions without a seller, determine whether a creditor, using an optional modified Closing Disclosure (as illustrated by form H-25(J) in appendix H), has provided alternative tables for Cash to Close, pursuant to 12 CFR 1026.38(d)(2), and for Calculating Cash to Close pursuant to 12 CFR 1026.38(e), and that the creditor itemizes the amounts of payments made at consummation to other parties from the credit extended to the consumer or funds provided by the consumer in connection with the transaction, including designees of the consumer, the payees, and a description of the purpose of such disbursements under the subheading “To;” and the total amount of such payments (12 CFR 1026.38(t)(5)(vii)(B)).

e.

Additional Information About This Loan: Loan Disclosures – 12 CFR 1026.38(l) (Page 4 of the Closing Disclosure) 1.

Loan Disclosures. Determine whether the creditor accurately provides the required disclosures (12 CFR 1026.38(l)): a.

Assumption. Whether the loan obligations may be assumed by a subsequent purchaser (12 CFR 1026.38(l)(1));

FDIC Compliance Manual — November 2015

Partial Payments. Whether the creditor that accepts less than the full amount due has provided a statement that the “lender,” (using that label) may accept partial payments and apply such payments to the consumer's loan, and: i.

If periodic payments that are less than the full amount due are accepted but not applied to a consumer's loan until the consumer pays the remainder of the full amount due, a statement that the lender may hold partial payments in a separate account until the consumer pays the remainder of the payment and then apply the full periodic payment to the consumer's loan;

ii.

If periodic payments that are less than the full amount due are not accepted, the lender does not accept any partial payments; and

iii. A statement that, if the loan is sold, the new lender may have a different policy. (12 CFR 1026.38(l)(5)(i)-(iv)) f.

Security Interest. Whether the creditor states that the consumer is granting a security interest in the property

V–1.99

V. Lending — TILA securing the transaction, and that the borrower may lose the property if required payments are not made or otherwise fails to satisfy the requirements of the legal obligation. Determine that the creditor has included the property address and zip code (12 CFR 1026.38(l)(6)); g.

3)

The total amount disclosed and a reference to the disclosure made on the Closing Disclosure under the heading “Other Costs, Initial Escrow Payment at Closing,” pursuant to 12 CFR 1026.38(g)(3), and a statement that the payment is a cushion for the escrow account, labeled “Initial Escrow Payment.” (12 CFR 1026.38(l)(7)(i)(A)(3))

4)

The amount the consumer will be required to pay into the escrow account with each periodic payment during the first year after consummation for payment of the charges described in the Loan Estimate pursuant to 12 CFR 1026.37(c)(4)(ii), labeled “Monthly Escrow Payment.” (12 CFR 1026.38(l)(7)(i)(A)(4))

Escrow Account. Whether the creditor states whether it has established, will establish, or will not establish an escrow account for the consumer in connection with the loan transaction at or before consummation; i.

Under the reference “For now,” A. Whether the creditor provides a statement that an escrow account may also be called an impound or trust account; whether the creditor has established or will establish, at or before consummation, an escrow account in connection with the transaction for the costs that will be paid using escrow account funds; that the creditor may be liable for penalties and interest if it fails to make a payment for any cost for which the escrow account is established; and that the consumer would have to pay such costs directly in the absence of the escrow account; (12 CFR 1026.38(l)(7)(i) and (l)(7)(i)(A)).Whether, if an escrow account is or will be established, the creditor accurately discloses the following items based upon the escrow analysis required under 12 CFR 1024.17, in tabular form:

V–1.100

1)

The total amount that the consumer will be required to pay into the account over the first year after consummation for the payment of the charges described in 12 CFR 1026.37(c)(4)(ii) together with a descriptive name of each such charge calculated as the Monthly Escrow Payment multiplied by the number of periodic payments scheduled to be made to the escrow account during the first year after consummation. (12 CFR 1026.38(l)(7)(i)(A)(1))

2)

The estimated amount for taxes, insurance, and assessments that the consumer is likely to pay during the first year after consummation, as described in 12 CFR 1027.37(c)(4)(ii), that are known to the creditor and that will not be paid using escrow account funds, labeled “Non-Escrowed Property Costs over Year 1,” together with a descriptive name of each such charge and a statement that the consumer may have to pay other costs that are not listed. (12 CFR 1026.38(l)(7)(i)(A)(2))

ii.

No Escrow. If an escrow account will not be established for the consumer, determine whether there is a statement that the consumer will not have an escrow account; the reason why an escrow account will not be established; a statement that the consumer must pay all property costs, such as taxes and homeowner's insurance, directly; a statement that the consumer may contact the creditor to inquire about the availability of an escrow account; and a table, titled “No Escrow” that itemizes the estimated total amount the consumer will pay directly for charges described in the Loan Estimate under 12 CFR 1026.37(c)(4)(ii) during the first year after consummation that are known to the creditor; and a statement that, without an escrow account, the consumer must pay the identified costs, possibly in one or two large payments, labeled “Property Costs over Year 1;” along with the amount of any fee the creditor imposes on the consumer for not establishing an escrow account in connection with the transaction, labeled “Escrow Waiver Fee.” (12 CFR 1026.38(l)(7)(i)(B)) A. Under the reference “In the future,” determine whether the creditor has disclosed under the reference “In the future:” (12 CFR 1026.38(l)(7)(ii)) 1)

A statement that the consumer's property costs may change and that, as a result, the consumer's escrow payment may change; (12 CFR 1026.38(l)(7)(ii)(A))

2)

A statement that the consumer may be able to cancel any escrow account that has been established but that the consumer is responsible for directly paying all

FDIC Compliance Manual — November 2015

V. Lending — TILA property costs in the absence of an escrow account; (12 CFR 1026.38(l)(7)(ii)(B)) and 3)

A description of the consequences if the consumer fails to pay property costs, including the actions that a state or local government may take if property taxes are not paid and the actions the creditor may take if the consumer does not pay some or all property costs, such as adding amounts to the loan balance, adding an escrow account to the loan, or purchasing a property insurance policy on the consumer's behalf that may be more expensive and provide fewer benefits than what the consumer could obtain directly. (12 CFR 1026.38(l)(7)(ii)(C))

Additional Information About This Loan: Adjustable Payment (AP) Table – 12 CFR 1026.38(m) (Page 4 of the Closing Disclosure) 1.

Adjustable Payment (AP) Table. Determine whether the creditor provides the AP disclosure required for the Loan Estimate under 12 CFR 1026.37(i). (12 CFR 1026.38(m))

ii. c.

Amount Financed. Expressed as a dollar amount, and the following statement: “The loan amount available after paying your up-front finance charge” (12 CFR 1026.38(o)(3));

d.

Annual Percentage Rate (APR). Expressed as a percentage, with the following statement: “Your costs over the loan term expressed as a rate. This is not your interest rate.” (12 CFR 1026.38(o)(4));

e.

Total Interest Percentage (TIP). Expressed as a percentage; with the following statement: “The total amount of interest that you will pay over the loan term as a percentage of your loan amount.” (12 CFR 1026.38(o)(5))

Other Disclosures – 12 CFR 1026.38(p) (Page 5 of the Closing Disclosure) 1.

Other Disclosures. Determine whether the creditor accurately provides the following disclosures: a.

Additional Information About This Loan: Adjustable Interest Rate (AIR) Table – 12 CFR 1026.38(n) (Page 4 of the Closing Disclosure) 1.

Appraisal. For transactions subject to 15 U.S.C. 1639h or 1691(e), as implemented in this part or Regulation B, 12 CFR part 1002, respectively, under the subheading “Appraisal:” (12 CFR 1026.38(p)(1)) i.

If there was an appraisal of the property in connection with the loan, the creditor is required to provide the consumer with a copy at no additional cost to the consumer at least three days prior to consummation; (12 CFR 1026.38(p)(1)(i)) and

ii.

If the consumer has not yet received a copy of the appraisal, the consumer should contact the creditor using the information disclosed in the Closing Disclosure. (12 CFR 1026.38(p)(1)(ii))

Adjustable Interest Rate (AIR) Table. Determine whether the creditor provides the AIR disclosures required for the Loan Estimate by 12 CFR 1026.37(j). (12 CFR 1026.38(n))

Loan Calculations – 12 CFR 1026.38(o) (Page 5 of the Closing Disclosure) 1.

Loan Calculations. Determine whether the creditor provides a separate table and accurately discloses the following information (12 CFR 1026.38(o)): a.

Total of Payments. Expressed as a dollar amount, and a statement that the disclosure is the total the consumer will have paid after making all payments of principal, interest, mortgage insurance, and loan costs, as scheduled (12 CFR 1026.38(o)(1));

b.

Finance Charge. Expressed as a dollar amount, and the statement “The dollar amount the loan will cost you.” The finance charge and other disclosures affected by the disclosed finance charge (including the amount financed and the annual percentage rate) is accurately calculated if the amount disclosed as the finance charge: i.

Is understated by no more than $100; or

FDIC Compliance Manual — November 2015

Is greater than the amount required to be disclosed. (12 CFR 1026.38(o)(2))

b.

Contract Details. A statement that the consumer should refer to the appropriate loan document and security instrument for information about nonpayment, what constitutes a default under the legal obligation, circumstances under which the creditor may accelerate the maturity of the obligation, and prepayment rebates and penalties. (12 CFR 1026.38(p)(2))

c.

Liability after Foreclosure. A brief statement of whether, and the conditions under which, the consumer may remain responsible for any deficiency after foreclosure under applicable state law, a brief statement that certain protections may be lost if the consumer refinances or incurs additional debt on the property, and a statement that the consumer should consult an attorney for additional information. (12 CFR 1026.38(p)(3))

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V. Lending — TILA d.

e.

f.

Refinance. The statement required on the Loan Estimate by 12 CFR 1026.37(m)(5) that “Refinancing this loan will depend on your future financial situation, the property value, and market conditions. You may not be able to refinance this loan.” (12 CFR 1026.38(p)(4)) Tax Deductions. A statement that, if the extension of credit exceeds the fair market value of the property, the interest on the portion of the credit extension that is greater than the fair market value of the property is not tax deductible for Federal income tax purposes and a statement that the consumer should consult a tax adviser for further information. (12 CFR 1026.38(p)(5)) Loan Acceptance. If the creditor does not provide a line for the consumer's signature, the creditor must include with the other disclosures the same statement required in the Loan Estimate that “You do not have to accept this loan because you have received this form or signed a loan application.” This is the same requirement as in the Loan Estimate under 12 CFR 1026.37(n)(2). (12 CFR 1026.38(s)(2))

this form. You do not have to accept this loan because you have signed or received this form.” (12 CFR 1026.38(s)(1)) NOTE: If the creditor does not provide a line for the consumer's signature, the creditor must include the following statement, labeled “Loan Acceptance:” “You do not have to accept this loan because you have received this form or signed a loan application.” (12 CFR 1026.38(s)(2) Form of Disclosures – 12 CFR 1026.38(t) 1.

Determine whether the creditor follows the format and content of form H-25, set forth in appendix H, changes formatting only if there is an exception, including acceptable modifications in appendix H for transactions without a seller, and complies with the following rounding rules for dollar amounts and percentages: a.

Rounding - nearest dollar. The following dollar amounts are rounded to the nearest whole dollar: i.

The dollar amounts for Loan Terms (required to be disclosed by 12 CFR 1026.38(b)) that are required to be rounded by 12 CFR 1026.37(o)(4)(i)(A) when disclosed under 12 CFR 1026.37(b)(6) and (7) (i.e., adjustments after consummation and details about prepayment penalty and balloon payments);

ii.

The dollar amounts for projected payments or range of payments required by 12 CFR 1026.38(c) that are required to be rounded by 12 CFR 1026.37(o)(4)(i)(A) when disclosed under 12 CFR 1026.37(c)(1)(iii) (i.e., minimum and maximum amounts of principal and interest for projected periodic payments or range of payments);

Questions Notice – 12 CFR 1026.38(q) (Page 5 of the Closing Disclosure) 1.

Questions. Determine whether the creditor provides a separate questions notice. The creditor must include a prominent question mark, a statement directing the consumer to use the contact information for questions, and a reference to CFPB’s website for more information and to submit a complaint, and a link to www.consumerfinance.gov/mortgage-closing (12 CFR 1026.38(q)(1)-(3)).

iii. The dollar amounts required to be disclosed by 12 CFR 1026.38(e) (Alternative Calculating Cash to Close table for transactions without a seller) and 12 CFR 1026.38(i) (Calculating Cash to Close table) under the subheading “Loan Estimate;”

Contact Information – 12 CFR 1026.38(r) (Page 5 of the Closing Disclosure) 1.

Contact Information. Determine whether the creditor provides the required contact information for each lender, mortgage broker, consumer's real estate broker, seller's real estate broker, and settlement agent participating in the transaction; the name of the person, address, NMLSR ID number, or if none, state and License ID; the name of the natural person who is the primary contact for the consumer at each entity, identified as “Contact,” along with that person’s Contact NMLS ID or Contact License ID, email address, and phone number. (12 CFR 1026.38(r)(1)-(7))

Confirm Receipt – 12 CFR 1026.38(s) (Page 5 of the Closing Disclosure) 1.

Confirm Receipt. Determine whether, if the creditor chooses to provide a signature statement, the creditor discloses, above the signature line, the statement “By signing, you are only confirming that you have received

V–1.102

iv. The dollar amounts required to be disclosed by 12 CFR 1026.38(m) (adjustable payment table); and v.

b.

The dollar amounts required to be disclosed by 12 CFR 1026.38(c) (projected payments) that are required to be rounded by 12 CFR 1026.37(o)(4)(i)(C) when disclosed under 12 CFR 1026.37(c)(2)(iv) (i.e., total monthly payment).

Percentages. The percentage amounts disclosed under 12 CFR 1026.38(b) (i.e., loan terms), (f)(1)(i) (i.e., origination charges), (g)(2)(iii) (i.e., prepaids), (l)(3) (i.e., late payment), (n) (i.e., adjustable interest rate table), and (o)(5)(i.e., total interest percentage or TIP) are not rounded and are disclosed up to two or three decimal places. The percentage amount required to be

FDIC Compliance Manual — November 2015

V. Lending — TILA disclosed under 12 CFR 1026.38(o)(4) (APR) is not rounded and is disclosed up to three decimal places. Amounts that are whole numbers are disclosed truncated at the decimal point. c.

Loan amount. The dollar amount of the loan amount (required to be disclosed by 12 CFR 1026.38(b) as required by 12 CFR 1026.37(b)(1)) is disclosed as an unrounded number, except that if the amount is a whole number, then the amount disclosed is truncated at the decimal point. (12 CFR 1026.38(t)(1)-(5))

FDIC Compliance Manual — November 2015

V–1.103

March 30, 2016 The Honorable Richard Cordray Director Consumer Financial Protection Bureau (CFPB) 1700 G Street, NW Washington, D.C. 20552

Dear Director Cordray, On behalf of the Association of Mortgage Investors (AMI), we write to express the mortgage investor community’s concerns over the Bureau’s “Know Before You Owe” mortgage disclosure rule (“the Rule”). The recent evidence is that the Rule, while extremely well-intentioned, has resulted in a climate of legal uncertainty and is chilling private investment in the U.S. mortgage market. We urge the Bureau to open a new public comment period to address the concerns of mortgage investors. We seek formal written guidance clarifying the liability for a violation of each individual TRID requirement, as well as, the scope and applicability of TRID’s cure mechanisms. The AMI was organized as the primary trade association representing investors in mortgagebacked securities, including university endowments and pension funds. The AMI was founded, in part, to play a primary role in the analysis, development, and implementation of mortgage and housing policy to help keep homeowners in their homes and provide a sound framework that promotes continued home purchasing. Since its formation, the AMI has been developing a set of policy priorities that we believe can contribute to achieving this goal. We are an investor-only group comprised of a significant number of substantial institutional investors in commercial and residential mortgage-backed (RMBS) and other asset-backed securities (ABS). Accordingly, our concerns focus on the Rule’s impact and consequences, whether unforeseen, on mortgage availability and affordability. We seek formal guidance clarifying whether the statutory authority for each TRID requirement is under RESPA or TILA, as well as the scope and applicability of TRID’s cure mechanisms. Without clarification, investors will generally interpret the regulation in a strict manner, identifying any deviation from the rule as a material error that exposes an investor to full TILA liability. As lenders are implementing TRID, there are mistakes made. In some cases these mistakes are in-process and can be fixed going forward. In other cases, they are a matter of interpretation, and still others are due to individual human error, as mortgages contain numerous fields and clerical errors do occur. Generally, increased liability risk will result in additional costs that will ultimately be passed onto borrowers. We believe that it has already resulted in lower loan origination. It is not simply the probability of a lawsuit or potential legal costs – although those are certainly factors – there is reputational risk; increased

AMI CFPB TRID March 2016 Page 2

transaction and operational costs; and, post-crisis, there is little corporate tolerance for any legal or regulatory risks. Some have stated that this is a minor concern because it only affects loans outside of the agency standards – and that is currently a small market. But it could have an outsized impact on the origination of loans that do not meet agency standards. This means that it will particularly impact lending for borrowers with few other options. Eventually, we believe that even agency loans could also undergo scrutiny should they experience delinquencies. The GSEs at that point may decide to review TRID documentation and penalize lenders who made even small clerical errors in the disclosures. Therefore, how to handle TRID errors, the ability to make corrections, and how to reduce resulting liability will be issues that the industry will need to deal with in the years to come. Clarification Over Liability Sought Since the Bureau’s adoption of the Rule, legal experts have expressed concerns about the additional liability surrounding investment and loan origination. The specific liability that we seek clarification on arises from private right of action under TILA. Your public comments surrounding TRID’s limited impact on liability are appreciated in the context of an originator exam, such as detailed in your letter to the Mortgage Bankers Association (MBA) dated December 29, 2015.1 However, legal experts advise that these comments are neither legally binding nor do they clarify the legal uncertainty around liability for violations of TRID. Experts noted the following example. In your letter to the MBA, you explain: [T]he listed disclosures in 15 U.S.C. § 1640(a) that give rise to statutory and class action damages do not include either the RESPA disclosures or the new Dodd-Frank Act disclosures, including the Total Cash to Close and Total Interest Percentage.

The analysis by industry legal experts results in a far less optimistic picture than portrayed. In contrast to the vast legal authority is that beyond RESPA, a broader category of liability exists under TILA. Borrower lawsuits under TILA regarding TRID violations could result in statutory damages, borrower defenses and set-offs against investor claims in a foreclosure action. However, because the statutory authority for many requirements under TRID is unclear, the industry does not know whether many violations of TRID carry liability under TILA. Without a clear picture of the liability for TRID violations, the industry is taking a conservative approach and rejecting the purchase of loans for immaterial errors (see Appendix I, II, and III). Potential liability against loan investors and bond investors must be more clearly defined. Accordingly, the AMI and mortgage investors welcome additional specific and formal guidance from the Bureau clearly defining the contours of TILA liability for violations of each TRID requirement.

1

http://mba.informz.net/MBA/data/images/CFPB%20reponse%20to%20MBA%20TRID%20letter.pdf

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AMI CFPB TRID March 2016 Page 3 Additionally, formal guidance or rulemaking would be welcome regarding the scope of the “cure mechanisms” under TRID. Description of Process and Background Secondary market investors that buy mortgages (also known as “whole loans” or “loans”) from primary lenders generally choose to retain the mortgages in portfolio, sell them as whole loans to another investor, or aggregate a pool and issue residential mortgage-backed securities (“RMBS”) to be sold to fixed income investors. Prior to purchasing whole loans, an investor typically engages a third-party due diligence firm to review each loan in three areas: credit, collateral, and compliance. If a loan is intended for securitization, the investor will request that the diligence firm supply a rating agency grade for each of the three areas. Each rating agency has its own criteria and grading scheme for the various diligence firms to use in performing loan evaluations. As part of their review, due diligence firms also verify that loans meet investor and rating agency eligibility criteria and identify exceptions when eligibility criteria is not met. Due to uncertainty around the new TRID rules, all TRID errors (including those that one could view as technical or clerical in nature) are being identified by due diligence providers as material exceptions to rating agency and investor compliance criteria because they are considered to be noncompliant with TRID. As a result, these technical or clerical errors end up receiving the same rating agency grade as the seven areas that the CFPB identified as likely to result in statutory damages under TRID. While investors will typically work with the primary lender to cure TRID exceptions as permitted under the rule, many exceptions cannot be cured. Without a cure, an investor must decide if it is willing to purchase a loan with a TRID error, regardless of its materiality or impact to the consumer. In the securitization process, investors select multiple rating agencies to rate the transaction. As part of the ratings process, the rating agencies review pertinent information about the transaction, including the loan characteristics, reports prepared by due diligence providers, and the cash flow structure of the bonds issued as part of the securitization. When rating agencies issue their report, they provide the required credit enhancement levels for the bonds to achieve the ratings requested by the issuer. The list of material exceptions on the loans and their corresponding lower rating agency grades may result in an increase in the credit enhancement levels, making it more costly for aggregators to securitize a pool of loans and, consequently, increases the overall cost to produce mortgage loans (typically, with such costs borne by the borrowers).

The Rule’s Impact on The Mortgage Market: Chills Mortgage Availability and Affordability In the 100+ days since the Rule has gone into effect, numerous press and industry observers have commented on its scope and impact. The nearly universal feedback is that the Rule is ambiguous and therefore viewed as extremely problematic.

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AMI CFPB TRID March 2016 Page 4 Many such examples have been reported in the press. First, Moody’s Investors Service recently reported that TRID compliance violations are running rampant among newly originated loans. Analysts also report that several third-party firms have reviewed a number of recent mortgage loans for TRID compliance and found violations in more than 90% of the loans.2 Second, origination volumes for November 2015 were markedly down, especially in California. These news reports are well known to industry participants. As the following graph illustrates, the operational impact of the Rule is coincident with a significant decline in mortgage credit availability for December 2015. Some may suggest that this is either mere coincidence or that it is a blip as things shake out concerning the Rule’s implementation. Investors, however, remain concerned about any obstacle toward restoring capital into the U.S. mortgage market.

Specific Examples Concerning Mortgage Investors The following are examples of issues that we, as mortgage investors, are observing in prepurchase diligence reviews. In the near term, TRID-related issues are causing a significant percentage of loans to be deemed ineligible by investors. The biggest hurdle to overcome at the present is the narrow scope of 1026.19(f)(2)(iv) (clerical corrections). A high percentage of the defects we are seeing involve numeric values that cannot be addressed through a corrected CD. In each of these examples, the defects do not impact the borrower’s final costs. While the CFPB has provided an informal grace period for good faith efforts for lenders to comply with TRID, such grace period does not extend to the secondary market because borrowers may still bring a private right of action under TILA. Consequently, investors remain very concerned with the possible action that borrowers may bring for defects on loans that have occurred during the CFPB’s grace period. 2

http://www.housingwire.com/articles/35808-moodys-trid-violations-found-in-90-of-recently-reviewed-mortgages

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AMI CFPB TRID March 2016 Page 5

Example 1. Values from the last LE issued do not match the LE value in the Calculating Cash to Close table of the CD. This appears to be a data mapping issue in the lender’s operating systems or with their document vendors. This value is present for comparison purposes and has no impact on the borrower’s actual closing costs or cash to close. The purpose is to allow the borrower to compare the last LE (for which s/he has a copy) to the final closing costs.

Example 2. In a number of refinancing transactions, we have seen cases where the alternative Calculating Cash to Close table was used on the LE but the standard table was used on the CD. If the CD was corrected to use the alternative table and the values remained constant, we believe that this would not be a numeric change, but rather merely a formatting change. However, it is unclear whether the clerical error cure mechanism under TRID applies to this error.

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AMI CFPB TRID March 2016 Page 6

Example 3. In the 12/29/2015 letter from the CFPB to the MBA, a reference was made to 15 U.S.C. § 1640 (b) and (c) and the ability for the correction of errors. It would be helpful to have more clarity on this topic. Historically, § 1640(b) was applied to correcting material violations (e.g. APR, finance charges, etc.). On the other hand, § 1640(c) was not frequently relied upon by the industry because it requires, among other things, a “the preponderance of the evidence” and may be interpreted differently by different courts. Is it the CFPB’s opinion that the ability to correct errors under § 1640(c) extends to the issue identified in the examples above? Example 4. Further, investors seek further clarity regarding this application of the cure provisions in TILA. The letter states, “[You ask] about cure provisions for violations of the rule. The Know Before You Owe mortgage disclosure rule provides for the issuance of a corrected closing disclosure, even after closing. This can be used, for example, to correct non-numerical clerical errors or as a component of curing any violations of the monetary tolerance limits, if they exist. As a general matter, consistent with existing Truth in Lending Act (TILA) principles, liability for statutory and class action damages would be assessed with reference to the final closing disclosure could, I many cases, forestall any such private liability.”

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AMI CFPB TRID March 2016 Page 7

Accordingly, investors wish to know whether the CFPB is maintaining that any error on the LE can be cured by issuing a subsequent corrective LE or a CD? If that is the case, then can one correct an error without a valid COC? The CFPB also has stated that it does not believe these loans should be rejected by investors for formatting and minor errors. It would be valuable for the CFPB to provide a concrete list of examples they believe should not cause the loan to be rejected and the statute in which they are providing cover for those defects. By way of example, investors/originators keep getting loans with errors in the index description, specifically when the index lists “LIBOR” and fails to specify a duration (i.e., a 6-month, 12-month, etc). AMI investor members believe this is fatal, whereas sellers do not. Accordingly, the market needs the CFPB to provide clarity. Finally, within the TILA framework, it is argued that one has a 60-day cure provision once a defect has been identified. Under TRID, we have two specific cure provisions to cure a tolerance cure or a non-numeric technical defect within 60 days of consummation. Again, investors are faced with a dilemma that could result in jeopardy, which timing is correct for tolerance cures: the 60 days from consummation as TRID states or 60 days from discovery as TILA states? In response, mortgage investors wish to constructively engage the Bureau about opening a meaningful dialogue, introducing certainty and clarity to the framework for liability for TRID violations, and developing a reasonable series of corrective steps toward the end of preserving private capital in the U.S. mortgage market. Please do not hesitate to contact AMI if you would like us to further brief you regarding these concerns. Thank you.

Sincerely,

CHRIS KATOPIS Executive Director Association of Mortgage Investors

CC:

Patricia McClung, Assistant Director, Mortgage Markets

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AMI CFPB TRID March 2016 Page 8

Appendix I - Frequent Loan Estimate Defects •

Non-numerical clerical errors on the Loan Estimate (e.g., improper shading and formatting).



Lender name and address information missing from the top of the Loan Estimate form.

• Loan Terms table lists incorrect information or is incomplete (e.g., inaccurate Product Type description). • The Estimated Taxes, Insurance, & Assessments checkboxes are inaccurate or incomplete. Descriptions of the type of charge are missing to the right of “Other” checkbox when box is checked. • Numerical computation errors on the Loan Estimate (e.g., itemization of Loan Costs do not total the Total Loan Costs on page two of the Loan Estimate, Loan Costs and Other Costs do not total Estimated Closing Costs in the Costs at Closing table on page one of the Loan Estimate). • The Estimated Closing Costs are not calculated in the same manner as the Total Closing Costs disclosed on page 2 of the Loan Estimate. • Prepaids table does not include the applicable time period covered by the amount to be paid by the borrower and the total amount paid. • Initial Escrow Payment at Closing table does not include amount escrowed per month for each item, the number of months collected at consummation and the total amount paid. •

Contact Information table is incomplete for the creditor and/or mortgage broker.

• Other Considerations table is incomplete. (e.g. whether or not the subsequent purchaser can assume the loan on the original terms checkbox is not selected, a statement detailing any amount that may be imposed for a Late Payment is not provided).

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AMI CFPB TRID March 2016 Page 9

Appendix II - Frequent Closing Disclosure Defects •

Non-numerical clerical errors (e.g., improper shading and formatting).

• Missing or incomplete Closing Information (e.g., missing closing date, missing settlement agent name, file#), Transaction Information (e.g., seller name and address), and Loan Information (e.g., missing loan ID #). • The Estimated Taxes, Insurance, & Assessments checkboxes are inaccurate or incomplete and description of the type of charge is missing. • The Closing Costs are not calculated in the same manner as the Total Closing Costs disclosed on page 2 of the Closing Disclosure. • Numerical computation errors (e.g., itemization of Loan Costs do not total the Total Loan Costs on page two of the Closing Disclosure, Loan Costs and Other Costs do not total Closing Costs in the Costs at Closing table on page one of the Closing Disclosure). •

Loan Costs table includes fees for services not previously disclosed.

• Prepaids table does not include the applicable time period covered by the amount to be paid by the borrower and the total amount paid. • Initial Escrow Payment at Closing table does not include amount escrowed per month for each item, the number of months collected at consummation and the total amount paid. •

Other Costs table includes fees not previously disclosed.

• Fees listed under the Closing Cost Details section of the Closing Disclosure do not match Closing Cost Details on the most current revised Loan Estimate issued. • Calculating Cash to Close table does not reflect “Yes” when amount changed from Loan Estimate to Final. When the answer to the question is “Yes”, there is no indication where the consumer can find the amounts that have changed on the Loan Estimate. •

Appropriate checkboxes on Loan Disclosures table are not checked.



Loans closed prior to three day waiting period.

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AMI CFPB TRID March 2016 Page 10

Appendix III – Examples of Technical and Minor Errors Frequently Cited As TRID Violations Rounding and Decimal Points 

TRID: LE Total Interest Paid (TIP) calculation discrepancy LE issued 11/224/15 reflects a TIP of 148.85%, which is not carried out to 3 decimal places. LE issued 12/9/15 reflects a TIP of 152.363%, which is over disclosed by 0.002% when compared to TPR data.



TRID: LE Loan Calculation Discrepancy. The Loan Estimate Issued 11/4/2015 reflects 155.10% as the "Total Interest Percentage (TIP)". Our calculation shows an unrounded figure of 155.099%. The TIP should not be rounded to 2 decimal places as reflected on the LE and should remain out to three decimal places.



TRID: Loan Estimate Loan Calculation Deficiency. The Loan Estimate issued 10/30/2015 has the TIP Figure on the Comparisons Table rounded incorrectly to 2 places. The Calculation of the TIP is 77.869% and the LE reflects 77.87%. The TIP figure should be rounded to 3 decimal places and show 77.869%



TRID: LE issued 12/15/15 TIP amount of 161.68% is incorrectly truncated to 2 decimal places.



TRID: Loan Estimate Loan Calculations TIP variance- LE dated 12/11/2015 shows 142.858% LLN data shows 142.86% it appears that LE was rounded to 2 decimal places when it should be disclosed to 3 decimal places.



TRID: LE issued 11/18/15 TIP Deficiency – Disclosure shows 82.600% however LLN data shows 82.595%. It appears that the TIP was rounded up it should be disclosed at 3 decimal places if applicable.



TRID: Loan Calculation Discrepancy - LE dated 11.5.15 reflects a TIP of 130.79%. LLN data reflects 130.788%, indicating that the TIP disclosed on the LE was rounded to 2 decimal places.



TRID: Closing Disclosure Loan Calculations CD issued 1/14/2016 (signed) TIP shows as 133.719% TPR Data shows 133.720%.



TRID: Closing disclosure loan terms-Interest Rate - **Comment: 01/04/2016 - Interest rate on LE and CDs is not properly rounded to two decimal places. Rate should be rounded to 8.37% (vs. 8.370% when there are only two decimal places. Correction required per 1026.19(f)(2)(ii).

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AMI CFPB TRID March 2016 Page 11



TRID: Loan Estimate rounding error- initial LE dated 11/5/2015 is not properly rounded it should be truncated at 6.5% not 6.500%.

Abbreviations 

TRID: LE Loan Costs/Other Costs Deficiency - The "Title - CPL" Fee is not labeled correctly on the Loan estimates. CPL is not an Acceptable abbreviation and should reflect "Closing Protection Letter".



TRID: CD Loan Costs and/or Other Costs Deficiency -Post-consummation CD dated 1/26/16 provided in the file abbreviates "Fed X". No fee should be abbreviated.



TRID: Loan Estimate Deficiency - **Comment: 12/29/2015 - The Loan costs section of the loan estimates have a fee labeled as "PEST". This is an unclear abbreviation of the fee charged to the borrower and abbreviations are not acceptable for labeling of fees. Technical violation as fee was not charged on final CD.

Miscellaneous 

TRID: Interim CD Total Interest Paid (TIP) discrepancy CD issued 12/29/15 reflects a TIP of 152.301%, which is over disclosed by 0.002% when compared to TPR data.



TRID: Loan Calculations Discrepancy. The TOP is off by $1.61 and the TIP is off by 0.001%.



TRID: Closing Disclosure Loan Calculation Deficiency. The TIP calculation on the Closing Disclosure reflects 202.814%, LLN data reflects 202.787%, a difference of 0.027%.



TRID: Loan Estimate disclosed the Courier, wire, and storage fees on the same line in the closing costs section. Each fee should be disclosed on its own line.



TRID: Closing Disclosure dated 12/22 (Initial) show several title fees listed in section B, which should be in C as they were a shoppable service and the borrower selected the service provider.

1800 M Street, N.W., Suite 500S, Washington, D.C. 20036 ∙202-327-8100 main ∙202-327-8101 fax

AMI CFPB TRID March 2016 Page 12



TRID: Loan Estimate- Contact Information - missing the lender and loan officer's NMLS numbers.



TRID: Loan Estimate Deficiency - LE dated 11/05/2015 is marked as Yes for the other box, however the other box is not checked which is required when Other Box is marked as yes.



TRID: Loan Estimate Loan Costs and/or Other Costs Deficiency 1) LE dated 11/4/15: Section C fees out of alphabetical order. Not all title fees begin with the required "Title ". 2) LE dated 12/23/15: "Title Sub Escrow Fee" in Section C is not disclosed properly and is out of alphabetical order.



TRID: Loan Estimate Loan Costs and/or Other Costs Deficiency - LE dated 12/1/15 does not preface all Title fees with "Title -".



TRID: CD issued 1/22 TIP is under disclosed by .022% when compared to TPR Data.



TRID: LE Deficiency. LE provided missing the Unit# in the property address.



TRID: Shoppable / Non-Shoppable Fee Defect - LE shows all title fees listed in section B, however the Service Providers List reflects these are shoppable items and therefore should be listed in section C.



Loan Estimate is Incomplete with Blanks or N/A's: Loan Estimates are missing Applicants' mailing address.



TRID: CD issued 1/27 Missing File Number in Closing Information Section.



TRID: Closing disclosure Loan Costs and/or Other Costs deficiency - CD shows Credit Report Paid to detail as Other, rather than the third party name who provided the report.



TRID: Loan Estimate Loan Costs/Other Costs Deficiency 1) LE dated 10/21/15: Section C fees are out of alphabetical order.

1800 M Street, N.W., Suite 500S, Washington, D.C. 20036 ∙202-327-8100 main ∙202-327-8101 fax

8/29/2016

TRID: Calculating Cash to Close

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Compliance Services

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Compliance Services

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What you will learn  Calculating cash to close



What is required Positive/negative entries



Alternative calculating cash to close without a seller



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Compliance Services

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What is required  Calculating cash to close 

An itemization of the total amount of cash or other funds that must be provided by the consumer at consummation 

Not as simple as the “old TIL” 

Math degree may be required

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Calculating Cash to Close

Compliance Services

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Calculating Cash to Close  Total Closing Costs (J) 

The sum total of Blocks (A) Origination Charges + (B) Services You Cannot Shop For + (C) Services You Can Shop For + (E) Taxes and Other Government Fees + (F) Prepaids + (G) Initial Escrow Payment at Closing + (H) Other (any other amounts the consumer is likely to pay or has contracted to pay someone other than the creditor or loan originator) that the creditor is aware of at the time the LE is issued - any Lender Credits (includes credits and rebates) +

 Disclose the sum as a positive number Compliance Services

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Calculating Cash to Close  Closing Costs Financed (Paid from your Loan Amount) 

The difference between: Loan Amount

- The total amount of payments to third parties that have not already been disclosed in Total Closing Costs  If the difference is a positive amount, disclose as a negative number to

the extent that the amount does not exceed the amount of Total Closing Costs  If the difference is zero or a negative amount, disclose as $0

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Calculating Cash to Close  Down Payment/Funds from Borrower 

Purchase transaction 

The difference between: Purchase price of the property - Principal amount of the loan

 



If the difference is a positive number, disclose the amount If the loan amount exceeds the purchase price of the property (other than a construction loan), the amount of $0 Non-purchase transaction 

See Funds for Borrower to determine amount to enter

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Calculating Cash to Close  Deposit 

Purchase transaction 

The amount paid to the seller or held in trust or escrow by an attorney or other party under the terms of the contract for sale of the property



Disclose as a negative number



Non-purchase transactions 

Enter $0

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Compliance Services

Calculating Cash to Close  Funds for Borrower  

Only used in a non-purchase transaction The difference between: Total amount of all existing debt to be satisfied, except to the extent the satisfaction of such existing debt is disclosed under Total Closing Costs (Block J)

- Principal amount of the credit extended, excluding any amount disclosed under Closing Costs to be Financed



Depending on what the difference is, amounts are used to determine Funds for Borrower and Down Payment/Funds from Borrower fields

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Calculating Cash to Close  Funds for Borrower (Only used in non-purchase transactions)  

Only used in a non-purchase transaction If the difference is a positive number  



If the difference is a negative number  



Enter the amount in Down Payment/Funds from Borrower Enter $0 for Funds for Borrower Enter $0 in Down Payment/Funds from Borrower Enter the amount in Funds for Borrower

If the difference is $0 

Enter $0 in both the Down Payment/Funds from Borrower and Funds for Borrower Compliance Services

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Calculating Cash to Close  Seller Credits 

The sum total that the seller will pay for: Origination Charges Services You Cannot Shop For + Services You Can Shop For + Taxes and Other Government Fees + Prepaids + Initial Escrow Payment at closing + Any other amounts the consumer is likely to pay or has contracted to pay someone other than the creditor or loan originator + +



to the extent known at the time of disclosure

 Disclose as a negative number Compliance Services

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Calculating Cash to Close  Adjustments and Other Credits 

The sum total that will be paid for by persons other than the loan originator, creditor, consumer or seller: + + + + + + +



Origination Charges Services You Cannot Shop For Services You Can Shop For Taxes and Other Government Fees Prepaids Initial Escrow Payment at closing Any other amounts the consumer is likely to pay or has contracted to pay someone other than the creditor or loan originator

to the extent known at the time of disclosure

 Examples  

Gifts from family Developer or homebuilder organization credits 



Not the seller

Proceeds of subordinate financing, local or State housing assistance grants, or other similar sources Compliance Services

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Compliance Services

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Calculating Cash to Close  Estimated Cash to Close

The sum total of: + Total Closing Costs (J) + Closing Costs Financed (Paid from your Loan Amount) + Down Payment/Funds from Borrower + Deposit + Funds for Borrower + Seller Credits + Adjustments and Other Credits

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Alternative Calculating Cash to Close  May use for transactions without a seller  If use Alternative on LE, must use Alternative on CD

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Alternative Calculating Cash to Close  Loan Amount 

The amount of credit to be extended under the terms of the legal obligation

Compliance Services

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8/29/2016

Alternative Calculating Cash to Close  Total Closing Costs (J) 

The sum total of Blocks (A) Origination Charges + (B) Services You Cannot Shop For + (C) Services You Can Shop For + (E) Taxes and Other Government Fees + (F) Prepaids + (G) Initial Escrow Payment at Closing + (H) Other (any other amounts the consumer is likely to pay or has contracted to pay someone other than the creditor or loan originator) that the creditor is aware of at the time the LE is issued - any Lender Credits (includes credits and rebates) +

 Disclose the sum as a positive number Compliance Services

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Alternative Calculating Cash to Close  Estimated Total Payoffs and

Payments  The total amount of payoffs and payments to be made to third parties not otherwise disclosed under Total Closing Costs (J)  Disclose as a negative number

 Examples     

Existing mortgage Deeds of trust Judgments; mechanic’s liens Tax liens Other outstanding debt 

Could be condition of loan

Compliance Services

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8/29/2016

Alternative Calculating Cash to Close  Estimated Cash to Close 

The sum total of: + Loan Amount + Total Closing Costs + Estimated Payoffs and Payments

 Check boxes are used to disclose whether the Estimated Cash to

Close is either due from the consumer or will be paid to the consumer at consummation

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Alternative Calculating Cash to Close  Closing costs financed 

The sum total of: Loan Amount + Payoffs and Payments



But only to the extent that the sum is greater than $0 and less than or equal to Closing Costs Financed (Paid from your Loan Amount)

 Disclosed below the table

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Questions?

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8/29/2016

TRID: The Bucket Challenge

© 2016 Temenos USA. All rights reserved.

Compliance Services

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Compliance Services

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What You Will Learn  Quick review 

Good faith 



Changed circumstance

The tolerance buckets

 Fee Bucket Challenge

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General rule  Creditors are generally bound by Loan Estimate 



May not issue revisions because later discover technical errors, miscalculations or underestimations of charges May only charge more than amount disclosed when original estimate, or lack thereof, was based on 

the best information reasonably available at the time of the disclosure

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Good faith  Loan Estimate figures must be   

made in good faith and consistent with the best information reasonably available at the time of disclosure

 To determine good faith: 

Look at difference between  



estimated charges originally provided in LE and actual charges paid by or imposed on consumer

Generally, if charge paid by or imposed on consumer exceeds amount originally disclosed on Loan Estimate,  

it is not in good faith unless it meets an exception Compliance Services

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Valid Changed Circumstance  Changed circumstance means: 





An extraordinary event beyond control of any interested party or other unexpected event specific to consumer or transaction; Information specific to consumer or transaction that creditor relied upon when providing LE and that was inaccurate or changed after LE provided; or New information specific to consumer or transaction that creditor did not rely on when providing the original LE

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Revised Loan Estimate  Permitted only in certain specific circumstances: 



 





Changed circumstances that occur after LE provided to consumer cause settlement charges to increase more than permitted Changed circumstances that occur after LE provided to consumer affect consumer’s eligibility for the terms for which consumer applied or the value of the security for the loan Revisions are requested by consumer Interest rate not locked when Loan Estimate was provided, and locking rate causes points or lender credits disclosed on LE to change Consumer indicates an intent to proceed with transaction more than 10-business days after LE was originally provided Loan is a new construction loan and settlement is reasonably anticipated to be delayed more than 60-days Compliance Services

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Zero Tolerance Threshold  Creditor may never charge more than estimated amount unless

“changed circumstance” (or other triggering event)  Fees paid to creditor, mortgage broker, or an affiliate of either  Fees paid to an unaffiliated third party if creditor did not permit consumer to shop 

Transfer taxes

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10% Tolerance Threshold  Some charges subject to a 10% cumulative tolerance  

Recording fees Charges for third-party services where  

Charge is not paid to creditor or creditor’s affiliate Consumer is permitted by creditor to shop but selects a third-party service provider on creditor’s written list of service providers

 Critical distinction from current rules 

Must meet “Tipping Point” to re-set the fees

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Not subject to a tolerance limitation  Certain charges may exceed amount disclosed on LE by any amount 





Prepaid interest; property insurance premiums; amounts placed into an escrow, impound, reserve or similar account; Services required by creditor if creditor permits consumer to shop and consumer selects 3rd party service provider not on creditor’s written list of service providers; and

Charges paid to 3rd party service providers for services not required by creditor (may be paid to affiliates of creditor)

 However . . . 

Creditors may only charge more than amount disclosed when original estimate, or lack thereof, was based on best information reasonably available at the time of disclosure 

Good faith 9 Compliance Services

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Tolerance Cures  General Rule 

If amounts paid by consumer at closing exceed amounts disclosed on LE beyond applicable tolerance threshold, creditor must:  



Refund excess no later than 60 days after consummation, and Deliver or place in the mail a corrected CD that reflects such refund

Lender Credits 

“(tolerance cure)”

 Zero tolerance charges 

Must be refunded to consumer

 10% cumulative tolerance charges 

Amount that exceeds the 10%, must be refunded to consumer 10 Compliance Services

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Fee bucket challenge  Each table has been provided a Fee slip or two or three

 Take 5 minutes to mark: 



Which tolerance bucket the fee under the conditions provided is subject to Based on the conditions, should there be a tolerance cure Compliance Services

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Compliance Services

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Questions? Don’t forget your Answer Key on the way out

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