1. Louisiana Bankers Association
New Orleans
November 12, 2009
Nessa Feddis

2. Legislative and Regulatory Outlook
General Federal legislative outlook
Impact of election
Public perception of banks
Consumer Financial Protection Agency
Mortgage rules
Regulation Z
RESPA
Student loan rules

3. CFPA Industry concerns: Scope
Mandate to offer government product over banks’ products
Unfair, deceptive, and “abusive” rulemaking
Elimination of federal preemption
Vagueness
Costs
Divorce of safety and soundness from consumer protection

4. Update on Mortgage rules/Regulation Z
Mortgage Disclosure Improvement Act
Higher Cost Mortgages and other Mortgages
RESPA
Proposals on Home Secured Loans
Open and closed end
Student Loans

5. Mortgage Disclosure Improvement Act
Purpose:
Fewer surprises at closing
Better consumer understanding of terms and fees
More time for consumers to consider loan
Effective Date: July 30, 2010

6. Mortgage Disclosure Improvement Act
Up-front fee restrictions “Early” disclosures within 3 days “No requirement to complete” statement 7- day requirement before consummation “Corrected” disclosures 3 days before consummation

7. Mortgage Loan Disclosures
Creditors must provide GFE of loan costs within 3 days after application for home-secured loans
No fees until receipt of early disclosures except reasonable fee for obtaining credit history
Includes: payment schedule, total payment, finance charge, amount financed, and APR

8. “Early” Disclosures
3 days after written application No later than 7 days before consummation If APR is not within tolerance of most recent disclosure, “corrected” disclosures must be received 3 days prior to consummation

9. Initial Fee Restrictions
No fees prior to receipt of early disclosures except for “reasonable” credit history fee “No requirement to complete” statement Application of early disclosures to refinances, home equity loans, and real estate not principal dwelling

10. What does it mean for consumers?
More accurate estimates
More time to shop, compare
More control if terms change
More use of electronic delivery of disclosures
Delays in closing

11. What does it mean for lenders?
More complexity in compliance Higher costs Some dissatisfied customers

12. New Higher Cost and Other Mortgage Loan Disclosures
New Sections and
Effective Dates
Oct. 1, 2009: All provisions except escrow requirements
Apr. 1, Escrow requirements for 1st liens higher priced and HOEPA loans
Oct. 1, Escrow requirements for manufactured homes

13. Summary Additional protections for higher priced mortgage loans
Prohibition against coercing appraisers
Prohibition against certain mortgage servicing practices
Additional information about loan rates, monthly payments, and other features
Requirement to provide GFE of costs 3 days after application for home-secured loans

14. Definition of “Higher-Priced” Loan
Generally: APR greater than 1.50% over “average prime offer rate” for first liens and 3.50% over average offer rate for subordinate liens Based on Freddie Mac Primary Mortgage Market Survey

15. Definition of “Higher Priced Loan”
Covered:
Home purchase loans,
Home improvement loans,
Refinancings, and
Home equity loans
Excludes:
HELOCs
Reverse mortgages
Construction-only loans
Non-consumer purpose loans

16. Requirements for Higher Priced and HOEPA Loans
Ability to repay
Restrictions on payment penalties
Escrow requirements for taxes and insurance

17. Ability to Repay Factors to consider: Presumption of compliance
Current and reasonably expected income
Employment
Assets other than collateral
Current obligations
Mortgage-related obligations
Presumption of compliance
Verify repayment ability
Determine repayment ability using largest payment scheduled in first seven years
Assess repayment ability based on either ratio of debt to income or income after paying debt obligation

18. Requirements for All Closed-end Mortgages Secured by Consumer’s Dwelling
Prohibition against coercion of appraisers
Prohibition against:
Failing to credit payments as of date of receipt
Imposing late fee that would otherwise be timely but payment not including previously assessed late fee
Failing to provide accurate payoff statement within reasonable time

19. Advertising Rules for HELOCs
Discounted and premium rates must state term of rate and rate that would have been in effect
Introductory rates and payments
Clear and conspicuous standard
Balloon payment
Tax implications (under certain circumstances)

20. Advertising Rules for Closed-end Credit
Clear and conspicuous standards
Advertisement of rates and payments
Prohibition on certain acts or practices

21. RESPA Application GFE Presumed to know all 6 items
Credit history fee only
GFE
Within 3 bank business days
Offer good 10 days
10% tolerance
Changed circumstances may change GFE for changes due changed circumstance only
Revised GFE within 3 bank business days

22. RESPA Borrower’s receipt of disclosures Closing after 7 days
May charge additional fees
Assumed within 3 days if mailed
If in person or receipt (electronic or other), at that time
Closing after 7 days

23. RESPA Issues: Brokers FHA loans Preapprovals Providers
Effective date: January 2010

24. Home Equity Line Proposal
New disclosures
Shorter and more specific early disclosures
Account-opening disclosures in tabular format
Periodic statement disclosure requirements
Change in terms notices
Substantive changes
Meaning of “significant decline” in value
Material change in consumer’s financial circumstance
Reinstatement notices

25. Closed-end Mortgage Proposal
New disclosures
At application
Within 3 days of application
Disclosures prior to consummation
Substantive changes to disclosures
All-in APR
“Interest and settlement charges” replaces finance charge
Loan origination compensation limits

26. Regulation Z Student Loans
Higher Education Opportunity Act
Amendments to Regulation Z
Released August 14, 2009
Effective February 14, 2010
Substantive provisions
Disclosures
With application
When approved
At consummation

27. Definitions
Institution of higher education: Institution that meets definition of institution of higher education as defined under Higher Education Act (except for lack of accreditation) Postsecondary expenses: any costs listed under HEA

28. Substantive Provision
30 days after approval of loan to accept as offered Right to cancel for 3 business days

29. Disclosures On application for a private education loan: Interest rate
Fees and default or late payment costs
Repayment term
Cost estimates
Eligibility
Alternatives to private education loans
Rights of consumers
Self-certification information

30. Disclosures When approved:
Specific disclosures about rates, fees, and other terms
Estimate of total
Monthly payment at maximum rate

31. Disclosures At consummation
Similar to approval disclosures
3-day right to cancel notice
Self-certification form (available from DOE)
With costs of attendance at school
Availability of federal student loans
Amount of financial aid
Amount borrower can borrow to cover gap

32. Covered loans
Any closed-end, non-home secured loan extended expressly, in whole or in part, to be used for post-secondary educational expenses
Covers multi-purpose loans

33. Questions?
Thank you