Massachusetts Bankers Association Consumer Mortgage Lending Annual Review 2003 Stanley V. Ragalevsky Stephen E. Moore Sean P. Mahoney 617.261.3100 www.kl.com
ECOA and Regulation B � Mandatory Compliance Date – April 15, 2004 � Notice of Adverse Action is required unless substantially all of the bank’s customers for the loan product are affected by the bank’s action � Pre-approvals constitute an application when the bank receives sufficient information to make a decision on the request for pre-approval for a loan � Gathering of information with respect to a customer’s race, national origin, etc. is now permitted for non-mortgage credit if the bank is using it to self-test its compliance 2
ECOA and Regulation B CONTINUED � Mandatory Compliance Date – April 15, 2004 � Effective January 1, 2004, when gathering information for a home mortgage/home equity loan, bank must use the term “ethnicity” when asking for the national origin or race of the applicant � FNMA/FHLMC Uniform Residential Loan Application has been changed to conform to this requirement � Banks must retain records with respect to pre- screened programs for twenty five months � Any disclosure or information required to be provided in writing must be made in a clear and conspicuous manner and, with a few exceptions, in a form that the applicant may retain 3
ECOA and Regulation B CONTINUED � Effective May, 2004 � Impact of same sex marriages on rules prohibiting discrimination based on marital status • Creditors must not take into account the fact that applicants who have married may be of the same sex in Massachusetts 4
HMDA / Regulation C � Regulation C was amended in 2002 to make a number of significant changes in reporting and data collection obligations � The 2002 Regulation C Amendments were originally scheduled to take effect on January 1, 2003 but implementation was delayed until January 1, 2004 5
HMDA / Regulation C CONTINUED � New January 1, 2004 reporting requirements should have been included in reports submitted to federal supervisory agency by March 1, 2004 � FFIEC has finally posted 2004 Preliminary Census Data which reflect 2002 Census information and new OMB census tracts 6
HMDA / Regulation C CONTINUED � Covered Lenders � Nonbank lender volume test • Nonbank lender ( i.e. , mortgage company) is now subject to Regulation C reporting if their home mortgage originations exceeded 10% of their total loan originations or $25,000,000 in the prior year 7
HMDA / Regulation C CONTINUED � New Data Reporting Requirements � Rate Spread • HMDA lenders must report the spread between a loan’s APR and the yield on U.S. Treasury securities with a comparable maturity if the spread exceeds • 3 percentage points on first mortgages • 5 percentage points on subordinate mortgages • Applies to originated mortgage loans • Does not apply to purchased loans or non- mortgage loans 8
HMDA / Regulation C CONTINUED � New Data Reporting Requirements � HOEPA Status • Home Ownership Equity Protection Act of 1994 (HOEPA) covers certain high cost mortgages whose APRs are more than 8 points over comparable Treasury Securities yields on a first mortgage and 10 points on a second, or points and fees exceed the greater of 8% of total loan amount or $499 • Lenders must now report whether a loan is subject to HOEPA • Applies to both originated and purchased loans 9
HMDA / Regulation C CONTINUED � New Data Reporting Requirements � Lien Status • Old rules required lender to identify whether a loan was secured by a lien • New rules require lenders to identify on the loan application register whether a loan is secured by a first lien or second lien • Applies only to originated loans 10
HMDA / Regulation C CONTINUED � New Data Reporting Requirements � Manufactured Home Status • Lenders must identify on the loan application register whether a loan involves a manufactured home ( i.e. , choices are 1-4 family, manufactured housing or multi-family dwelling) 11
HMDA / Regulation C CONTINUED � Pre-approval Requests as Applications � Under pre - January 1, 2004 rules pre- approvals were not reported � Now pre-approvals may be subject to reporting � Difference between “pre-approval” and “pre - qualification ” • Pre-qualification (no binding obligation) • Pre-approval (binding obligation to lend up to specified amount made after credit underwriting) 12
HMDA / Regulation C CONTINUED � Pre-approval Requests as Applications � Pre-approvals on home purchase loans are now reportable � Lenders now required to identify home purchase loans where a pre-approval request was involved � Denials of pre-approval requests must be reported like a denial of an application � Optional reporting of pre-approval requests approved by a lender but not accepted by the applicant 13
HMDA / Regulation C CONTINUED � Borrower Information Changes � Applicant Information — Race and Ethnicity � Race and national origin categories simplified to conform to revised OMB Guidelines � New “ethnicity” category added � Hispanic or Latino � “Hispanic” and “other” deleted from race categories � Pacific Islanders and Native Hawaiians differentiated from “Asians” � Applicant can select more than one race 14
HMDA / Regulation C CONTINUED � Changes to Definitions � Refinancing • Refinancings of home purchase and home improvement loans are reportable • Pre - January 1, 2004 refinancing was a loan that satisfied and replaced an existing loan from the same borrower • Effective January 1, 2004, the definition of what is a refinancing narrows by requiring that both the original and the new loans be secured by a dwelling 15
HMDA / Regulation C CONTINUED � Changes to Definitions � Home Improvement Loan • Prior to January 1, 2004, a “home improvement loan” for Regulation C purposes was a loan to improve a dwelling which was classified by the lender as a home improvement loan • Effective January 1, 2004, a loan which is to improve a dwelling and is secured by a mortgage lien must be reported on the loan application register even if the lender does not classify it as a home improvement loan 16
FNMA / FHLMC Changes � Effective January 1, 2004, FNMA and FHLMC amended the Uniform Residential Loan Application (Form 1003) � 2004 changes reflect • Section 326 of USA PATRIOT Act Customer Information Program Modifications • Date of birth, not age • Mailing address • Various HMDA changes 17
FNMA / FHLMC Changes CONTINUED � FHLMC / FNMA Loan Limits for 2004 increased to: � $333,700 – 1 Family � $427,150 – 2 Family � $516,300 – 3 Family � $641,650 – 4 Family 18
FCRA and the FACT Act of 2003 � Effective 12/31/03 FCRA was amended to preempt state laws regulating information sharing among affiliated companies � FCRA will prohibit the sharing of consumer information with affiliates for marketing purposes unless the consumer has been given notice and an opportunity to opt out � Lenders will be required to provide “Risk-Based Pricing Notices” to consumers who receive materially less favorable credit terms based on information in a consumer report 19
FCRA and the FACT Act of 2003 CONTINUED � Banks will be required to disclose credit scores to residential mortgage loan applicants � New policies and procedures will be imposed on banks that furnish information to consumer reporting agencies � Once a bank has been notified that a debt was created through identity theft: � it will be restricted from selling or transferring such debt � it is not permitted to report such information to third parties including consumer reporting agencies 20
FCRA and the FACT Act of 2003 CONTINUED � Banks will be required to furnish a notice to consumers whenever the bank reports negative information about the consumer to nationwide consumer reporting agencies � FCRA will prohibit banks from obtaining or using medical information for determining a consumer’s eligibility for credit 21
FCRA and the FACT Act of 2003 CONTINUED � Most provisions will not become effective until regulations have been issued by the Federal Trade Commission and Federal Reserve Board � Recently the Agencies set the effective date for the preemption rules at December 31, 2003, March 31, 2004 for certain rules that do not require new policies and procedures and December 1, 2004 for all other rules � It is expected, however, that some of the regulations will set a later effective date for certain requirements 22
TILA and Regulation Z � Changes to official commentary effective April 1, 2003 with compliance date of October 1, 2003 � Fees for expediting a single payment on a credit account are not finance charges, nor “other charges” � Fees for expediting delivery of a credit card are not finance charges nor “other charges” � The issuance of more than one card when a credit card expires is permitted but conditions on issuance of more than one renewal credit card are imposed 23
TILA and Regulation Z CONTINUED � Changes to official commentary effective April 1, 2003 with compliance date of October 1, 2003 � Mortgage guaranty insurance payments must be set forth in the payment schedule for closed-end loans � Clarifying language relating to the applicable treasury security rate for determining whether a loan is a high cost loan subject to the provisions of HOEPA 24
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