Reg. Z Reminder; Bank M&A and FDIC Updates; CFPB Penalties/Settlements - How Much Does it Cost to Comply?

The independent Postal Regulatory Commission approved a temporary bump in the cost of first-class postage, raising the price to send a letter from the current 46 cents to 49 cents on Jan. 26. Temporary? No wonder Christmas card numbers are declining...

Bloomberg reports Blackstone has purchased 41,000 homes across the US in the past 2 years to become the largest single family landlord in the country. (Along those lines, RealtyTrac reports foreclosure filings in the US fell 32% in November from a year earlier to an 8 year low, as housing prices continued to rebound nationwide.) And now Blackstone is interested in the shoe business - investing in Crocs.

Let's catch up on the Consumer Finance Protection Bureau's recent activities - its focus is not only on mortgages. The CFPB has accused GE Capital Retail Bank of misleading consumers using its health care credit card product called CareCredit and has ordered it to refund up to $34 million to more than 1.2 million consumers. This is the first action related to so-called deferred interest cards (where interest rates accrue but are deferred during a promotional period).

Lawsuit news continues to grab our attention. The Federal Deposit Insurance Corporation (FDIC) announced a settlement with American Express Centurion Bank, Salt Lake City, Utah, for unfair and deceptive marketing practices related to credit card "add-on products," in violation of Section 5 of the Federal Trade Commission (FTC) Act. This action results from a review of the Bank's credit card products by the FDIC and the Consumer Financial Protection Bureau (CFPB). As part of the settlement, the Bank stipulated to the issuance of a Consent Order, Order for Restitution, and Order to Pay Civil Money Penalty (collectively, FDIC Order). The FDIC Order requires the Bank to pay a civil money penalty (CMP) of $3.6 million. The CFPB is also taking a parallel enforcement action against the Bank for the same practices and will assess a separate CMP of $3.6 million. Together, the FDIC and CFPB will require restitution of no less than $40.9 million to harmed consumers. The Office of the Comptroller of the Currency (OCC) and the CFPB also announced actions against other American Express affiliated institutions for the same unfair and deceptive practices identified in those institutions. Collectively, these actions will result in restitution of approximately $59.5 million to more than 335,000 consumers.

As a reminder, the CFPB has issued a final rule that amends the Equal Credit Opportunity Act requiring lenders to issue borrowers with copies of all appraisals and/or written valuation that are used in connection with the estimation of the property's value upon completion or three business days prior to closing.  No fees may be charged for delivery or making copies.  Applicants must be provided with a disclosure describing their rights to receive the relevant documents, and lenders must include a disclosure acknowledging the borrower's receipt.  If the borrower waives their right to receive copies of appraisals and valuations, the Borrower Appraisal Disclosure must still be delivered in the loan file.

Regulations Z and X of Dodd-Frank have been amended to expand the coverage scope of HOEPA to include purchase money transactions and HELOCs and revise the APR high-cost coverage test to compare the APR against the APOR on the date the interest rate is set.  Under the new rule, a mortgage is considered high-cost if the APR is more than 6.5% above APOR.  For fixed-rate transactions, the APR is the same as is disclosed on the Final TIL; for ARMs, it is the higher of the initial rate or fully indexed rate at the time of locking. The Points and Fees high-cost coverage test has also been revised to be calculated using the same approach for calculating points and fees for qualified mortgages under QM/ATR; as such a loan is considered high-cost if the points and fees exceed 5% of the total loan amount.  In addition, a mortgage will be considered high-cost if a prepayment penalty is charged more than 36 months after consummation or account opening or in an amount over 2% of the amount prepaid. Lenders will also be required to provide borrowers with a list of Homeownership Counseling Organizations within three business days of receiving the loan application.

Every compliance person across the nation knows this, but it bears repeating for the Realtors and LOs out there. On Thursday, December 12, the Federal Reserve Board and the other "agencies" finalized a rule amending the higher-priced mortgage loan appraisal rules under TIL (Regulation Z) to adopt exemptions originally proposed July 10, 2013 for manufactured housing and certain types of refinancing and transactions of $25,000 or less. The Agencies have adopted a temporary exemption of 18 months, until July 18, 2015, for all loans secured in whole or in part by a manufactured home. Starting on July 18, 2015, transactions secured by a new manufactured home and land will be exempt from the requirement that the appraisal include a physical inspection of the interior of the property; transactions secured by an existing (used) manufactured home and land will not be exempt from the rules; and transactions secured solely by a manufactured home and not land will be exempt from the rules if the creditor gives the consumer one of three types of information about the home's value. 

It was Andrew Carnegie who ruled his steel empire by the mantra "watch costs and the profits take care of themselves." I'm convinced if Mr. Carnegie owned a bank in today's environment he would have amended this to say "watch compliance and the profits take care of themselves." In any case, the CFPB recently released a report on the operational costs of regulatory compliance. The 176-page report is entitled "Understanding the Effects of Certain Deposit Regulations on Financial Institutions' Operations." The CFPB chose to focus primarily on "the costs banks incur to comply with the regulations that the Bureau inherited and that govern consumer deposit-related products and services." In particular, the CFPB studied compliance costs associated with "checking accounts, traditional savings accounts (e.g., statement/passbook savings), debit cards, and overdraft programs (e.g., overdraft coverage for ATM and debit card transactions)." In critique of this release is Ballard Sphar, they write, "The CFPB states in the report that it avoided reporting dollar figures because such figures have 'little meaning without comparison to a common denominator' and it would have created a risk of 'revealing the identities of the otherwise anonymous participant banks or divulging proprietary information.' We fail to see how providing dollar amounts would have created such risks. By only using percentages, the CFPB has obscured the magnitude of the dollar costs associated with regulatory compliance. In addition, the CFPB's percentage estimates do not take into account at least two significant categories of costs: opportunity costs (i.e. profits foregone from business opportunities not pursued because of regulation) and litigation costs." The full CFPB release can be here; Ballard Spahr's CFPB Monitor from earlier this month can be found here.

The FDIC insures deposits at the nation's 6,891 banks and savings associations, and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. It is also safe to say that the FDIC has been involved in mitigating future exposure, along with the CFPB, over the past few years. The current FDIC Consumer Newsletter, which was released earlier this month, highlights new rules and tips for mortgage borrowers. For anyone thinking about buying a home or shopping for a mortgage, the Fall 2013 issue of FDIC Consumer News features an overview of important rules taking effect soon that are intended to protect consumers. The coverage includes practical tips when shopping for a loan and for avoiding mortgage scams. Additional articles offer suggestions on options to consider if an institution turns you down for an account based on a report of a previously closed checking or savings account, as well as information on using a financial institution's social media site to communicate or conduct business with a bank.

According to a recent FDIC release, from January 1, 2009, through December 10, 2013, the agency has authorized suits in connection with 131 failed institutions against 1,058 individuals for Director and Officer (D&O) liability. This includes 84 filed D&O lawsuits naming 628 former directors and officers. The FDIC also has authorized 56 other lawsuits for fidelity bond, insurance, attorney malpractice, appraiser malpractice, accounting malpractice, and RMBS claims. In addition, 87 residential mortgage malpractice and fraud lawsuits are pending, consisting of lawsuits filed and inherited. As "receiver" of failed institutions, the FDIC has three years for tort claims and six years for breach-of-contract claims to file suit from the time a bank is closed. If state law permits a longer time, the state statute of limitations is followed. According to the FDIC, "Professionals may be sued for either gross or simple negligence"...I think I'd rather be known as "simple", uh?

And bank settlements and M&A have continued, regardless of the holidays. Deutsche Bank will pay $1.9 billion to settle FHFA claims related to mortgages the bank sold Fannie & Freddie from 2005 to 2007. First Financial Bank ($6.2B, OH) will acquire First Bexley Bank ($295mm, OH) for $44.5mm in cash and stock. First Financial Bank ($6.2B, OH) will acquire Insight Bank ($200mm, OH) for $36.6mm in cash and stock. Provident Bank ($7.3B, NJ) will acquire Team Capital Bank ($949mm, PA) for $122mm in cash and stock. Bank of North Carolina ($3.0B, NC) will buy Harrington Bank ($229mm, NC) for $24.2mm in stock or cash. BNC also said it will acquire Home Savings Bank of Albermarle ($274mm, NC) for $23.7mm in stock or cash. BancorpSouth Bank ($12.9B, MS) will acquire GEM Insurance Agencies (TX) for an undisclosed sum. Univest Bank and Trust ($2.2B, PA) will acquire investment advisory and wealth management firm Girard Partners (PA) for an undisclosed sum. InterBank ($2.1B, OK) will acquire Park Cities Bank ($422mm, TX) for $11.9mm in cash. BB&T will buy 21 branches in TX from Citibank, as it seeks to expand its presence and Citi seeks to manage costs. Citibank said it will close 10 branches in PA in 2014. And First Community Bank of Western Kentucky (KY) will acquire 3 branches from First Southern National Bank (KY) for an undisclosed sum.

This commentary has mentioned this before, but it is worth mentioning this again as it may signify a trend for bonding for mortgage lenders: "Oklahoma HB 1828, effective as of November 1, 2013, added new requirements to the state's mortgage lender licensing process."

And here's another article in the Tampa Bay Times from this morning on flood insurance. Notice how realtors are being quoted with no evidence of any solutions (i.e. a new Elevation Cert or a private insurer being acceptable by lenders). These articles have been being published with greater frequency in the last few months.

There isn't much scheduled news this week, and everyone can concern themselves about "Why the heck am I at work?" The monthly employment report, normally slated for the first Friday of every month, will not be released until January 10. Today we'll see Pending Home Sales, tomorrow is the Chicago PMI Manufacturing and Consumer Confidence. ISM Manufacturing and Construction Spending will be released on Thursday. Mortgage markets will close early tomorrow and will be closed on Wednesday in Observance of the New Year's holiday. Looking at numbers, the risk-free U.S. 10-yr T-note breached the 3.00% yield level Friday, closing at 3.01%. This morning we're back to 2.99%, however, and agency MBS prices are better by a smidgeon (a technical term).