Catching Up with the MBA and CFPB on Privacy, RESPA-TILA, Reg. C, and Servicing Rules
Most professional baseball teams still have 30+ games left in their season (out of 162), and there is plenty of jockeying in the media regarding the playoffs. Baseball is filled with trivia, but there is one tidbit that sticks out in my mind. See if you can stump your friends with this one: "What are the only two days during the year when there are no professional sports games (MLB, NBA, NHL, or NFL) played?" Please don't write me with the answer, but given the overlap and lengthy seasons of basketball and hockey, my only hint will be that those two days are during the baseball season. Baseball, and other sports, are filled with numbers. So is lending, and Wall Street's reliance on credit scores is legendary. And hey, if you don't like the credit scores coming across your desk, change the credit scores! Seriously, Fair Isaac put in new scoring with several adjustments - most notably to medical bills. Many consumers will see their FICO credit scores increase - not due to their debt payment habits, but instead due to changes of the credit-scoring model.
Overdraft charges did not cause the credit crisis in the United States of America. But the CFPB is hot on the topic anyway. The CFPB reports the largest percentage of consumer complaints in 2013 for all products were for mortgages (47%), credit reporting (13%), bank accounts or services (12%), credit cards (12%) and debt collection (9%).
Those interested in TILA-RESPA reform should tune in to the CFPB's webinar on Tuesday the 26th to answer some frequently asked questions about the TILA-RESPA Integrated Disclosure rule. The webinar will be hosted by the Federal Reserve. This will be the second in a series of webinars to address the new rule as creditors, mortgage brokers, settlement agents, software developers, and other stakeholders work to implement it over the next year.
While we're on the CFPB, the MBA submitted a letter to the CFPB composed of thoughts on the proposed changes to the Annual Privacy Notice Requirement. (There is still privacy?) The MBA submitted a comment letter to the CFPB regarding its proposed amendments to the annual privacy notice requirement under the Gramm-Leach-Bliley Act. In the letter, MBA strongly supported the CFPB's efforts to reduce the burden and costs to the industry associated with providing annual privacy notices, while recognizing the importance of clearly disclosing to consumers a financial institution's policies for the treatment and sharing of nonpublic information. While supportive, the letter also expressed concern that the ability to post a privacy policy online in certain circumstances - rather than send annual notices - will not be as widely available as it should be. MBA then went on to suggest that any notice that complies with Regulation P should be qualified to use the proposed amendment's alternate delivery method if the financial institution is otherwise eligible.
I continue to be asked about the CFPB and HMDA. As another reminder, the CFPB proposed changes to Regulation C, which implements the Home Mortgage Disclosure Act. Comments are due on October 22.
What to do with potential borrowers who have minimal trade lines on their credit report, the so-called "thin file" borrowers? It's been suggested in the past that remittance histories could be a possible source of evaluation in establishing risk perimeters, and the CFPB has been tasked with its research. The Bureau recently published a report on its study of the use of remittance histories in credit scoring. I'll spare you from reading the 36 page report (although the link above directs you to the site); ultimately it found that remittance histories have little predictive value for credit scoring purposes, and that remittance histories are unlikely to improve the credit scores of consumers who send remittance transfers. Buckley Sandler have a terrific write-up on this report, they write, "The report follows a 2011 CFPB report on remittance transfers, which was required by the Dodd-Frank Act and assessed, among other things, the feasibility of and impediments to using remittance data in credit scoring. At that time, the CFPB identified a number of potential impediments to incorporating remittance history into credit scoring, and noted the need for further research to better address the potential impact of remittance information on consumer credit scoring." The CFPB determined that for remitter sample members without credit records, remittance histories likely would not allow those individuals to develop a credit profile.
My daily work plan is pretty straight forward most of the time: a little writing, a little speaking, feed a pack of hungry cats every now and then; if required to, my P&Ps would be a page and a half at best. It's nothing compared to the Office of Inspector General's work plan for ongoing and planned audit and evaluation projects, which is updated bi-monthly and is over thirteen pages long. Recently, the OIG updated its work plan to include audits of the CFPB's information security program, pay and compensation program, and distribution of civil penalty funds. For the CFPB's Information Security, the OIG will implement the statutory requirements by auditing: the Bureau's compliance with FISMA and related information security policies, procedures, standards, and guidelines; and the effectiveness of security controls and techniques for a subset of the Bureau's information systems. OIG will also evaluate the controls around setting employee pay, which is mandated under Dodd-Frank as it requires the Bureau to "provide employee compensation and benefits that are, at a minimum, comparable to those of the Board of Governors of the Federal Reserve System (must be nice, uh?)."
Ballard Spahr writes, "The CFPB issued a proposed rule amending Regulation C to expand data reporting requirements for mortgage industry participants. The proposed rule is 573 pages and our Mortgage Banking Group will analyze the proposal and work with clients on its impact. Comments are due on or before October 22... Dodd-Frank sought to address the issue (of the absence of important loan and borrower data elements) by directing the CFPB to expand the HMDA reporting categories. Proposed new data elements include the credit score and age of the applicant, the property's value (which provides for the determination of the loan to value ratio), the total points and fees, the term to maturity, and the duration of any loan. The expansion of HMDA data to include more and sensitive borrower and transaction information presents serious privacy concerns. By combining HMDA data along with other publicly available data, it is possible that the identity of specific consumers can be determined from the Loan Application Registers of mortgage lenders that must be made available under HMDA. With the expansion of HMDA data to include credit score, age and other elements, the privacy concern will be magnified. Addressing this concern in the press release announcing the proposal, the CFPB states that it is "looking at ways to improve how the public can securely use HMDA data to protect applicant and borrower privacy." The industry and interested parties should insist on the CFPB making consumer privacy a paramount concern in the consideration of the proposed rule. In announcing the proposal, the CFPB also states that it "views implementation of the Dodd-Frank Act changes to HMDA as an opportunity to assess other ways to improve upon the data collected, reduce unnecessary burden on financial institutions, and streamline and modernize the manner in which financial institutions collect and report HMDA data." The CFPB claims the proposed rule aims to: (1) improve market information, data access, and the electronic reporting process; (2) monitor access to credit; (3) standardize the reporting threshold; (4) ease reporting requirements for some small banks; and (5) align reporting requirements with industry data standards. Our Mortgage Banking Group will assess these aspects of the proposal."
There are many areas in banking which require further clarification by the CFPB, and mortgage servicing rules are one such area. The American Bankers Association recently sent a letter to the CFPB requesting several clarifications. Ballard Spahr write, "The ABA asks the CFPB to make the clarifications part of "regulatory guidance (or regulatory amendment where necessary) that is readily accessible to all servicers, their vendors and advisors, as well as examiners from other regulatory agencies that will examine banks for compliance with the CFPB rules." In the letter, the ABA states that its members need regulatory certainty regarding how to apply the "120-day rule;" Rather than leave it to the courts to determine if a bank has correctly applied the 120-day rule, the ABA wants the CFPB to specify how the rule applies to rolling delinquencies. The ABA also restated its view that servicers should not be required to provide periodic statements for charged-off mortgage loans. If the CFPB continues to require periodic statements for charge-offs, the ABA suggests there may be value in the CFPB adopting a provision that parallels the periodic statement exemption for open-end credit. The ABA urges the CFPB to finalize as published its interim final rule providing limited exemptions from the servicing rules in situations where the borrower has filed for bankruptcy. The ABA also recommends that if the CFPB elects to issue a final rule that does not include the current exemptions, it engage in a notice and comment process that will allow servicers to provide input on the rule before it is finalized.
It is pretty interesting when you put an investor's (like a pension fund) representative in a room, and ask them, "Did you rely solely on rating agency ratings to buy your security?" If the answer is "no", then how can they sue the rating agency? If the answer is "yes", well, then why weren't they doing their job? I bring this up because Bloomberg has a story about how banks are arranging a $1 billion commercial-mortgage bond deal tied to the Atlantis resort in the Bahamas but are poised to skip Standard & Poor's grades for most of the securities. "The ratings firm, which is facing a potential enforcement action by the U.S. Securities and Exchange Commission on commercial mortgage securities it rated in 2011, isn't offering preliminary grades on $617 million of senior portions of the transaction, according to a presale report from New York-based S&P. DBRS Ltd. and Kroll Bond Rating Agency Inc. are offering rankings as high as AAA. Bankers have been rethinking whether to hire S&P to rate commercial-mortgage bond deals after its parent, McGraw Hill Financial Inc., disclosed the potential SEC action on July 23. The regulator is probing six bond deals that S&P rated in 2011, including a $1.5 billion transaction that Citigroup Inc. and Goldman Sachs Group Inc. were forced to abandon when the firm yanked its grades after the notes were placed with investors."
This week is another snoozer for scheduled economic news here in the U.S. But hey, who knows what might happen in Iraq, Israel, Russia, Korea... There isn't much until Wednesday the 13th with Retail Sales (the total receipts at stores that sell merchandise and related services to final consumers - reportedly accounting for 2/3 of economic activity). Thursday we'll have Jobless Claims and some import price statistics. On Friday things pick up with the Producer Price Index, Empire Manufacturing, and the Industrial Production and Capacity Utilization duo. For the quantitatively inclined, the 10-yr closed Friday at 2.42% and this morning we're sitting around 2.43 with agency MBS prices roughly unchanged.
Yes, I messed up twice last week. The first time was using "whether" instead of "weather" in discussing the storms in Hawai'i. The second time was a quote about robbing banks "because that is where the money is" incorrectly attributed to John Dillinger. (It was Willie Sutton, or at least a reporter doing a story on him.) Bad grammar and mistakes on the internet fade away - but not when your tattoo artist doesn't have a firm grasp of the English language: NoReegrets. (I even had difficulty figuring out where some of these tattoos were on the body!)
Jobs
In the jobs segment, First Century Bank, N. A. an FDIC Bank is expanding. This well-capitalized bank is looking to hire Account Executives, and open territories include California, Washington, Colorado, Florida, North Carolina and Washington DC. FCB is looking for experienced AEs to help continue to grow the business and work with a winning operations team. Senior mortgage management has a combined experience of 75+ years in the business, dedication to superior customer service, and has an excellent system platform. Please send resumes to wholesalesupport@myfirstcenturybank. com.
And Aspire Lending is excited to announce that Kelly Casey has joined their organization as Director of Recruiting. "Her relentless pursuit of top echelon loan officers and branches, combined with Aspire Lending's state-of-the-art platform and resources, promises to shake up the industry. 'I'd like to apologize in advance to our competitors -- I know in the past when Kelly was at a competitor, I was always looking over my shoulder,' says Steve Barton, EVP of Retail Lending. Please help Aspire Lending welcome Kelly, and if you are interested in finding out more about the Aspire Revolution email her at kcasey@aspirelending. com."