Priority

1
36th Annual Texas Tech University Banking School
Legal Issues for Bankers
Ann Graham, J.D., M.B.A. Professor of Law, Texas
Tech University School of Law Banking Law Blog
http//lawprofessors.typepad.com/banking/
Texas Tech University School of Law
2
Financial Systems in Crisis

• Bailouts
• Broad Safety Net
• Regulating the Unregulated
• Executive Compensation
• Lending Issues
• Consumer Protection
• Large/Small - State/National
• Regulatory Reform
• Bank Failures Too Big to Fail

3
Consumer Protectionand Bank Compliance

• Consumer Financial Protection Agency?
• Safety Soundness depends on Consumer Protection
• Policies Procedures Update All Affected
• New Legislation
• Truth in Lending Act (TILA) Reg Z
• Housing and Economic Recovery Act (HERA)
• Secure and Fair Enforcement for Mortgage
  Licensing Act of 2008 (SAFE Act)
• Mortgage Disclosure Improvement Act (MDIA)

4
Consumer Protection More New Laws Regs

• Emergency Economic Stabilization Act of 2008
  (EESA)
• Amended MDIA
• Preventing Mortgage Foreclosures Enhancing
  Mortgage Credit Act Helping Families Save
  Their Homes Act of 2009
• Credit Card Accountability Responsibility
  Disclosure Act of 2009 (Credit CARD Act)
• Regulations
• RESPA - HUDs Reg X FACTA Reg V
• HMDA FRB Reg C

5
For Lenders Reg Z Changes

• Reg Z Changes finalized July 2008 (orig. eff.
  10/1/09)
• MDIA More Reg Z Changes (eff. 7/30/09)
• New Higher Priced Mortgage Loans (HPMLs)
• New Average Prime Offer Rate APOR (FFIEC site)
• Lenders must assess, verify document ability to
  repay for Higher Priced Mortgage Loans HOEPA
  loans
• New way to calculate Debt-to-Income (eff. 10/09)
• Prepayment penalty restrictions
• New Early TIL requirements http//www.fdic.gov/ne
  ws/news/financial/2009/fil09026.html

6
More Reg Z

• Prepayment penalty restrictions on HPMLs
• Limits on collecting fees until early disclosures
• New early disclosure requirements
• Redisclosure if APR becomes inaccurate
• No coercion or undue influence of appraisers
• Restricted S-T balloons on principal dwelling
  loans
• Required to escrow tax ins for 1st mtg. HPMLs
• No pyramiding late fees on principal dwelling
  loan
• New advertising requirements

7
New Reg Z Waiting Periods

• Application giving info in anticipation of
  credit decision
• Early TIL Disclosures within 3 days
• Wait 7 business days from early disclosures for
  earliest possible closing
• If disclosures mailed, presume 3 days for receipt
  
• Immediate redisclosure if APR inaccurate
• New tolerances
• Wait 3 bus. days from receipt of revised
  disclosure
• WAIVER Must be bona fide personal emergency,
  customer request, no forms

8
RESPA HUDs Reg X(final 11/08, some changes
eff. 1/16/09, some 1/1/10)

• Servicing Disclosure Statement New Form
• 3 business days after Loan Application
• New Definition of Application
• New Good Faith Estimate Form
• Cant charge appraisal fee as condition for GFE
• GFE MUST be good for 10 business days unless
  changed circumstance
• New tolerance limits, cure with refund at
  settlement or within 30 days
• New HUD1/1A Forms Instructions 1/1/10

9
HMDA Reg C HMDA LAR

• Changes eff. 10/1/09
• For Higher Priced Mortgage Loans,
• Report spread between APR and Survey-Based
  estimate of prime mortgage loans
• If spread gt1.5 for lst lien loan or gt3.5 for
  2nd

10
Credit CARD Act Reg Z

• Effective Aug. 20, 2009
• For ALL open-end consumer credit accounts,
  including Credit Cards HELOCs
• Mail/deliver Statements 21 days before payment
  due
• For Credit Cards
• 45 days notice of increased APR or other sig.
  changes
• Include right to cancel the account
• All interest rate increases after 1/1/09 must be
  reviewed beginning Aug. 2010 for reduction
• More changes 2/22/2010 - http//www.fdic.gov/news/
  news/financial/2009/fil09044.html

11
SAFE Act

• Secure and Fair Enforcement for Mortgage
  Licensing Act of 2008
• Requires Mortgage Loan Originators (MLOs) to
  register with Nationwide Mortgage Licensing
  System and Registry (NMLSR)
• Fingerprints background
• Also for Agency Regulated institutions subs
• Proposed Rule http//www.fdic.gov/news/news/fina
  ncial/2009/fil09028.html

12
Appraisal Issues

• Reg Z Cannot Directly OR Indirectly Influence
  Appraiser
• Need Policies Procedures
• Use Appraisal Mgt. Company?
• Borrower cannot pay for appraisal
• Home Valuation Code of Conduct HVCC
• Industry Standard
• Selling into Secondary Market
• Who can talk to the appraiser
• Annual Audit

13
Allowance for Loan Lease Losses

• Guidance Aug. 3, 2009
• ALLL for Residential Mortgages secured by junior
  liens
• Analyze each quarter
• Examiners will be looking at loss mitigation
• http//www.fdic.gov/news/news/financial/2009/fil09
  043.html
• Loan Modification Guidance for Servicers
  http//www.fdic.gov/news/news/financial/2009/fil09
  045.html

14
Service Members

• Mortgage Protection for Servicemembers
• Amends Servicemembers Civil Relief Act
• Effective July 30, 2008
• 6 interest rate cap for pre-service debt during
  military service and if mortgage up to 1 year
  after military service
• Stay of court proceedings for 9 months after
  service temporary until 12/31/2010

15
Fair Credit Reporting Act FCRA (1970)Fair
Accurate Credit Transactions Act FACTA
(2003)

• Affiliate Marketing Restrictions
• Accuracy Integrity Guidelines
• Direct Dispute Resolution
• ANPR http//edocket.access.gpo.gov/2009/pdf/E9-15
  322.pdf
• Comment period ends 8/31/09
• ID Theft RED FLAG FAQs http//www.fdic.gov/news/
  news/financial/2009/fil09030.html

16
More Examiner Focus

• Flood Insurance New QA 7/21/09
• http//www.fdic.gov/news/news/press/2009/pr09127.
  html
• Effective 9/21/09
• Bank Secrecy Act (BSA)/Anti-Money Laundering
  (AML)
• FinCEN
• CTRs and SARs
• FDIC Nationwide Seminars on Deposit Insurance
• http//www.fdic.gov/news/news/financial/2009/fil09
  046.htmlbody
• Sweep Account Disclosures (eff. 7/1/09) FAQ
  http//www.fdic.gov/news/news/financial/2009/fil09
  039.html

17
CRA Changes

• Higher Education Opportunity Act
• Requires considering low-cost education loans to
  low-income borrowers
• Meeting community credit needs
• Agencies proposed regs
• http//www.fdic.gov/news/news/financial/2009/fil09
  035.html

18
Capital

• Making Homes Affordable Program
• Mortgage Loan Modifications
• May Assign 50 risk weight, if not 90 days or
  more past due or on non-accrual
• Interim Final Rule http//www.fdic.gov/news/news
  /financial/2009/fil09036.html
• Balancing Act

19
Federal Preemption

• Watters v. Wachovia (2007)
• OCC has exclusive visitorial power over natl
  banks AND their operating subsidiaries
• Cuomo v. Clearing House (2009)
• States can enforce consumer protection statutes
  against national banks
• By Lawsuit, not by visitorial powers
• Administrations Regulatory Reform Legislation

20
Texas News

• Texas Banking Commissioner Charles Cooper
• Regulatory Guidance 3009 Loan Participation
  Risks What happens if the Lead Bank fails
  offsets deposit? Monitor Risk!
• FAQs http//www.banking.state.tx.us/exec/faq.htm
  
• HOME EQUITY Texas Constitution Art. 16, Sec. 50

21
Legal Info for Bankers

• Agency Websites
• www.fdic.gov Financial Institution Letters
  (FILs)
• www.federalreserve.gov
• www.occ.treas.gov www.ots.treas.gov
• www.treas.gov www.ffiec.gov
• www.banking.state.tx.us
• Trade Associations
• ABA www.aba.com TBA www.texasbankers.com
• ICBA www.icba.com IBAT www.ibat.org
• CSBS www.csbs.org
• Texas Statutes www.capitol.state.tx.us

22
Legal Info for Bankers

• FTC
• ID Theft http//www.ftc.gov/bcp/edu/microsites/i
  dtheft/
• Credit Reports http//www.ftc.gov/freereports
• FinCEN BSA Issues http//www.fincen.gov/