June 27, 2015

A New Role with the YLD, the Future of the Legal Profession

Those of you know me well or who read this blog regularly know that I believe in the Young Lawyers Division of the North Carolina Bar Association and the more than 6,400 young lawyers who belong to it.  In the past eight years, I have witnessed young lawyers volunteer to help thousands of people with significant legal needs and do important work to improve the legal profession.  This is a great group of people, and I am immensely honored that they have elected me to lead them.  I will take office as Chair of the YLD in June of 2016.  In the meantime, if you are a service-minded lawyer under 36, or if you have ideas about what the YLD can do to further its missions (service to the public, service to the bar, and leadership training), please let me know

June 15, 2015

Five Simple Steps You Can Take to Protect Your Loved Ones on Elder Abuse Awareness Day

This post is a PSA.  Those of you who know me well (or read this blog regularly) know that I have spent a considerable amount of of time and energy trying to help people prevent elder financial abuse.  The elderly in the United States lose an estimated $2.6 billion annually due to elder financial abuse and exploitation.  Today is the eighth annual Elder Abuse Awareness Day, which seems like an appropriate time to suggest a few simple steps you can take to help protect your loved ones from elder financial abuse.

1.  If his or her bank offers the opportunity (and is in North Carolina), ask your loved one to provide the bank with a list of trusted persons to whom the bank may speak in the case of suspicious activity.  I've written and spoken about this topic frequently, and you can read my comments here, here, here, here and here.

2.  Encourage your loved one to talk to an elder law attorney about naming a trustworthy person as attorney-in-fact to look after your loved one's interests.  Discourage your loved one from granting a power of attorney to anyone who is not 100% trustworthy and competent.

3.  A small number of unscrupulous telemarketers prey on the elderly.  One way to reduce the potential for this kind of abuse it to put your loved one's telephone number(s) on the national Do Not Call registry by filling out the form available here

4.  Social media is not just for young people.  Many older adults have social media accounts these days.  Fraudsters sometimes use information gathered from social media to help them perpetrate frauds, such as spearphishing attacks.  Ask your loved ones to allow you to set privacy settings on their social media accounts so that strangers (and anyone else they shouldn't trust) will not be able to gain access to information that would help in such attacks.

5.  Encourage your loved one to obtain their free annual credit report and help them review the report for evidence of identity theft.  I have written about how to get a free credit report (as well as how to respond to identity theft) here.

Thank you for taking the time to read this post.  I hope this information will help you as you try to protect your loved ones from the growing threat of elder financial exploitation. 

June 2, 2015

Potential Opportunities for Cost Sharing by Community Banks

At the North Carolina Bankers Association's Annual Convention today, Kris Kiefer, Deputy Comptroller at the OCC, and John Henrie, Regional Director of the FDIC, referenced a recent OCC paper regarding bank pooling of resources to obtain better services at lower cost. 

The paper, titled “An Opportunity for Community Banks: Working Together Collaboratively,” describes ways in which community banks might collaborate to lower costs and obtain specialized expertise. The paper outlines how community banks can structure cooperative arrangements, and emphasizes the need for effective oversight of those arrangements.

Community banks can collaborate in several ways, according to the OCC, such as:
  • exchanging information and ideas;
  • jointly purchasing materials or services;
  • sharing back-office or other services;
  • sharing a specialized staff member or team;
  • jointly owning a service organization;
  • participating in disaster mitigation agreements; and
  • jointly providing/developing products and services.
In some cases, community banks will want to form an entity (such as an LLC) to engage in activies. The regulatory issues to be addressed in those situations will be whether the activities are permissible and whether the investment by the banks in the entity are permitted.  The OCC has its own rules and guidance for permissible activies, and has published guidance based on prior decisions.  State chartered banks may generally follow those rules and guidance, despite being regulated by other agencies.  Often the entities will be considered "noncontrolling investments" or "bank service companies," which are different from a regulatory standpoint than the "bank operating subsidiaries" that many banks may be more familiar with.  Often an application will be required.

As with loan participations and syndications, the guidance makes clear that bank collaborations should be documented in a binding agreement that allocates the resposibilities and risks associated with the activity. 

Ideally, collaboration in areas in which it makes sense would enable community banks to achieve better outcomes at lower costs, increase their range of services, and enhance the expertise available to them.


June 1, 2015

TILA-RESPA Integration Will Be Here In Two Months. Are You Ready?

As all mortgage lenders know by now, beginning August 1, the new TILA-RESPA integrated disclosure requirements will become effective for any lender that makes more than five mortgage loans in a calendar year.  With two months to go, now is a good time to make sure your institution is ready.
If you have been paying attention, you know that the rule covers much more than just two new disclosure forms.  This is a complex, substantive change in the law.   In fact, the CFPB has published hundreds and hundreds of pages of rules and guidance.  I am not going to attempt to describe the new rules in detail here. (The final rule alone is 1,888 pages.) Instead, I just want to point out a few things and recommend a checklist for assessing your progress as you prepare for the August 1 deadline.
First, as I am sure you know, the new Loan Estimate form combines two existing forms, the Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure into one form.  The Loan Estimate must be provided to an applicant (placed in the mail) no later than the third business day after he or she submits a loan application.  
When Is An Application "Complete"?

One thing I want to be sure you understand is that unlike under the current rules, after August 1, a loan application that you might otherwise consider "incomplete" may trigger the Loan Estimate obligation.

The rule defines a loan application as having six of the seven elements that RESPA required: consumer’s name, consumer’s income, consumer’s social security number to obtain a credit report, property address, estimate of the value of the property and mortgage loan amount sought. The definition in the rule does not include RESPA’s seventh, catch-all term “any other information deemed necessary by the loan originator.” So, while you used to be able to deem a loan application incomplete for purposes of RESPA if it lacked some additional information that you deemed necessary, you no longer have that discretion. 
Also be careful about this: An application must be in writing, but any written record of an oral conversation is sufficient to trigger the requirement.

Even if a complete application has not been received, it will be permissible to provide an "early written estimate."  You should, however, include a clear disclaimer on any such estimate.
Revised Disclosures

Sometimes, disclosures need to be revised.  If a revised disclosure is necessary, it must be received by the customer at least four business days prior to closing, which means that it if is mailed, it must be mailed seven business days before closing.
Did You Endorse That Service Provider?

Separate from the Loan Estimate is a required list of settlement services for which the customer can shop. You must identify at least one provider for each service. Do you have a policy for how you will identify these providers for each market area? How many will you list for each category? Are you going to vet them? If not, do you have a disclaimer ready? (Hint: the model form does not have one.)
Collecting Fees

There are also new restrictions on fees that can be collected prior to giving a Loan Estimate and prior to a consumer’s consent to proceed. For example, no fee other than a credit report fee can be collected prior to the Loan Estimate and consumer consent to proceed. 
Pre-Closing Disclosure
As most of you know, the other major document required by the new rules is the Closing Disclosure, which as you know, combines two existing forms, the HUD-1 Settlement Statement and final Truth-in-Lending disclosures, into one form, and must be provided to consumers at least three business days before closing the loan. 
Mistakes are going to happen, but if they are caught in time, they can be corrected.  The rule says you can retroactively cure violations by refunding the excess portion of a cost or fee to the consumer, and delivering corrected disclosures to reflect the refund, within 60 days after closing.  You’ll need to decide if you want to set up a post-consummation review process to ensure that you provide corrected Closing Disclosures to catch these and correct them.  
Additional Disclosures
Beyond the two primary disclosures, there are others to have ready by August 1:
  • the post-consummation escrow cancellation notice (aka "Escrow Closing Notice") 
  • the post-consummation mortgage servicing transfer
  • partial payment notice

Record Retention 
You probably need to update record retention policies as well.  
  • Keep a copy of the Closing Disclosure (and all documents related to the Closing Disclosure) for five years after consummation, even if you sell the loan and the servicing rights.
  • Keep the Post-Consummation Escrow Cancellation Notice (Escrow Closing Notice) and the Post-Consummation Partial Payment Policy disclosure for two years. 
  • For all other evidence of compliance with the Integrated Disclosure provisions of Regulation Z (including the Loan Estimate) maintain records for three years after consummation of the loan.
  • Be sure you know when to use the new forms versus when to continue to use the existing disclosures (GFE, initial and final TIL, and the HUD-1)
    • Specifically, the TILA-RESPA rule does not apply to HELOCs, reverse mortgages or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land). (§ 1026.19(e) and (f))
    • However, certain types of loans that are currently subject to TILA but not RESPA are subject to the new integrated disclosure requirements, including: construction-only loans, vacant-land loans, and loans secured by 25 acres or more.
  And Many More...
Here are a few things you’ll want to think about, such as the following: 
  • Do you have policies and forms for pre-consummation and post-consummation disclosures? 
  • Also, think about how a consumer will give the required indication of intent to proceed with a loan? Are you going to have a form?
  • How are you going to track the new tolerances?
In addition, I suggest you take a look at the Readiness Questionnaire in Part 2 of the CFPB’s Mortgage Rules Readiness Guide. I encourage you to work through the TILA-RESPA Integration section that begins on page 15 and ends on page 21.  This is not mandatory (and it has not been added to the Exam Manual), but it may be useful to help determine how ready you are and what you need to do next. 

My hope is that each of you reading this article will be buoyed with confidence that you are well-prepared for the August 1 compliance deadline, but if you are not, I hope this article will help you identify the areas that need work in the final days before implementation.