Enterprise Bank & Trust
April
20, 2004
RE: EGRPRA Comments
I wish to thank the agencies for the opportunity to comment on the consumer
protection regulations as a result of the Economic Growth and Regulatory
Paperwork Reduction Act.
I would like
to comment on the Home Mortgage Disclosure Act (HMDA) and Flood
Regulations.
HMDA
To begin, I believe
the need to maintain a public file on site is outdated since this
information is now available online. I think a statement at each
location, including the main office, with an address of where a
request for a copy can be sent should suffice. This would also
eliminate the need to add the current year data on a quarterly
basis. Most financial institutions have never received a request
to view or obtain a copy of the public file.
Secondly, I would
like to comment on the reportability of loans. It has been stated
by the regulators that HMDA is one of the most violated regulations
during examinations. I therefore don’t feel that increasing
the number of reportable fields from 19 to 34 is the answer to
addressing this concern. I feel the types of loans reportable should
be readdressed and that some reportable loans should be eliminated,
which would hopefully increase the validity of the HMDA data overall.
To explain, the definition of “refinance” was recently
changed beginning with the 2004 reportable data. To be deemed a
refinance, the new loan, and the loan it is paying off, must be
dwelling secured. I feel the intent of the regulators was to make
this easier, however it has made HMDA more burdensome. Loans that
have multiple pieces of collateral, including a dwelling, when
the intent of the loan is unrelated to the dwelling, or any dwelling,
are now reportable. A bank that is primarily a commercial lender
who may have loans to small business owners who have additionally
secured the loan with their home, may now find they are reporting
numerous loans that were not deemed HMDA reportable in the past.
In addition, if the home was taken as abundance of caution, the
loan could be reportable under the Community Reinvestment Act (CRA),
but now that it is HMDA reportable, it cannot be reported on CRA.
The refinancing definition has completely eliminated the “purpose” or “intent” of
the loan. I feel this change will dramatically skew the HMDA data,
and possibly the CRA data.
I think the true
intent of HMDA is to protect consumers and therefore feel that
any loan for a business purpose should not be reportable. This
would eliminate the reporting of multifamily properties and homes
purchased for rental property. In addition, I believe the reporting
of withdrawn loans is unnecessary. The request was withdrawn by
the applicant prior to the financing being approved or denied by
the financial institution, therefore this data is serving no significance
in determining a discriminatory practice or whether we are meeting
the credit needs of our community.
Flood
There are many
areas of the regulation that need clarification or interpretation,
perhaps by an additional Q & A. Although I realize that it
is impossible to address every scenario, I do feel there are some
items that should be addressed.
To begin, in
the past year our bank was informed by external auditors that we
needed to compare the flood zone listed on the insurance to the
zone listed on the determination to ensure they are the same, if
they are not, we are to request that the flood zone on the insurance
be changed. This requirement is not part of the regulation, but
a new interpretation, although it is not written anywhere. Although
I understand the importance for the zones to match, it is out of
the financial institution’s control to force the agent to
make this change. There are some agents who, like financial institutions,
use a third party vendor to perform the flood determination. If
the agent has obtained such a determination and it indicates a
different zone than the bank’s determination, they are not
willing to change the zone on the insurance. Likewise, the bank
is not willing to accept their determination because they do not
have a relationship with this vendor and there is no recourse for
the bank should the determination be incorrect. Furthermore, there
is no life of loan tracking for the bank. As a result, the only
thing the bank can do is document the file accordingly.
When a loan is
new and secured by property in a flood zone, or property in a flood
zone is being added to an existing loan, there is no thirty-day
waiting period for flood insurance. However, we have found this
is not the case when the flood insurance is up for renewal and
the premium is paid thirty days late. In cases such as this, the
customer does have a thirty-day waiting period regardless of whether
they have a loan. This is outlined in the insurance agent’s
manual available on the FEMA website, and we have confirmed this
is true with our regional office of the NFIP. I believe the thirty-day
waiting period should be eliminated on delinquent policy renewals.
Often times, we have found that the policy was renewed prior to
the 45-day time limit outlined in our notice to the borrower that
was sent when their flood insurance expired. We have been informed
that the financial institution is not able to force place flood
insurance on borrowers that have an existing policy.
To expand on
that last statement regarding force placement of flood insurance,
we have also been informed that the financial institution is unable
to force place a small amount of insurance on a customer that is
not properly covered, again because we can not force place insurance
if the borrower has an existing policy. Instead, we must work with
the agent in trying to get the additional coverage placed, which
we have found cannot always be accomplished in a timely manner.
I think the rules under the Mortgage Portfolio Protection Program
should be amended to allow financial institutions to force place
the additional coverage.
Our regulator
has stated that if a current appraisal is not available then we
must rely on the most recent hazard insurance policy to determine
the value of the dwelling, again this is not written within the
regulation. I feel that the regulation should provide guidance
as to how old an appraisal can be before it is deemed outdated,
our financial institution has chosen to use one year. The regulation
requires that flood insurance be tracked to ensure that proper
coverage remains in place, therefore, we are reviewing the flood
insurance at least once a year at it’s renewal, and sometimes
more often if the loan is modified or renewed. However when using
the hazard insurance we have found that we are constantly recalculating
the required amount of flood insurance because the hazard insurance
increases every year due to an automatic inflationary increase,
as a result we are continuously requiring many of our customers
to increase their flood insurance every year. This is an unanticipated
expense to our borrower and can cause difficulty in our relationship,
not to mention the administrative cost the financial institution
endures. I feel the flood insurance should not have to be increased
from the original required amount needed, unless the loan amount
is increased.
It has further
been communicated by our regulator that on commercial property
we can combine the building coverage and the contents coverage
when determining the proper amount of flood insurance for a loan
that is secured by both, however if the loan is secured by the
building only, we can refer to the building coverage only. I feel
this is inconsistent, especially since the regulation provides
guidance on how to determine building coverage; the building should
be determined independently of the contents on a loan that contains
both as collateral.
The regulation
should provide guidance on how to address buildings that the borrower
intends to tear down. We have had situations in which the borrower
purchased property that was in a flood zone, within one week of
the loan the property was torn down. It is burdensome for the borrower
to go through the time and expense of obtaining flood insurance
for temporary situations such as this, however the regulation provides
no exceptions. The NFIP stated that if the building had no value
and this is reflected in the appraisal, then insurance would not
be required, however, our building had value. I recommend that
an exception be placed for buildings that will be torn down within
an allotted time frame from the closing date of the loan.
The regulation
needs to clarify what is acceptable coverage for condominiums when
a Residential Condominium Building Association Policy (RCBAP) is
in place. The FEMA handbook “Mandatory Purchase of Flood
Insurance Guidelines” outlines that a unit owner can acquire
supplemental building coverage that will apply only to that part
of a loss that exceeds eighty percent of replacement cost of the
RCBAP. Is this to be interpreted that it is acceptable that the
financial institution need only to confirm that the RCBAP is for
at least eighty percent replacement cost rather than one hundred
percent replacement cost?
My final comment
pertains to the Notice to the Borrower. I think the initial notification
prior to the loan closing is all that is reasonably needed and
that the notification at time of renewal, extension, or increase
in the loan amount should be eliminated. The borrower is informed
prior to closing that the property securing the loan is in a flood
zone and flood insurance must be obtained. Because the bank is
required to track this flood insurance, the borrower will be informed
via a separate notice should their insurance expire, that they
have forty-five days to obtain coverage or insurance will be forced
placed. As a commercial lender, most of our loans to a business
are crossed collateralized and are renewed on an annual basis,
but do not necessarily have the same maturity date; therefore,
the borrower is continuously being sent notices that the property
is in a flood zone. They have indicated this is somewhat of a nuisance,
and for our financial institution we have found it to be administratively
burdensome.
Thank you for your consideration.
Angela C. Cowell
AVP & Compliance Officer
Enterprise Bank & Trust
1281 N. Warson Road
St. Louis MO 63132
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