Farmers
State Bank
From:
Barb Huhndorf [mailto:Barb_Huhndorf@fsbmail.net]
Sent: Tuesday, April 06, 2004 10:41 AM
To: Comments
Subject: Burden Relief Comments
April 6, 2004
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429
RE: Request for Burden Reduction Recommendations
Dear Mr. Feldman,
I am a community banker working for a financial institution located
in Marion, Iowa. I appreciate the opportunity to comment on the above
referenced topic.
-Equal Credit Opportunity Act (Regulation B)
The recent revisions
to Reg. B, which prohibit lenders from assuming the submission
of
a joint financial statement constitutes a request
for joint credit, now requires whenever more than one individual
applies for credit those applicants sign a separate statement of
intent to apply for joint credit. This creates additional documentation
for creditors and is often very difficult to manage, particularly
in commercial and agricultural transactions involving two or more
borrowers who are operating the business jointly but have not legally
organized; for example, a husband and wife or father and son operating
a farm together. Many of these borrowers consider themselves a “partnership” although
they have not legally organized as such. Rather than evidencing intent
for each application, creditors should be given latitude to evidence
intent for a specific purpose, such as “2004 agricultural operating
expenses”. Many times business borrowers have unanticipated
credit needs and time is of the essence in filling those needs. If
a creditor determines the borrowers are creditworthy and the purpose
of the loan meets the intent statement previously affirmed, it seems
redundant and burdensome for both the applicant and creditor to obtain
an addition statement of intent for each application/loan for that
intended purpose.
The revisions
also do not clarify whether use of Fannie Mae’s
1003 is going to be acceptable in meeting the joint intent requirements.
The 1003 has been shown as a model application, however, some regulators
are stating that this application does not meet the requirements
of the revision and an additional page needs to be supplied. Some
clarification would be appreciated here to prevent banks from adding
unnecessary paperwork and to develop consistency among both the regulators
and financial institutions.
Also included
in the latest revisions to Reg. B is a requirement that the “Right to Receive a Copy of an Appraisal” disclosure
be retainable. It was very convenient to include this disclosure
with the application. It was discussed at that time and the consumer
was fully aware of the right. Now, we have had to add an extra page
to be given out to the consumer on top of the Good Faith, Early TIL,
etc, etc. My feeling is that it just gets buried or tossed with the
others.
I would also appreciate seeing some guidance in regards to Regulation
B and the Customer Identification Program (CIP) under the USA Patriot
Act. CIP says we need to take steps to clearly identify our customers
and that retaining the documents used is optional. We have chosen
to retain the documents used for identification to maintain a compliance
paper trail and assist with fraud and identity theft situations.
However, it has been recommended that we do not keep these copies
in the credit area to maintain compliance with Regulation B. If you
want us to know our customers and make sure we are dealing with who
the customer says they are, we would appreciate a clear opinion from
the agencies as to whether or not we are allowed to keep verification
in the credit files.
The collection
of government monitoring information continues to be problematic.
Lenders are
often confused as to when to collect
the data and when it is a violation to collect it. Some consistency
needs to be developed such as to collect GMI only for loans secured
with a dwelling or only for HMDA purpose loans. The agencies can
be assured that if a bank becomes guilty of discriminatory practices,
local consumer groups, state’s attorney generals and individual
consumers would be sure to alert them.
-Home Mortgage Disclosure Act (Regulation C)
The new definition
of “refinance” which removes the
purpose test will undoubtedly result in the added reporting of many
loans whose purpose has nothing to do with home purchase or home
improvement. Commercial and agricultural loans will now be reportable
at the time they are refinanced and retain a security interest in
a dwelling. Another example would be a farm loan, which is exempt
from HMDA reporting when the farm is being purchased, but becomes
reportable if the farmland (which contains a dwelling) is refinanced.
Obviously, business purpose loans are priced very differently from
residential real estate loans. In all likelihood, the data collected
on these loans will not be useful to the agencies during a fair lending
review, thus all of the bank’s efforts to collect and report
the data are wasted – a true burden! This is also burdensome
for regulators as they will have to sort through the data submitted
on the LAR and loan files to determine loan purpose and explain LAR
variances.
Also problematic are the inconsistencies in reporting loan amounts
for home equity lines of credit and home equity loans. Only the amount
of a home equity line used for home purchase or home improvement
is reportable on the LAR. Whereas, if the same amount of money was
financed on a closed-end home equity loan, the entire amount would
be reported on the LAR if any portion of the proceeds (even just
$1) was used for the purpose of home purchase or home improvement.
Please consider treating both lines of credit and closed-end loans
in the same manner and eliminate the confusion. Similar inconsistencies
are found in determining which loans are to be reported on the LAR.
For example, a loan classified as home purchase, but secured by collateral
other than the home is not reportable on the LAR, but a loan classified
as home improvement secured by collateral other than the home does
go on the LAR. Again, these inconsistencies only create confusion
and room for error.
-Truth-in-Lending Act (Regulation Z)
The purpose behind the Truth-in-Lending Act, to provide consumers
with disclosures regarding the total cost and terms of their credit
extension, is necessary. However, the current approach and disclosure
requirements often leave consumers more confused than informed.
Most consumers
want to know three things: 1) their interest rate; 2) their monthly
payment;
and 3) the total closing cost amount. The
most common comment that occurs after sending out an early TIL to
a consumer is “I thought you said my rate was X%; this disclosure
states the APR is Y%”. The annual percentage rate does not
fulfill its intended educational purpose – it confuses both
consumers and loan officers alike. Provide consumers with the information
they need to know to make an informed decision: the interest rate,
the loan term, the monthly payment and the total of all payments.
Once consumers have this information along with the closing cost
information provided on the GFE, let’s give them the benefit
of the doubt that they can figure out which loan product best fits
their needs.
Many of today’s consumers are quite savvy and seek out home
equity loans and lines of credit as a tax reduction tool. They fully
understand that a security interest is going to be taken in their
personal residence but prefer the product due to the tax deductibility
of the interest paid and preferable rates and terms often associated
with these loan types. These consumers consider the three-day rescission
period a nuisance, not a consumer protection device, and would much
rather waive their right rather than wait three days for their funds.
With appraisals to order, abstracts to update and the like, consumers
have plenty of time to review GFE’s and early TIL’s and
make the decision as to whether or not they want to place a security
interest in their residence without having to give them another three
days. Let’s give consumers the option of waving this right
to rescind for reasons other than only a personal bona fide emergency.
In regards to
HOEPA (Section 32) mortgage loans, the explanation for the calculation
for “total loan amount” is
unclear. Could there be a simpler definition or calculation for
this?
-Flood Disaster Protection Act
It is stated
that, when borrowers are using a property located in a special
flood hazard
area as security for a loan, lenders must
provide a notice to the borrowers within a “reasonable period
of time” prior to closing, advising borrowers that the property
is in a flood plain and that flood insurance is necessary prior to
closing under the NFIP. While “reasonable period of time” is
not expressly defined, the NFIP guidelines and agency examiners have
interpreted ten days as a “reasonable period” of time.
The timeframe is established to protect the consumer from losing
their loan commitment while they shop for adequate, affordable insurance
coverage. The “reasonable period” of time, however, was
not intended to delay closing if the borrowers have purchased adequate
coverage. Currently there are examiners in the field instructing
banks to wait a minimum of five to ten days from the time the notice
is provided to the borrower until closing, even if the borrower has
insurance coverage in place before the time period has expired. Clarification
is needed in this area for both creditors and examiners.
I would also
like to see you reconsider the requirement that insurance be placed
on a structure
in a flood zone even if the value of the
land alone used as collateral supports the extension of credit. It
should be the consumer’s choice in that situation to purchase
the insurance, just as in the case of them owning the collateral
outright. It is an additional burden to the financial institution
to require the borrower get the insurance, wait the ten days apparently
required after notifying them of the requirement and then close the
transaction. When in reality, if the property were to flood, the
collateral for our loan would not have been affected.
Again, I appreciate the opportunity to comment on your effort to
reduce regulatory burden. If you should have any questions in regards
to these comments, please feel free to contact me.
Sincerely,
Barbara J. Huhndorf
Asst. Vice Pres.
Credit Cards
Farmers State Bank
|
