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MIDWEST HERITAGE BANK
From: Karen Furleigh
[mailto:kfurleigh@mhbank.com]
Sent: Friday, April 02, 2004 11:17 AM
To: Comments
Subject: EGRPRA Comments
Karen Furleigh
1980 NW 94th St., Suite A
Des Moines, Iowa 50325
April 2, 2004
Dear FDIC:
I am writing on behalf of Midwest Heritage Bank a federal savings
bank regulated by the OTS located in Des Moines, Iowa. Our customer base
is primarily a mix of small business and consumer in low to moderte
areas with lending activities focused in the area of limited commercial
and ag, consumer and real estate lending. Our current asset size is
$116,000,000 with a total consumer and residential real estate loan
portfolio of $84,000,000. We appreciate the efforts of the Office of
Comptroller of the Currency, Federal Reserve Board, Federal Deposit
Insurance Corporation and Office of Thrift Supervision, “the Agencies”,
in reviewing the current consumer regulations to identify outdated,
unnecessary, or unduly burdensome regulatory requirements pursuant to
the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).
We also appreciate the Agencies’ recognition and understanding of the
challenges faced by community banks in meeting the requirements of the
ever-growing number of compliance regulations.
I would like to offer the following comments regarding the current
regulatory rules and environment:
Equal Credit Opportunity Act (Reg. B)
The spirit and intent of Reg. B is to prohibit discrimination based
upon one of the nine prohibited basis. The current requirements under
Reg. B are far broader and create numerous challenges for creditors.
The spirit and intent of Reg. B is to prohibit discrimination based
upon one of the nine prohibited basis. The current requirements under
Reg. B are far broader and create numerous challenges for creditors.
The recent revisions to Reg. B which prohibit lenders from assuming
the submission of a joint financial statement constitutes a request for
joint credit and now requires whenever more than one individual applies
for credit, those applicants sign a separate statement of intent to
apply for joint credit creates additional documentation for creditors
and is often very difficult to manage, particularly in commercial and
agricultural transactions involving two or more borrower 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 are not legally organized as such. Rather than evidencing intent
for each application, creditors should be given the 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 additional
statement of intent for each application/loan for that intended purpose.
The revisions to the model credit applications in order to comply
with the requirements to evidence intent to apply for joint credit are
appreciated.. In early September the FRB published revisions in the
Federal Register relating to Fannie Mae’s Uniform Residential Loan
Application. At that time we assumed that the changes made to the URLA
were done to facilitate by the Reg B revisions as well as CIP mandates
to collect date of birth and Reg. C changes for collection of government
monitoring information. Now the indication we are receiving from federal
regulators is that the revised URLA does not meet the requirements for
evidencing joint applications for credit and that creditors must have
residential real estate applicants sign a separate statement. This seems
redundant given the number of disclosures and authorizations a home loan
applicant all ready signs at the time of application.
The collection of 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. With the growing use of home equity loans and
lines of credit in the market place, does it not make more sense to
either collect monitoring data for all loans secured by a borrower’s
principal dwelling or eliminate collection all together for non-HMDA and
small bank CRA reporting entities? It certainly would lead to less Reg.
B violations during exam procedures. The Agencies can be assured if a
bank were guilty of discriminatory practices, local consumer groups,
state’s attorney generals and individual consumers would alert them.
Home Mortgage Disclosure Act (Reg. 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 that 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, 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 banks 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 is the inconsistencies in reporting loan amounts for
home equity lines of credit and home equity loans. Only that amount of a
home equity line of credit 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.
Rate spread is now required to be reported on the HDMA LAR if the APR
on the loan is above a certain threshold over a comparable Treasury
yield. The rate spread calculation determination date for HMDA purposes
is not consistent with the way the rate spread index is determined for
HOEPA purposes. This too leads to confusion and errors. Rate spread
indexes and calculations methods should be consistent in order to
promote greater accuracy.
The scope of required reporters needs to be revisited. Ten counties
in Iowa were added to MSAs as a result of the 2000 census. Nine of those
counties have a county-wide population of 25,500 or less with the
smallest, newest county having a population of just 11,353 persons
according to census data. What value is gained by gathering data from
the banks located within these counties, the majority of which have
total assets of less than $100 million? The benefit gained cannot
warrant the burden beared by these new reporters.
Truth-in-Lending Act (Reg. 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/question that occurs after sending out an early TIL
to a consumer is “I thought your said my interest 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 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 financial needs.
The recent revisions to Section 32 of Reg. Z have been more
problematic than helpful to consumers and have also caused confusion
among creditors. If a loan falls into coverage of a “high cost mortgage
loan” as defined by this section, the consumer must be provided a 3-day
notice prior to consummation. Consummation, however is not defined in
Reg. Z and often is not defined by state law either. Is consummation
considered the point at which the borrower signs the note? Or in a
rescindable transaction, is it the point at which the transaction is
funded? Can a borrower be considered legally obligated on a transaction
when they do not have receipt of the funds? Consummation needs be
clarified under this section
to ensure compliance.
Section 32 mortgages are generally rescindable transactions. If the
Section 32 disclosure is to be provided three days prior to signing the
note, then the borrower at best has a time period of seven days from
application to closing. The extended waiting period often time has
adverse effects on the borrower for the time period they cannot access
their loan proceeds such as overdraft fees, loss of purchase
opportunities, etc. If the Section 32 three-day time frame ran
concurrent with the rescission 3-day timeframe, the consumer is still
afforded a “cooling off” period and would still have the opportunity to
change their mind and rescind the transaction.
Currently the three-day time frames for the Section 32 is not counted
in the same manner as the rescission three-day time frame. The Section
32 three-day time frame expires on the third business day, whereas the
rescission time frame expires on midnight following the third business
day. The inconsistency is confusing for both consumers and creditors.
Currently the three-day time frames for the Section 32 is not counted
in the same manner as the rescission three-day time frame. The Section
32 three-day time frame expires on the third business day, whereas the
rescission time frame expires on midnight following the third business
day. The inconsistency is confusing for both consumers and creditors.
If a loan is determined to be a high-cost loan under Section 32 of
Reg. Z, the creditor has to provide the borrower with an additional
disclosure which warns the borrower they could lose their home if they
default on the loan and also provides additional information including
the loan amount, the APR, the monthly payment amount, the fact the rate
may go up following closing (if applicable), and whether a balloon
payment will occur. These disclosures are also provided in the final
Truth-in-Lending statement provided at closing, the note itself and many
times as mortgage clauses as well. Simply put, the disclosure is
duplicative.
Also, in regard to HOEPA loans, the explanation for the calculation
for “total loan amount” is not clear. Could there not be a simpler
definition or amount used for this calculation?
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 that is being taken in their personal
residences but prefer the product due to the tax deductibility of the
interest paid and preferable rates and terms often associated with it.
These consumers consider the three-day waiting period a nuisance, not a
consumer protection device, and would much prefer to waive their right
rather than wait three days for their funds. Given that the rescission
rules were intended to protect consumers from unscrupulous financers,
the greater majority of which are unregulated, would it not make sense
to allow consumers borrowing from a federally-regulated financial
institution have the ability to waive their right to rescission in
instances other than a personal bona fide emergency?
National Flood Insurance RulesUnder the Flood insurance rules, when
borrowers are using a property located in a special flood hazard area as
security on a loan, lenders must provide notice to the borrowers
within a “reasonable period of time” prior to closing, advising the
borrowers that the property is in a flood plain and flood insurance
under the NFIP is required prior to closing the loan. 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 customer from losing their
loan commitment while they shop for adequate, affordable insurance
coverage. The “reasonable period” of time was not however, 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 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.
Once again, thank you for the opportunity to comment on these very
important issues. I appreciate your serious consideration of my concerns
over the above-mentioned regulatory burdens currently facing America's
community banks.
Sincerely,
Karen Furleigh
Midwest Heritage Bank
Dex Moines, IA
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