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Farmers State Bank
April 8, 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,
Debby A. Roth
Vice President REO
Farmers State Bank
1240 8th Avenue
Marion, IA 52302
319-377-4891 X1080
debroth@fsbmail.net
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