STATE BANK OF LAWLER
From: Roger M. Hansen
[mailto:roger@lawlerbk.com]
Sent: Friday, April 02, 2004 5:34 PM
To: Comments
Subject: EGRPRA Comments
Roger M. Hansen
2320 South LInn Ave
New Hampton, IA 50659
April 2, 2004
Dear FDIC:
I am writing on behalf of State Bank of Lawler, a state-chartered
bank located in New Hampton, Iowa. Our customer base is primarily (give
brief description such as agricultural, suburban, moderate income, upper
income, etc.) with lending activities (focused in the area of *****)
(are broad based and include commercial, consumer and real estate
lending.) Our current asset size is $151 Million with a total consumer
and residential real estate loan portfolio of $17 million. 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regulations to identify outdated, unnecessary, or unduly burdensome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.
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 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 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.
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.
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.
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,
Roger M. Hansen
State Bank of Lawler
New Hampton, IA
