I recently attended a very helpful presentation by the FDIC on compliance trends in New England over the past year. I thought my friends here at the SNECG who haven’t had the time to go to such an event recently would be interested to know what the FDIC’s current thinking is. So here you go!
Good job banks!
According to this FDIC representative, banks are doing a “very nice job with compliance” right now, with over 90% enjoying either a 1 or 2 rating. (By the way, a 1 is great, but do you feel as though a getting a 1 rating is simply too expensive? Or puts too much pressure on you next time?)
2014 Mortgage Rules
Apparently, the FDIC understands that banks need time to adjust to these rules. Indeed, FDIC examiners are still learning the rules themselves. Therefore, expect the FDIC to “take it easy” the first few rounds through these … the FDIC is “looking at this more from a CMS perspective.”
Note: What does that mean? It means they’ll be asking for policies, procedures, and training on the new mortgage rules, rather than hunting for individual violations.
But Note: My personal opinion is that this isn’t as exciting as it sounds. I believe the greatest risk with many of the new mortgage rules is with civil liability, rather than regulatory enforcement. Sure- if you make a bunch of QM mistakes this year and next, the FDIC may not pounce on you. But what’s going to happen in 4 years when there are 3 of those loans in delinquency? Will you be able to foreclose? What will those assets be worth?
Top 3 Violations in Massachusetts in 2013
The most recent compliance violations last year are the same old ones as usual:
- HMDA - Watch out specifically for Section 1003.4(a) (this is the most commonly cited Section of HMDA in Mass. from the past year), i.e. incorrect action taken.
- CRA - The most commonly cited Section here is 345.2(a) (but this only applies to large banks … not too many members of the SNECG, I imagine).
- Flood Insurance - Here we should look out for Sections 339.7 and 339.3(a). These deal with failure of a bank to force-place soon enough and failure to get “adequate” insurance. Maybe our friend Jim Kelly could tell us more about this, but as Private Flood Insurance becomes more popular, some compliance officers are scratching their heads wondering when it qualifies as “adequate.” The FDIC seemed to calm fears here, and said they’re not reviewing adequacy for HOW MUCH, but rather simply WHETHER it’s there. The FDIC also suggested asking for a statement from the insurance provider ensuring the 6 factors are covered. Easy!
As many seminars as we attend on this, however often it’s recommended that we develop policies to address this, the risk of the FDIC enforcing the UDAP rules remains low. In fact, no Massachusetts institution was cited by the FDIC for UDAP violations in 2013.
Wondering what your risk level is for UDAP? Here are 3 things to watch out for:
- Overdraft Fees
- Add-On Products
- “Practice v. Disclosure” Issues. (Here, you have to do what you say you will do. If a disclosure says you will collect a late fee on the 5th day, make sure you’re not collecting on the 2nd day).
In addition, almost every UDAP violation is caused by a relationship with a 3rd party. So, UDAP would become more important to your company the more you use 3rd parties to do major services, like provide products and services to borrowers.
That’s all for today! Thanks for your comments and recommendations … hopefully this works for you, but it certainly won’t work without you. Thank you all, and look forward to seeing you this Thursday!
Ben Giumarra is a regulatory consultant for Spillane Consulting Associates, Inc. out of Braintree, MA. SCA has provided Consulting, Professional Staffing, and Quality Control services to New England Financial Institutions since 1991, with a primary focus in mortgage lending.