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CSBS Examiner

A weekly report of events affecting the state banking system from the Conference of State Bank Supervisors


 In This Issue...

 Upcoming Events...

Legal Seminar, August 22-25, 2010, Sacramento, CA:  The Legal Seminar provides a forum for state banking department attorneys, assistant attorneys general assigned to the department, and other regulatory attorneys.

Deputy Seminar, August 25-27, 2010, Sacramento, CA:  The Deputy Seminar is an opportunity for key banking department officials to gather to learn about upcoming issues, share challenges, and learn potential solutions.

Bank Directors Seminar, September 26-28, 2010, Coeur d'Alene, ID:  The Graduate School of Banking at Colorado and the Conference of State Bank Supervisors join forces to deliver the best and most effective bank director training. This program gets to the point and delivers clear, effective tools to serve as a community bank director.

CSBS Banker Briefing:  Your State Banking Commissioner and the CSBS cordially invite you to a roundtable briefing and open discussion of financial regulatory reform and other timely issues.  Complimentary registration.

Problem Bank School, October 4-8, 2010, LaQuinta, CA:  This program takes an examiner from the "routine" to the complex and challenging world of problem banks. In this course, examiners will learn how to: identify red flags; risk focus the exam; identify and prevent fraud; draft enforcement actions; document to prevent or prepare for litigation.

Certified Operations Examiner School, October 4-8, 2010, LaQuinta, CA:  The full program is delivered over a 7 to 9 month period utilizing all of the EFSBS delivery channels. Over this period the examiner will receive all of the required training and experience necessary to be in charge of an operations examination.

"The Wedding March always reminds me of the music played when soldiers go into battle." - Heinrich Heine 

If you’re old enough, you might remember a song with opening lyrics “Love and marriage, love and marriage, go together like a horse and carriage…” You can chalk that song up to the days of the horse-and-buggy. Times have changed. According to a lead article in today’s, there are 96 million people in the U.S. over the age of 18 who are unmarried.  That’s 43 percent of the population. Sixty-one percent of the now-singles have never been married, and 46 percent are heads of households. CNN cited the U.S. Census Bureau as the source of its numbers, so we dug around on the Bureau’s website and found out that being single even has its own week – Unmarried and Single Americans Week, Sept. 19-25, 2010. We’re curious how it will be celebrated though. Isn’t there a marketing opportunity here somewhere?


Walsh Takes Reins at OCC

John G. Walsh became the acting comptroller of the currency on Aug. 15 as former Comptroller of the Currency John C. Dugan left the post as previously announced. Walsh comes to the position from serving as chief of staff and public affairs, a position he has held since Oct. 17, 2005. Walsh joined OCC from the Group of 30, a consultative group that focuses on international economic and monetary affairs. He joined the Group of 30 in 1992 and became executive director in 1995. Walsh also served on the Senate Banking Committee from 1986 to 1992 and as an international economist at the Treasury Department from 1984 to 1986. For more information, see announcement


Regulators Announces Release of Reverse Mortgage Guidance

The five federal financial regulatory agencies (FRB, OCC, FDIC, OTS and NCUA) this week released guidance for reverse mortgage products - Reverse Mortgage Products: Guidance for Managing Compliance and Reputational Risks. The agencies developed this guidance in conjunction with the State Liaison Committee of the Federal Financial Institutions Examination Council (FFIEC). The guidance addresses the general features of reverse mortgage products and covers the legal requirements and consumer protection concerns raised by the product. It focuses on the need for financial institutions to provide clear and balanced information to consumers about the risks and benefits of these products. The guidance calls for financial institutions to take steps to avoid any appearance of a conflict of interest and requires that consumers receive qualified independent counseling. The guidance covers policies, procedures, internal controls and third-party risk management. The guidance will be effective 60 days after publication in the Federal Register, which is expected shortly.

The guidance is the culmination of a coordinated state-federal project that began in March 2008. State regulators first identified reverse mortgages as posing a threat to consumers and moved to address these risks by developing and issuing a comprehensive set of examination guidelines in December 2008 which were designed specifically for reviewing the business practices and operations of lenders and brokers selling reverse mortgage loans to senior citizens.  The RMEGs, as they are known, were developed jointly by CSBS and the American Association of Residential Mortgage Regulators. For more information, see   FFIEC press release


Let the Rulemaking Begin

Bankers are bracing for a bevy of forthcoming rulemaking in the wake of the Dodd-Frank Act, which brings with it 200+ new rules and regulations. The Federal Reserve Board got off to a fast start this week, issuing five new rules and proposals on Monday, as follows:

MLO Compensation: The Federal Reserve announced final rules to protect mortgage borrowers from unfair, abusive or deceptive lending practices that may arise from loan originator compensation practices. Under the final rules, a loan originator may not receive compensation that is based on the interest rate or other loan terms. This will prevent loan originators from increasing their own compensation by raising the customers' loan costs, such as by increasing the interest rate or points. Loan originators may continue to receive compensation that is based on a percentage of the loan amount. The rules also prohibit a loan originator who receives compensation directly from the consumer from also receiving compensation from the lender or another party. The rules seek to ensure that consumers who agree to pay the originator directly do not also pay the originator indirectly through a higher interest rate, thereby paying more in total compensation than they realize. Loan originators also may not direct or steer a consumer to accept a mortgage that is not in the consumer's interest to increase the originator's compensation. The rules go into effect on April 1, 2011. For more information, see press release

Reverse Mortgage Changes:  The Fed proposed enhanced consumer protections and disclosures for reverse mortgage transactions. The proposal would make significant changes to Regulation Z and is a part of the Fed’s comprehensive review and update of its mortgage lending rules. The proposal would: improve the disclosures consumers receive for reverse mortgages and impose rules for reverse mortgage advertising to ensure advertisements contain accurate and balanced information; prohibit certain unfair practices in the sale of financial products with reverse mortgages; improve the disclosures that explain a consumer's right to rescind certain mortgage transactions and clarify the responsibilities of the creditor if a consumer exercises the right; and ensure that consumers receive new disclosures when the parties agree to modify the key terms of an existing closed-end mortgage loan. The Fed said the proposal would change the timing, content and format of reverse mortgage disclosures to make them more useful to consumers. The proposal has a 90-day comment period. Read more

Mortgage Disclosure:  The Fed issued interim rules that require lenders to disclose how borrowers' regular mortgage payments may change over time. The rules seek to ensure that mortgage borrowers are alerted to the risks of payment increases before they take out mortgages with variable rates or payments. Under the interim rules, lenders' cost disclosures must include a payment summary in the form of a table that covers: the initial interest rate together with the corresponding monthly payment; for adjustable-rate or step-rate loans, the maximum interest rate and payment that can occur during the first five years and a "worst case" example showing the maximum rate and payment possible over the life of the loan; and the fact that consumers might not be able to avoid increased payments by refinancing their loans. Lenders must comply with the interim rules for applications they receive on or after Jan. 30, 2011, but may adopt the rules earlier. The Fed will accept comments on the interim rules for a 60-day period. Read more

Mortgage Transfers: The Fed issued final rules to require organizations acquiring mortgages to inform consumers that their mortgage loans were sold or transferred. The new disclosure requirements were required by the Helping Families Save Their Homes Act. Under the law, a purchaser or assignee that acquires a mortgage loan must provide the required disclosures in writing within 30 days. The Fed published interim rules in November 2009, which were effective immediately. The Fed is allowing mortgage holders to continue to use the interim rules until the final rules go into effect on Jan. 1, 2011. The Fed also produced a new online publication for consumers -- What You Need to Know: New Rules for Mortgage Transfers. The publication explains what consumers may expect from their mortgage lenders regarding notification of mortgage transfers. For more information, see press release

Jumbo Mortgages: Also on Monday, the Fed proposed a rule to revise the escrow account requirements for higher-priced, first-lien "jumbo" mortgages. The rule is in response to a provision in the Dodd-Frank Act which require escrow accounts for property taxes and insurance if the annual percentage rate is 2.5 points or more above the prime offer rate. More information

Indiana DFI Receives 5th Certificate of Accreditation

CSBS announced this week that the Indiana Department of Financial Institutions has received its fifth certificate of accreditation, certifying that the department maintains the standards and practices in state banking supervision set by the organization's Accreditation Program. The department was created by the Indiana Financial Institutions Act of 1933. This act commissioned the department with the responsibility for supervising commercial banks, trust companies, private banks, savings banks, building and loan associations, credit unions and finance companies incorporated under the laws of the State of Indiana. Director David H. Mills heads the department, which is responsible for the supervision of entities which provide financial services and are licensed in the State of Indiana. First accredited in 1988, the department is structured in five divisions, each under the direct control of a deputy or supervisor. These are the Division of Banks and Trust Companies, Division of Consumer Credit, Division of Credit Unions, Division of Administration and the Legal Division. DFI supervises 87 commercial banks and 7 state-chartered savings associations with total assets of approximately $36 billion, as of March 31, 2010. In addition, the department’s regulatory responsibilities also include supervision of pawnbrokers, licensees under the Uniform Consumer Credit Code, licensees under the Indiana Small Loan Act, industrial loan and investment companies, money transmitters, check cashers, budget service companies and rental-purchase agreement companies.


One Bank Closed Last Week

The number of banks closed in 2010 climbed to 110 on Aug. 13, as the Illinois Department of Financial and Professional Regulation -- Division of Banking closed Palos Bank and Trust Company, Palos Heights. FDIC entered into an agreement with First Midwest Bank, Itasca, Ill., to assume all of the deposits for a premium of 1 percent and all of the assets. Palos Bank had approximately $493.4 million in assets and $467.8 million in deposits. FDIC and First Midwest Bank entered into a loss-share transaction on $343.8 million of Palos Bank's assets. More details


 Around the Agencies

Basel Committee: The Basel Committee on Bank Supervision issued a proposal to ensure that all regulatory capital instruments are able to absorb losses in the event that the issuing bank reaches the point of non-viability. It is based on a requirement that the contractual terms of capital instruments will allow them, at the option of the regulatory authority, to be written off or converted to common shares in the event that a bank is unable to support itself in the private market in the absence of such conversions. This proposal should help to reduce a source of moral hazard seen by some as an underlying cause of the current financial crisis and a potential cause of future crises, said Basel Committee Chairman Nout Wellink, who also is president of the Netherlands Bank. Comments on the proposal are due by Oct. 1. Read more

FTC: The Federal Trade Commission proposed revisions to the notices that consumer reporting agencies provide to consumers and to users and furnishers of credit report information under the Fair Credit Reporting Act. The law requires FTC to publish model notices for several forms that must be provided by consumer reporting agencies. The proposed changes are designed to reflect new rules that FTC and other financial regulators have adopted under the Fair and Accurate Credit Transactions Act of 2003, and to make the notices more useful and easier to understand. Some of the revisions would change the general Summary of Rights notice, which informs consumers about their legal rights, such as how to obtain a free credit report and dispute inaccurate information in credit reports.  FTC also is proposing improvements to the notices that credit reporting agencies provide to users and furnishers of credit report information. The deadline for comments is Sept. 21. Read more


Upcoming Events

August 22-25 - CSBS will hold its annual Legal Seminar, which provides a forum for state banking department attorneys, assistant attorneys general assigned to the department and other regulatory attorneys. – Sheraton Grand Sacramento, Sacramento, CA.

August 23 - The House Financial Services Oversight and Investigations Subcommittee will hold a field hearing titled "Too Big Has Failed: Learning from Midwest Banks and Credit Unions." - 9:30 a.m., Capitol Federal Conference Center in the Regnier Center, Johnson County Community College, Overland Park, KS.

August 24 - The House Financial Services Oversight and Investigations Subcommittee will hold a field hearing titled "Empowering Consumers: Can Financial Literacy Education Prevent another Financial Crisis?" - 10 a.m., Simons Media Room, The Robert J. Dole Institute of Politics, University of Kansas,  Lawrence, KS.

August 24-26 - The Nationwide Mortgage Licensing System (NMLS) will hold a regulator training session for states in the six-month process of transitioning their agency onto NMLS. The program will be held in Tallahassee, FL.

August 25-27 – CSBS will hold its annual Deputy Seminar immediately following the Legal Seminar. This is an opportunity for key banking department officials to gather to learn about upcoming issues, share challenges and discuss potential solutions. -- Sheraton Grand Sacramento, Sacramento, CA.


Closing Comment

"You can either, in my view, be a private company or a government agency -- one or the other, but not both…There is a verse in the book of Proverbs which addresses guarantees . . . and it goes like this: 'He who stands a surety for the debts of another shall smart for it.' " - Alex J. Pollock, speaking at Tuesday's conference on housing finance about the role of government-sponsored enterprises, as reported in Wednesday's Washington Post. Pollock is a fellow at the American Enterprise Institute. 

Mary White, Editor
Teresa Dean, Contributing Writer

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