ABA Banking Journal - May 2009 - (Page 33)

consumers through advertising and active communications, while others may be waiting for customers to contact them. Banks should know the demographic implications of each approach. Banks should decide how much discretion to allow loan officers in making changes to loans. If clear guidelines are not provided by management, the treatment among borrowers could vary significantly, and the bank could be subject to allegations of disparate treatment on a prohibited basis. One further consideration is that a refinancing may be subject to rescission, while a modification is not. A new loan with the same lender is generally not rescindable except for an amount that exceeds the previous obligation. However, if you are refinancing a loan originally made by another lender, be sure to follow procedures for rescission. 2.Adding 4. cosigners, guarantors, and other signers Banks may be tempted to shore up existing loans with additional signatures. If an additional signer for the loan is deemed necessary, the bank may not require that the borrower’s spouse be the signer. However, the bank has the ability to evaluate the offered signer under its objective standards and determine if the signer is qualified. State laws should also be consulted, because state laws vary on spousal property rights and signatures needed for access to collateral. The Notice to Cosigners under Regulation AA may be required if a cosigner is added to a loan–other than a mortgage loan—that is modified. The notice informs the consumer who is assuming liability for an obligation without receiving goods, services, or money of the implications of that obligation, and must be provided to the cosigner in order for the obligation to be valid. Failure to provide the Notice to Cosigners is considered an unfair or deceptive practice. Flood insurance obligations rise again If a loan is made, increased, renewed, or extended (“MIRE”), a new flood determination is required under flood insurance regulations. Any action that the lender takes to rewrite the loan triggers flood hazard insurance requirements. When a bank refinances a loan that it made originally, it may use a prior flood determination as long as: the prior determination is not more than seven years old; was properly documented on the Standard Flood Hazard Determination Form; and there have not been any new or revised flood maps issued during that period. In the case of a loan modification that does not involve an increase in loan amount, or a renewal or extension of the maturity, a new flood determination is not required. However, a bank should always ensure that any required flood insurance continues to be in place and in an amount sufficient to meet the regulatory requirements. The lender should also confirm whether the life-of-loan coverage applies to the renewal without a new flood hazard determination. Unfair and deceptive acts or practices Unfair and deceptive practices of unscrupulous lenders contributed to today’s serious mortgage problems. As a result, much more attention is being given to the quality and accuracy of information that lenders provide to consumers—from advertisements through disclosures. Fair advertising, while a concern in any promotional efforts, is particularly important for mortgage rewrites and modifications. Be sure that your marketing pieces include all required information, are clear and easily understood, and do not omit information that would be important for consumers to fully understand the nature and type of product. The concepts of unfairness and deception can be used in a positive campaign. Consider a positive theme, such as “We tell you everything you need to know.” 3. “Modification” vs. “refinancing” under Regulation Z and RESPA Lenders may sometimes use the two terms interchangeably, but there is an important distinction between modification and refinancing for purposes of compliance loan disclosures. If an existing obligation is satisfied, and then replaced by a new obligation undertaken by the same consumer, the new obligation is a “refinancing” that is subject to new Regulation Z and RESPA disclosures for the new obligation. On the other hand, modifying the terms of an existing consumer obligation does not trigger all new disclosures. Now let’s complicate things. There are certain new loan situations that would not be considered refinancings, even if there is a satisfaction of an existing loan with a new obligation. Example: If the new loan involves a reduced APR and a corresponding reduction in the payment schedule, the new loan is not a refinancing under Reg Z. There is also an exemption for situations involving the consumer’s default or delinquency. When in doubt, treat the loan as a refinancing and disclose. Any finance charges that are imposed at this stage need to be identified. Loan modification fees are generally not finance charges, but fees for refinancing may be, depending on circumstances. If a loan is being refinanced and new loan disclosures apply, the timing of providing disclosures to consumers must be carefully observed. Many disclosures must be provided to consumers early in the loan process and—sometimes before a loan decision is made. Subscribe at www.ababj.com 5. 6. Suspicious activity and fraud monitoring Mortgage fraud is at an all-time high. Some borrowers took out mortgages intending to commit fraud, while others may have dodged responsibilities that they found they couldn’t handle. Banks may find themselves holding such mortgages with no remedy other than filing Suspicious Activity Reports. Banks must be alert to the fraud opportunities that the economic problems present and report suspicious activity to the regulators and appropriate law enforcement agencies. FinCEN has published guidance to help you identify and report types of mortgage fraud. (Continued on page 34) ABA BANKING JOURNAL/MAY 2009 33 http://www.ababj.com

Table of Contents for the Digital Edition of ABA Banking Journal - May 2009

ABA Banking Journal - May 2009
Contents
Editor's Column
Special Briefing on the Mortgage Cleanup
Tackling the "End of the Beginning" of Mortgage Crisis
ABA Resources
ABA Chairman's Position
Banks Wade into Social Media
Pass the Aspirin
Part 1: Banks and Thrifts Over $3 Billion in Assets
Top 25 Ranked, With Key Performance Data
Summary Data for Top 25 and All Institutions Over $3 Billion
Mobile Banking: You're Either In, or You're Out
10 Steps to Defusing Loan-Mod Bombs
Mailbox
Banker's Mart
To Advertise/Index of Advertisers
The Economy

ABA Banking Journal - May 2009

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