Tag: lending

HMDA Data for 2018 Released

Written by admin on November 27, 2019. Posted in Uncategorized.

By: William J. Showalter, CRCM, CRP, Senior Consultant

The Federal Financial Institutions Examination Council (FFIEC) recently announced the availability of data for the year 2018 regarding mortgage lending transactions at 5,683 financial institutions covered by the Home Mortgage Disclosure Act (HMDA) in metropolitan statistical areas (MSA) throughout the nation.

The newly available HMDA data include disclosure statements for each covered financial institution, aggregate data for each MSA, nationwide summary statistics regarding lending patterns, and the Loan Application Register (LAR) submitted by each institution to its supervisory agency by March 1, 2019, modified for borrower privacy. This release includes loan-level HMDA data covering 2018 lending activity that were submitted on or before August 7, 2019.

The FFIEC prepares and distributes these data products on behalf of its member agencies – the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board (FRB), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency (OCC), and Consumer Financial Protection Bureau (CFPB) – and the Department of Housing and Urban Development (HUD).

The HMDA loan-level data available to the public will be updated, on an ongoing basis, to reflect late submissions and resubmissions. Accordingly, loan-level data downloaded from https://ffiec.cfpb.gov/ at a later date will include any such updated data. An August 7, 2019 static dataset used to develop the observations in this statement about the 2018 HMDA data is available at https://ffiec.cfpb.gov/data-publication/. In addition, beginning in late March 2019, Loan/Application Registers (LARs) for each HMDA filer of 2018 data, modified to protect borrower privacy, became available at https://ffiec.cfpb.gov/data-publication/.

Data Overview
The 2018 HMDA data use the census tract delineations, population, and housing characteristic data from the 2011-2015 American Community Surveys. In addition, the data reflect metropolitan statistical area (MSA) definitions released by the Office of Management and Budget in 2017 that became effective for HMDA purposes in 2018.

For 2018, the number of reporting institutions declined by about 2.9 percent from the previous year to 5,683, continuing a downward trend since 2006, when HMDA coverage included just over 8,900 lenders. The decline reflects mergers, acquisitions, and the failure of some institutions.

The 2018 data include information on 12.9 million home loan applications. Among them, 10.3 million were closed-end, 2.3 million were open-end, and, for another 378,000 records, pursuant to partial exemptions in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), financial institutions did not indicate whether the records were closed-end or open-end.

A total of 7.7 million applications resulted in loan originations. Among them, 6.3 million were closed-end mortgage originations, 1.1 million were open-end line of credit originations, and, pursuant to the EGRRCPA’s partial exemptions, 283,000 were originations for which financial institutions did not indicate whether they were closed-end or open-end. The 2018 data include 2.0 million purchased loans, for a total of 15.1 million records. The data also include information on approximately 177,000 requests for preapprovals for home purchase loans.

The total number of originated loans decreased by about 924,000 between 2017 and 2018, or 12.6 percent. Refinance originations decreased by 23.1 percent from 2.5 million, and home purchase lending increased by 0.3 percent from 4.3 million.

A total of 2,251 reporters made use of the EGRRCPA’s partial exemptions for at least one of the 26 data points eligible for the exemptions. In all, they account for about 425,000 records and 298,000 originations.

Demographic Data
From 2017 to 2018, the share of home purchase loans for first lien, one- to four-family, site-built, owner-occupied properties (one- to four-family, owner-occupied properties) made to low- and moderate-income borrowers (those with income of less than 80 percent of area median income) rose slightly from 26.3 percent to 28.1 percent, and the share of refinance loans to low- and moderate-income borrowers for one- to four-family, owner-occupied properties increased from 22.9 percent to 30.0 percent.

In terms of borrower race and ethnicity, the share of home purchase loans for one- to four-family, owner-occupied properties made to Black borrowers rose from 6.4 percent in 2017 to 6.7 percent in 2018, the share made to Hispanic-White borrowers increased slightly from 8.8 percent to 8.9 percent, and those made to Asian borrowers rose from 5.8 percent to 5.9 percent. From 2017 to 2018, the share of refinance loans for one- to four-family, owner-occupied properties made to Black borrowers increased from 5.9 percent to 6.2 percent, the share made to Hispanic-White borrowers remained unchanged at 6.8 percent, and the share made to Asian borrowers fell from 4.0 percent to 3.7 percent.

In 2018, Black and Hispanic-White applicants experienced higher denial rates for one- to four-family, owner-occupied conventional home purchase loans than non-Hispanic-White applicants. The denial rate for Asian applicants is more comparable to the denial rate for non-Hispanic-White applicants. These relationships are similar to those found in earlier years and, due to the limitations of the HMDA data, cannot take into account all legitimate credit risk considerations for loan approval and loan pricing.

Government-backed Lending
The Federal Housing Administration (FHA)-insured share of first-lien home purchase loans for one- to four-family, owner-occupied properties declined from 22.0 percent in 2017 to 19.3 percent in 2018. The Department of Veterans Affairs (VA)-guaranteed share of such loans remained at approximately 10 percent in 2018. The overall government-backed share of such purchase loans, including FHA, VA, Rural Housing Service, and Farm Service Agency loans, was 32.0 percent in 2018, down slightly from 35.4 percent in 2017.

The FHA-insured share of refinance mortgages for one- to four-family, owner-occupied properties decreased slightly to 12.8 percent in 2018 from 13.0 percent in 2017, while the VA-guaranteed share of such refinance loans decreased from 11.3 percent in 2017 to 10.2 percent in 2018.

New Data
The 2018 HMDA data contains a variety of information reported for the first time. For example, the data indicated that approximately 424,000 applications were for commercial purpose loans and approximately 57,000 applications were for reverse mortgages.

In addition, among the 12.9 million applications reported, 1.3 million included at least one disaggregate racial or ethnic category. For approximately 6.3 percent of applications, race and ethnicity of the applicant were collected on the basis of visual observation or surname. The percentage was slightly higher for sex at 6.5 percent.

For the newly-reported age data point, the two most commonly reported age groups for applicants were 35-44 and 45-54, with 22.7 and 22.4 percent of total applications, respectively. Just under 3.0 percent of applicants were under 25 and just under 4.0 percent of applicants were over 74.

Credit score information was reported for 73.1 percent of all applications. Equifax Beacon 5.0, Experian Fair Isaac, and FICO Risk Score Classic 04 were the three most commonly reported credit scoring models at 22.8 percent, 18.8 percent, and 18.2 percent of total applications, respectively. For originated loans, the median primary applicant scores for these three models were between 738 and 746. This compares to medians ranging from 682 to 686 for denied applications.

Debt-to-income ratio (DTI) was reported for 75.3 percent of total applications. Approximately 45.1 percent of applications had DTIs between 36.0 percent and 50 percent, with 7.0 percent of applications with less than 20 percent, and 7.1 percent with greater than 60 percent.

Loan Pricing Data
The 2018 HMDA also contains additional pricing information. For example, the median total loan costs for originated closed-end loans was $3,949. For about 42.5 percent of originated closed-end loans, borrowers paid no discount points and received no lender credits. The median interest rate for these originated loans was 4.8 percent. The median interest rate for originated open-end lines of credit excluding reverse mortgages was 5.0 percent.

The HMDA data also identify loans that are covered by the Home Ownership and Equity Protection Act (HOEPA). Under HOEPA, certain types of mortgage loans that have interest rates or total points and fees above specified levels are subject to certain requirements, such as additional disclosures to consumers, and also are subject to various restrictions on loan terms. For 2018, 6,681 loan originations covered by HOEPA were reported: 3,654 home purchase loans for one- to four-family properties; 448 home improvement loans for one- to four-family properties; and 2,579 refinance loans for one- to four-family properties.

Using the Data
The FFIEC states that HMDA data can facilitate the fair lending examination and enforcement process and promote market transparency. When federal banking agency examiners evaluate an institution’s fair lending risk, they analyze HMDA data in conjunction with other information and risk factors, in accordance with the Interagency Fair Lending Examination Procedures. Risk factors for pricing discrimination include, but are not limited to, the relationship between loan pricing and compensation of loan officers or mortgage brokers, the presence of broad pricing discretion, and consumer complaints.

The HMDA data alone, according to the FFIEC, cannot be used to determine whether a lender is complying with fair lending laws. While they now include many potential determinants of creditworthiness and loan pricing, such as the borrower’s credit history, debt-to-income ratio, and the loan-to-value ratio, the HMDA data may not account for all factors considered in underwriting.

Therefore, when the federal banking agencies conduct fair lending examinations, including ones involving loan pricing, they analyze additional information before reaching a determination regarding institutions’ compliance with fair lending laws.

Obtaining and Disclosing HMDA Data
In the past, HMDA-covered lenders had to make the HMDA disclosure statements available at their home and certain branch offices after receiving the statements. Now, lenders have only to post at their home offices, and other offices in MSAs a written notice that clearly informs those interested that the lender’s HMDA disclosure statement may be obtained on the Consumer Financial Protection Bureau’s website at www.consumerfinance.gov/hmda.

In addition, financial institution disclosure statements, MSA and nationwide aggregate reports for 2018 HMDA data, and tools to search and analyze the HMDA data are available at https://ffiec.cfpb.gov/data-publication/. More information about HMDA data reporting requirements is also available at https://ffiec.cfpb.gov/.

More information about HMDA data reporting requirements is available in the Frequently Asked Questions on the FFIEC website at www.ffiec.gov/hmda/faq.htm. Questions about a HMDA report for a specific lender should be directed to the lender’s supervisory agency.

Agencies Amend Real Estate Appraisal Regulations (September 27, 2019)

Written by admin on November 27, 2019. Posted in Lending & Loan Review.

By: Kyle Curtis, Director of Lending Services

The OCC, Board, and FDIC adopted a final rule to amend the regulations requiring appraisals of real estate for residential real estate transactions. The rule increases the threshold level at or below which appraisals are not required for residential real estate transactions from $250,000 to $400,000.

The rule defines a residential real estate transaction as a real estate-related financial transaction that is secured by a single 1-to-4 family residential property. For residential real estate transactions exempted from the appraisal requirement as a result of the revised threshold, regulated institutions must obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices.

The requirements for an evaluation are set forth in the 2010 Appraisal Guidelines, and are more extensive than what many smaller institutions do for evaluations. Readers may wish to review the requirements in that document and determine whether changes need to be made regarding your evaluation practices.

The rule also amends the agencies’ appraisal regulations to require regulated institutions to subject appraisals for federally related transactions to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice.

Effective Dates
The provisions of much of this final rule will be effective by the time you read this; however, the evaluation requirement for transactions exempted by the rural residential appraisal exemption and the requirement to review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice are effective on January 1, 2020.

Incorporation of the Rural Residential Appraisal Exemption
Congress amended Title XI to add a rural residential appraisal exemption. Under this exemption, a financial institution need not obtain a Title XI appraisal if the property is located in a rural area; the transaction value is less than $400,000; the financial institution retains the loan in portfolio, subject to exceptions; and not later than three days after the Closing Disclosure Form is given to the consumer, the financial institution or its agent has contacted not fewer than three state-certified or state-licensed appraisers, as applicable, and has documented that no such appraiser was available within five business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments.

Given the general rule increase to $400,000, essentially these requirements become moot.

Addition of the Appraisal Review Requirement
The Dodd-Frank Act amended Title XI to require that the agencies’ appraisal regulations include a requirement that Title XI appraisals be subject to appropriate review for compliance with USPAP.

Appraisal review is consistent with safe and sound banking practices, and should be employed as part of the credit approval process to ensure that appraisals comply with USPAP, the appraisal regulations, and a financial institution’s internal policies. Appraisal reviews help ensure that an appraisal contains sufficient information and analysis to support the decision to engage in the transaction. We recently had a discussion with a banker who did not review an appraisal. When they “got around to it” they discovered that the appraisal was “not even close,” and ordered a new appraisal. Based on the new appraisal, their LTV was over 130%.

Many financial institutions may already have review processes in place for these purposes. Evaluations need not comply with USPAP. While financial institutions should continue to conduct safety and soundness reviews of evaluations to ensure that an evaluation contains sufficient information and analysis to support the decision to engage in the transaction, the USPAP review requirement in Title XI does not apply to such a review.

The agencies decided to implement the requirement that financial institutions review appraisals for federally related transactions for compliance with USPAP. The agencies encourage regulated institutions to review their existing appraisal review policies and incorporate additional procedures for subjecting appraisals for federally related transactions to appropriate review for compliance with USPAP, as needed.

Conclusion
Readers who wish to read the entire 80-page document as prepared by the regulators can find it at:
https://www.fdic.gov/news/board/2019/2019-08-20-notice-sum-b-fr.pdf?source=govdelivery&utm_medium=email&utm_source=govdelivery

Young & Associates, Inc. can offer assistance with appraisal review, and any other compliance topics. Please feel free to contact me for information regarding these services at kcurtis@younginc.com or (330) 422.3445.

Capital Market Commentary

Written by admin on November 27, 2019. Posted in Uncategorized.

By: Stephen Clinton, President, Capital Market Securities

Mid-November Market Update
The U.S. is undergoing its longest economic expansion on record, breaking the record of 120 months of economic growth recorded from March 1991 to March 2001. Starting in June of 2009, this record-setting run saw GDP recording growth, albeit at a slower growth rate than previous expansions. The unemployment rate is at 3.6% and job growth continues with employers adding an average of 167,000 jobs this year. The current expansion also includes the longest stretch of job creation on record. The current U.S. economic growth is being driven by consumer spending as businesses have slowed business investment due to the uncertainties surrounding tariffs and global growth concerns.

In late October, the Fed lowered short-term interest rates for the third time this year. These moves follow last year’s four interest rate increases designed to guard against concerns about inflation and financial bubbles. The move to a more accommodative stance is designed to cushion the economy against a slowdown in business investment and in recognition of the uncertainties surrounding the U.S.-China trade conflict. U.S. inflation remains low and below the 2% Fed target which has reduced the Fed’s concern about rising prices and higher labor costs.

While the U.S. economy continues to chug along, things are not as optimistic for our trading partners. China’s economy is slowing dramatically; Japan’s economy grew at the slowest pace in a year in October; and Germany barely skirted a recession in the third quarter. These countries represent the world’s second, third, and fourth largest economies in the world. The global economic slowdown may make it difficult for the U.S. to continue to record GNP growth.
The home mortgage market has benefited from lower interest rates. The average 30-year home mortgage rate has fallen to near 4% from a recent high of 5.2% last November. Lenders made $700 billion in home loans in the July-to-September quarter, the most in 14 years. Mortgage origination activity is on pace to hit the highest level since 2006, the peak of the last housing boom. Refinancing activity is in part responsible for this renewed lending activity with refinancings jumping 75% from last year.

The U.S. government spent nearly $1 trillion more in fiscal year 2019 than it took in, which resulted in the highest deficit in seven years. The deficit has now increased for the last four years, the longest stretch of U.S. deficit growth since the early 1980’s, a period that included two recessions and an unemployment rate near 11%. The deficit has increased 68% since 2016 during a time when there is historically low unemployment and a growing economy. The loss of tax revenues from tax cuts, along with a bipartisan budget deal that increased government spending, are responsible for the growing deficits. Long-term costs associated with an aging population, including Social Security and Medicare, are expected to continue to put pressures on balancing the budget in the future.

U.S. corporate earnings remain strong. With most of the third quarter earnings announcements in the books, 75% have posted results above analysts’ expectations. While overall profits are lower than last year by approximately 2.7%, analysts are projecting improved earnings next year. One growing concern about nonfinancial companies being discussed is the high level of debt corporations hold. The level of corporate debt is at the highest level ever. Low interest rates have made the choice of debt preferable to equity for corporations. This has caused a leveraging of balance sheets.

Short-term interest rates have fallen 35% this year as of November 15. The 3-month T-Bill ended at 1.57%, principally due to the three Fed interest rate cuts. The 10-year T-Note was at 1.84% at November 15, down 85 basis points from the end of last year. After spending some time with a partially inverted yield curve, the shape of the yield curve has moved to its more traditional upward slope. The spread between the 3-month T-Bill and the 10-year T-Note was a narrow 27 basis points.

The stock market reached new highs as of November 15. The Dow Jones Industrial Index was up 20.05% for the year. The broader Nasdaq Index closed up 28.72%. The Nasdaq Bank index was up 16.73%, but the KBW Bank Index was up 26.44%. The stronger upward movement of the KBW Bank Index reflects the strong price increases recorded by larger banks this year.
The market has experienced a high level of market volatility this year. The ups and downs of the U.S.-China trade talks has caused wide market swings. Brexit has been a concern for the market. Protests in Hong Kong have captured attention. The U.S. impeachment inquiry presents market risk. We expect the market to continue to be volatile due to these concerns as well as other issues that may surface and capture the market’s attention.

Interesting Tid Bits

Tariffs

– The U.S. collected a record $7 billion in import tariffs in September. This was up 50% from last year as new duties kicked in on Chinese imports.

Taxation

– For the first time on record, the 400 wealthiest Americans last year paid a lower total tax rate (federal, state, and local taxes) than any other income group. The overall tax rate on the richest 400 households was 23% last year compared to 70% in 1950 and 47% in 1980.

Manufacturing

– Manufacturing makes up approximately 11% of the U.S. GNP, which is down from 16% twenty years ago. Factory workers now make up 8.5% of the overall workforce which is down from 13% two decades ago. There are now more local government employees than factory workers.

Merger and Acquisition Activity
Through November 15 this year, there were 229 bank and thrift announced merger transactions. This compares to 231 deals in the same period last year. The median price to tangible book for transactions involving bank sellers was 158%.

Capital Market Services
Capital Market Securities, Inc. has assisted clients in a variety of capital market transactions. For more information on our capital market services, please contact Stephen Clinton at 1.800.376.8662 or sclinton@younginc.com.

Corporate Change to Foster Growth

Written by admin on November 27, 2019. Posted in Uncategorized.

By: Jerry Sutherin, President and CEO

I am pleased to announce some changes to the structure of Young & Associates, Inc. that took place in September. The following individuals have received promotions to help our organization continue to grow and guide our organization into 2020 and beyond.

Each of these individuals possesses a vast amount of experience, knowledge, and contacts in the financial services industry, and have, time after time, been called upon to utilize this experience and knowledge for the betterment of our clients and, in turn, for the betterment of Young & Associates, Inc. While much of the day-to-day, primary duties and responsibilities of these recognized individuals will remain unchanged, the new role will involve them to a higher degree in the business strategy and implementation needed to grow our business in 2020 and beyond.

The functional areas of Human Resources (Sharon Jeffries), Marketing (Anne Coyne), and Education Coordination (Sally Scudiere) will continue to be valuable advisors/resources to our corporate strategy and senior management team and will be fully utilized through the ongoing process of business growth in conjunction with maximizing employee potential.

Congratulations to all of these individuals on these important promotions. We look forward to working together to serve our current and potential clients in 2020!

Succession Planning – The Key to Remaining Independent

Written by admin on August 22, 2019. Posted in Management & Planning.

By: Bob Viering, Senior Consultant and Manager of Lending Services

For many community banks today, remaining independent is the number one strategic priority. There are many reasons boards believe remaining independent is important: the board believes that the shareholders’ investment will be maximized over a longer time horizon; that the bank as an independent local bank can best serve the needs of the community; that the employees as a whole will be far better served (and have jobs) by remaining independent. These are all reasonable and sincere reasons.

So, if staying independent is important, why are an increasing number of banks selling today? One of the biggest reasons that banks sell is that the board is not confident that there is anyone ready to take over management of the bank. Developing a successor internally is a multi-year process to groom a talented individual to learn enough about the day-to-day responsibilities and skills needed to manage a bank successfully. Hiring a new CEO externally sounds easy, but to find that right person that not only has the skills and background to succeed and also can fit in the community and, most importantly, the bank’s culture can be a very challenging process, especially if you are in a rural community. If something happens that the CEO role is suddenly open, or the CEO decides to retire in a year or less, all too often there is not enough time to find that right person, and the easier decision is to sell while the bank is still running smoothly.

It sounds like having a plan on how the CEO position will be filled is the answer. We’ve seen very simple plans that are a few short paragraphs that basically say, “Joe and Mary can run the bank in the interim. If one of them is not the right person, we’ll just hire someone.” Even for a very small bank, it’s almost never this easy. Even if you believe one of the top managers has the “right stuff” to be the next leader, have you thought about what skills they may need to develop to be ready? Have they had any real experience leading a group or an important project that gives you confidence they can run the place? Can you picture that person standing up in front of your shareholders? Or representing your bank to regulators? Or allowing your other key employees to operate successfully? Can they run the bank when times get tough (and they always do)? If you answered positively to these questions, do you have a plan, with timeframes, to provide the types of training and experience so that they will be ready to take over?

Even if you are confident you have the right person to take over, or you start early enough to recruit your next leader, what about the next level of management? Are they ready to step up when Joe or Mary ascends to the top spot? Do you have a plan to develop that next level of management? As you step through the layers of your organization, it often becomes clear that there are other key employees that would impact your ability to run the bank smoothly if they leave. What do you do if your head of IT leaves? Is there a replacement? Can the functions be outsourced? Every organization has those key people; they may not even be mangers that are critical to the operation. What’s your plan if they are gone one day?

If you may be facing the expected change at the CEO level and you have other key people that are in sight of retirement, selling can seem like a simple, expedient solution. The key to not being backed into a corner when retirements occur, or when a key person leaving is a threat to the successful operation of the organization, is having a well thought out succession plan. A successful plan has the following elements: it identifies those key individuals in the bank needed to run the organization successfully; it identifies the skills and training needs for those individuals that have the ability to be promoted to more responsible positons, even the CEO role; it has a written plan with timelines for preparing the individual for that next step; and it is updated at least annually to verify that the plan is still the best plan for the bank and that the individuals are progressing as expected.

If you truly want to remain independent, then you must take the time, and it will take time, to develop a meaningful succession plan. Well done, it will take months to develop and time to groom and coach that next level of talent, to review and update your plan as required.

At Young & Associates, Inc. we are committed to the idea that we are all best served by having strong, well-run community banks. If you would like help in developing your succession plan or would like a critical eye to review your existing plan, reach out to us: we’ve got community banking’s back. To contact me, give me a call at 330.422.3476 or send an email to bviering@younginc.com.

Private Flood Insurance Update

Written by admin on August 22, 2019. Posted in Compliance & Regulations.

By: Bill Elliott, CRCM, Senior Consultant and Manager of Compliance

As you are no doubt aware, the issue of flood insurance has been unsettled for the last 18 months, and the formal FEMA flood program is only approved until the fall. But, after a long wait, the regulators have published additional regulation for private flood insurance – which does not rely on Congress to do anything, and makes the presence or absence of the FEMA program less problematic for lenders.

Background

The Biggert-Waters Act (2012) amended federal flood insurance legislation to require the agencies to issue a rule directing regulated lending institutions to accept “private flood insurance,” as defined by the act. In response to subsequent legislation and comments received regarding the private flood insurance provisions of the first proposed rule (2013), and the second proposed rule (November 2016), all prudential regulatory agencies finally issued the rule, effective July 1, 2019.

It remains to be seen how effective and efficient this will be, as it is a “work in process.” But some have told me that some of their customers have found lower flood insurance rates privately (meaning these policies may become more popular). Others have told me that they have had customers declined for private flood insurance based on the riskiness of the property location.

Summary of the Rule

The rule requires regulated lending institutions to accept “private flood insurance” defined in accordance with the Biggert-Waters Act. There are essentially three categories of private flood insurance.

Category One – Private Flood Insurance with “Compliance Aid” Language

If the following language appears on the flood policy, the lender may accept the policy without any further review:
“This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”

Although it remains to be seen how well this will work, we hope that most insurance companies will include this language, which will make it quite easy for lenders, as no additional effort will be required.

Category Two – Private Flood Insurance without “Compliance Aid” Language

The rule permits regulated lending institutions to exercise discretion to accept flood insurance policies issued by private insurers that do not meet the statutory and regulatory definition of private flood insurance. The conditions for acceptance include a requirement that the policy must provide sufficient protection of a designated loan, consistent with general safety and soundness principles, and the regulated lending institution must document its conclusion regarding sufficiency of the protection of the loan in writing.

The difficulty for lenders will be to determine whether these policies really meet these (and other) requirements. And although the regulation says “discretionary,” it does not appear that the regulators will just allow lenders to summarily reject these policies.

Category Three – Mutual Aid Societies

The agencies will now allow the acceptance of plans providing flood coverage issued by mutual aid societies. The rule defines “mutual aid society” as an organization:
(1) whose members share a common religious, charitable, educational, or fraternal bond;
(2) that covers losses caused by damage to members’ property pursuant to an agreement, including damage caused by flooding, in accordance with this common bond; and
(3) that has a demonstrated history of fulfilling the terms of agreements to cover losses to members’ property caused by flooding.

A regulated lending institution may accept a plan issued by a mutual aid society, as defined above, if the regulated lending institution’s primary federal supervisory agency has determined that such plans qualify as flood insurance for purposes of the act.

Requirement to Purchase Flood Insurance

There is nothing in the rule that changes the amounts of insurance required, or anything else. This simply allows more options and hopefully, over time, will make everyone’s life – lenders and borrowers – easier.

If you need any assistance in this area, especially private flood policies without the “compliance aid” language, please give us a call at 330.422.3450 or send an email to bille@younginc.com. We are always happy to help.

Avoid Getting Swept Away in the Flood of Enforcement Actions

Written by admin on August 20, 2019. Posted in Compliance & Regulations.

By: William J. Showalter, CRCM, CRP, Senior Consultant

We seem to be in a bit of a lull in flood insurance rule enforcement by the financial institution regulators. There were only 15 enforcement actions with civil money penalties (CMP) totaling $523,961 in 2018. So far this year, we have had only two such enforcement actions, with total CMPs of $10,550. But, we probably should not expect this trend to continue, especially with all the flooding events we have seen recently, including our unfortunate neighbors along the Missouri River. These events tend to get the attention of Congress and the supervisory agencies.

Keep in mind that enforcement of many rules, including those involving flood insurance, seem to run in cycles. After another apparent lull in flood insurance enforcement actions a couple years ago, the Federal Reserve Board (FRB) issued an Order for a Civil Money Penalty in late May 2017 against SunTrust Bank for $1,501,000 to enforce requirements of the regulations implementing the National Flood Insurance Act. This is thought to be the largest CMP for flood insurance shortcomings. Coupled with 11 other much smaller enforcement actions by the FRB, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC), the total civil money penalties assessed for flood insurance rule violations by mid-year 2017 totaled nearly $1.8 million – and by the end of that year, we had seen 29 enforcement actions with a total of nearly $2.8 million in CMPs.

Background
The original National Flood Insurance Act was passed in 1968, and established the National Flood Insurance Program (NFIP). The Flood Disaster Protection Act of 1974 (FDPA) was enacted to strengthen the NFIP by involving lending institutions in the insurance process.

The NFIP was developed as a way to reduce federal expenditures related to disasters caused by flooding. The program consists of floodplain management plans that affected communities must implement and a flood insurance program to protect properties in flood hazard areas. The intent of the NFIP is to reduce federal outlays for disaster assistance by making those who choose to develop properties in flood-prone areas bear some cost to protect against the flood risks involved, rather than allowing them to rely solely on federal aid.

Part of the NFIP is a system of requirements and restrictions on federal assistance of all kinds to flood-prone areas. This assistance ranges from direct federal lending to loan guarantees, to insurance for deposit accounts. The latter is the connection for many mortgage lenders with the NFIP.

The National Flood Insurance Reform Act of 1994 (NFIRA) comprehensively revised the two federal flood statutes – the NFIA and FDPA – and required federal supervisory agencies to revise their flood insurance regulations. The objective of the changes was to increase compliance with flood insurance requirements and participation in the NFIP, and to decrease the financial burden on the federal government, taxpayers, and flood victims.

The NFIRA authorizes the regulators to impose civil money penalties when a pattern or practice of violations under the NFIA is found. The act requires that civil money penalties be imposed of up to $350 for each violation in such cases. The civil money penalty cap was increased significantly by the Biggert-Waters Flood Insurance Reform Act of 2012, enacted July 6, 2012. The former $350 per violation maximum was raised to $2,000 per violation. Lenders should remember that there can be multiple violations for each covered loan.

Consent Orders
The regulators charged that the financial institutions targeted by the 15 enforcement actions last year were engaged in patterns or practices of violations of various provisions of the flood insurance regulations. Most of the orders give us at least some picture of the violations found by regulatory personnel. These violations of flood insurance rules include failures to:

Provide notice about availability of and requirement for flood insurance
Provide timely notice about availability of and requirement for flood insurance
Require flood insurance coverage
Require adequate flood insurance coverage
Maintain flood insurance (allowing it to lapse)
Escrow premiums (when other property costs are escrowed)
Comply with force placement requirements
Provide notice regarding lapse and force-placed coverage
Provide timely notice regarding lapse and force-placed coverage
Obtain force-placed coverage

Avoiding Problems
What can you do to keep your bank or thrift off the ever-growing list of financial institutions being hit with flood insurance enforcement actions? One important way is to establish an effective flood insurance compliance program and make sure that lending staff follows it. Hold them accountable for failures.

At a minimum, your flood insurance compliance program should:

Ensure that there is an effective process in place for determining the flood hazard status for improved real property or mobile homes securing any loans, both consumer and commercial, whether the process be one of in-house readings of up-to-date flood maps or outsourced determinations by a professional firm that guarantees its results.
Ensure that your institution has performed appropriate due diligence in selecting its flood hazard determination vendor and monitors its performance, and that the vendor guarantees its results and uses the current Special Flood Hazard Determination Forms (SFHDF) to document its determinations.
Order or perform flood determinations early in the loan process. This can be done soon after the lender decides to approve the loan.
Ensure that loan files contain complete and current SFHDF and acknowledged customer flood notices, where applicable.
Ensure that collateral properties are insured in the proper amount before loan closing, including appropriate coverage for any senior mortgagees.
Remain current on flood map and hazard determination changes, and stay insured throughout the life of the loan.
Ensure that coverage is maintained for subsequent financings (increase, extension, renewal, refinancing) of the subject properties.
Train all affected staff in their responsibilities under the bank’s flood insurance compliance program, assign appropriate accountability, and enforce staff responsibilities.

This last point is especially important. Training is the foundation for implementing and maintaining a strong flood program. Ensure that all appropriate staff is trained in the requirements of the flood insurance laws and rules that impact their jobs and provide them with refreshers periodically.

Establishing and maintaining a strong flood insurance compliance program can help your bank or thrift stay afloat during any flood of enforcement actions. For more information on this article and/or how Young & Associates, Inc. can assist you in this area, contact Bill Showalter at 330.678.0524 or wshowalter@younginc.com.

Assessing Management Skills in Agricultural Borrowers

Written by admin on May 18, 2018. Posted in Lending & Loan Review.

By: Robert Viering, Senior Consultant & Lending Department Manager

In our loan review practice we have seen an overall deterioration in farm financial results. However, we have noted that there are borrowers that are still providing reasonable returns and acceptable debt service coverage ratios. Our anecdotal observations have been confirmed by data from farm financial databases from farms in the Midwest. In his blog post in the December 19, 2017 Corn + Soybean Digest, Dr. David Kohl observed, “Regardless of farm size or enterprise, the gap between the top one-third of economic performers and the bottom one-third is widening. Among the most profitable, common practices include strong production, a drive towards efficiency, and an executed marketing and risk management.” My interpretation of his comment can be simplified to: Management skills count.

In our loan review client banks, management skills may be a part of the bank’s risk rating model, but how management skills are determined varies widely. All too often most borrowers are rated as having good management skills even if their financial results put them in the bottom third of financial performance. Based on my 30+ years as a banker and now as a loan review professional, management skills are what separates the top and bottom producers. The question becomes, how do we assess the management skills of our borrowers? While there are no hard and fast rules, there are several attributes that can often help in making an assessment of management skills.

The following are items to consider when assessing management skills:

Production competency. On the production side, you will want to honestly assess how their level of production compares to others with similar operations. As an example, if they are consistently producing more bushels of corn per acre than similar farms in your market, then their skills should be rated higher than an operation with more variable results or certainly better than those that are consistently below their peers. You will want to consider if their equipment line/livestock production facilities are appropriate for the scale and sophistication of their operation.
Financial competency. Questions for you to consider to determine financial competency include: Are you provided accurate, thorough, and timely financial information? Are the cash-flow projections reasonable and based on sound assumptions (you will need to back test borrower’s cash flows to actual results to assess this attribute)? Does the producer understand the financial implications of their decisions?
Risk management. Risk management is about protecting what you have and limiting your downside. Among the items to assess include whether they are carrying adequate crop insurance. This can include whether they can cover the difference between what insurance pays and what they expected to produce. Other questions that are important to consider include: Does the borrower have a marketing plan? Do they make good use of hedging strategies? A good marketing plan can help pick up some additional income while limiting the downside of market volatility.
Intangible skills. There are a few other items that should be considered that are difficult to quantify but are important to consider. Among the items to ask are: Are they willing to make tough decisions? This is often about expenses and includes the ability to reduce family living, reduce labor costs (even if it means a family member may have to leave the operation), or any other decisions that may not be popular or easy but may be required to succeed. Do they have a long-term vision of where they want to go? Even if they are not considering doing anything different, that is still a strategy that has its risks. Are they realistic in their understanding of their operation’s strengths and weaknesses? Are they open to taking advice from outside experts to improve their operation? Do they have any trusted advisors that they use? If applicable, do they have a plan to transition to the next generation? If so, do they have an understanding of the next generation’s strengths/weaknesses and the risks in their transition plan?

Agriculture is like all other types of business: good management is critical to long-term success and especially to getting through more challenging times like today. As a bank, having a good understanding of the borrower’s management skills is an important aspect of knowing the level of risk in a borrower. We encourage banks to make a thorough assessment of a farm operator’s management skills, especially today as management skills can often be the difference between long-term success and just surviving, or even the difference between just surviving and having to quit farming.

For more information on this article, contact Bob Viering at bviering@younginc.com or 1.800.525.9775.

Capital Market Commentary – 2018 Forecast and 2017 in Review

Written by admin on February 28, 2018. Posted in Management & Planning.

By: Stephen Clinton, President, Capital Market Securities, Inc.

The stock market continued its climb to new heights in 2017. The stock market was propelled by the election of President Trump, which brought the expectation of lower taxes, less regulation, and an administration favorable to businesses. The Dow ended 2017 at 24,719.22, an increase of 25.08% for the year. The S&P 500 also improved nicely, ending up 19.42%. The market, despite a correction in early February, has increased further from 2017’s year-end values.

The Fed continued its plan to move short-term interest rates higher in 2017. The Fed moved short-term rates up 25 b.p. in March, June, and December. The three-month T-Bill ended December at 1.39%, an increase of 88 b.p. from year-end 2016. Longer-term interest rates were little changed from year-end 2016, resulting in a flatter yield curve.

Job creation continued in 2017, and the unemployment rate in December was 4.1%. The unemployment rate is at a level not seen in 17 years. The low unemployment rate would typically lead to rising wages, but wage growth was only around 2% in 2017.

As we enter 2018, there are a number of items worth monitoring:

Economic Growth. U.S. economic growth for 2017 came in at 2.5%, comparable to prior years. The slow but steady expansion that began in mid-2009 ranks as the third longest economic expansion in U.S. history. Should the recovery continue into the second half of 2019, it would become the longest recovery on record, surpassing the 1990’s economic boom.
Housing. Home prices continued to rise in 2017. The S&P/Case-Shiller National Home Price Index rose 6.2% in the 12 months ending in November. The rising price for homes has exceeded inflation and wage growth for several years. The limited housing inventory has aided the rise in prices along with historically low mortgage rates. U.S. single-family homebuilding surged to more than 10-year highs in November. Existing home sales were up 5.6% in December, while new home sales increased 17.5%.
Industrial Production. U.S. manufacturing activity remains strong. The Institute for Supply Management said its purchasing managers index rose to 59.7 in December, the second highest level since early 2011. A reading over 50 indicates expansion in the sector; below 50 suggests contraction. Boeing recently announced deliveries of 763 aircraft in 2017, a record for the company. Auto sales were down 1.8% in 2017, but with sales of 17.2 million vehicles, it marked the first time the industry has surpassed 17 million for three consecutive years.
Consumers. Consumer confidence is positive. The University of Michigan’s consumer sentiment index average level for 2017 was the highest since 2000. A sign of the strong consumer sentiment is reflected in consumer debt. In the fourth quarter, consumer debt, excluding mortgages and other home loans, rose 5.5% from a year earlier. That is the highest amount since the Federal Reserve Bank of New York began tracking the data in 1999. Moreover, consumers’ non-housing debts accounted for just over 29% of their overall debt load, also the highest amount on record.
Inflation. The Fed’s preferred measure of inflation in January was 2.1%, moving above the Fed’s target of 2% for the first time in a while. The anticipated 3% growth of the economy along with the tight labor market and rising interest rates is expected to finally push inflation upward.
Political Risks. There are a number of geo-political risks that could significantly change the outlook for 2018. Among these are the ongoing Brexit process, North Korea nuclear saber rattling, and President Trump’s plans to renegotiate NAFTA. Furthermore, the dysfunction in Washington creates uncertainty.

Predictions for 2018

Lending Activity. We anticipate an increase in lending activity. We think the lower tax rate for businesses will encourage businesses to expand their operations.
Interest Rates. The Fed has indicated that three rate increases are probable in 2018. We think that we will get those increases.
Home Prices. We expect the growth rate in home prices to be lower than in the past several years. We think higher interest rates will come into play and make housing less affordable. We also think that the less favorable tax status of the deductibility of mortgage interest will have an impact on some home buyers.
Inflation. We do see inflation moving up in 2018. As mentioned above, we expect wage increases to heighten. The low unemployment rate and the shortage of skilled labor in many markets will put pressure on employers to increase wages to attract and retain workers. We also think the growing economy will impact commodity prices.
Jobs. We envision unemployment to remain low as businesses expand.
Regulation. We expect bankers to be disappointed about the lack of regulatory relief in 2018. It will be difficult for regulatory relief to filter down the bank regulatory bureaucracy.

Merger and Acquisition Activity
Merger activity in 2017 was slightly higher than the activity in 2016. In 2017, there were 267 announced mergers of banks and thrifts compared to 244 deals in 2016. In terms of deal size, the total assets of sellers totaled $147 billion in 2017, compared to $188 billion in 2016 and $459 billion in 2015. Pricing on 2017 bank sales improved significantly from 2016’s pricing, recording a median price to book multiple of 162% and a price to earnings multiple of 20.9 times. We believe that 2018 will see increased merger activity spurred, in part, by bank buyers’ enhanced profitability from reduced corporate taxes

Capital Market Services
Young & Associates, Inc. has a successful track record of working with our bank clients in the development and implementation of capital strategies. Through our affiliate, Capital Market Securities, Inc., we have assisted clients in a variety of capital market transactions. For more information on our capital market services, please contact Stephen Clinton at sclinton@younginc.com or 1.800.376.8662.

A Current Perspective on Concentrations of Credit

Written by admin on February 28, 2018. Posted in Lending & Loan Review.

By: Tommy Troyer, Executive Vice President

Concentrations of credit are certainly not a new risk for community banks, but for many banks they are an increasing challenge. While effective concentration risk management involves much more than we have room to discuss here, we would like to use this article to highlight a few timely considerations related to concentration risk management.

Growing Concentrations
We all know that, though we can calculate statistical averages for various measures across community banks, there is no “average community bank” in the real world. Each bank has its own unique combination of characteristics. However, concentrations of certain types of credit do seem to be increasing across community banks as average loan-to-asset ratios have been increasing and banks are, for the most part, still trying to stick to in-market lending and to loan types with which they have experience.

Continued regulatory emphasis on prudent concentration risk management practices, especially related to CRE, has been one result of these trends. One of the ways some banks have experienced this attention is to have examiners note a greater interest in measures of total CRE exposure, including owner occupied loans, as opposed to the more traditional measures of non-owner occupied concentrations described in the well-known 2006 interagency guidance on CRE concentrations. (This emphasis has been driven in part by the growing realization that the industry’s loss history on these two types of CRE loans has not been that different over the last decade.)

As a simple example of the growth in credit concentrations for community banks, I collected some data on commercial banks and savings banks in four Midwestern states (Ohio, Michigan, Indiana, and Illinois) with less than $2 billion in total assets. While we work with community banks nationwide and with some banks larger than this threshold, I thought this would be a sample of banks of interest to many of the readers of this newsletter. Of these banks, 700 met these criteria as of 2017Q3. I compared selected concentration levels for these banks to their levels five years earlier, as of 2012Q3.

The number of banks with construction and land development loans totaling 100% or more of total capital doubled, though it certainly remains low at just 2% of the sample.
The number of banks with non-owner occupied loans totaling 300% or more of total capital increased from 29 to 42.
The number of banks with total CRE loans totaling 400% or more of total capital increased from 50 to 66.

None of the figures above total even 10% of the banks in the sample, but I have also chosen to test quite significant concentration levels. Our consulting work indicates that many more banks, which have chosen to set their internal concentration limits at more conservative levels than described above, are experiencing challenges as they near internal limits. This applies for both broad categories of concentrations, such as non-owner occupied CRE, and for more narrowly defined categories, such as hotels.

In some other cases, concentrations that banks have always understood were necessary given the community they serve have become more concerning. For example, many community banks operate in markets where agriculture is a dominant industry. Such banks have always accepted the risk associated with heightened ag concentrations, but continued challenging ag conditions have made such concentrations more of a concern in recent years.

Risk Management Considerations
The fundamentals of effective management of concentration risk are well-known, and can be found in a variety of regulatory sources. I will not rehash all of them here, though I do feel obliged to emphasize that concentration risk must be factored into capital planning and must be appropriately evaluated as a qualitative factor impacting the ALLL. I would also like to highlight a couple of trends in concentration risk management we have noted recently:

Incorporating concentration considerations into strategic planning. Yes, detailed analysis of concentration risk and recommendations for concentration limits will likely be provided to the board by management. However, such limits should reflect the board’s risk appetite and desired strategic direction for the bank. It has been encouraging to me to hear in several recent strategic planning retreats thoughtful, forward-looking discussion about what the bank should look like in the future and what that means for the bank’s approach to credit concentrations.
Incorporating a proactive approach to monitoring and managing relationship levels. We have seen an increasing number of clients take what can be described as a more proactive and sophisticated approach to monitoring and actively managing concentration levels. Instead of testing concentration levels quarterly and simply “turning off the spigot” when a limit has been reached, these banks incorporate a proposed loan’s impact on their concentration profile into their underwriting analysis. They also use their pipeline and runoff projections to forecast their various concentration levels in coming quarters, and then manage prospective and existing borrowers to maximize the quality and profitability of a given portfolio. This can help prevent, for example, a couple of marginally profitable and purely transactional deals that may be easy to “win” from crowding out prospective deals that can lead to profitable long-term banking relationships.
Utilizing portfolio stress testing. Portfolio stress testing has long been a tool for evaluating concentration risk, but more community banks seem to be making efforts to implement forms of portfolio stress testing than ever before.
Utilizing collateral valuation and collateral management. One important way of ensuring that downturns in an industry in which a bank has a concentration do not cause excessive losses is to have in place effective practices for both managing the initial valuation and assessment of the collateral (especially for real estate collateral) and for monitoring collateral on an ongoing basis. The ongoing monitoring of the status and value of collateral can be especially important for banks with ag concentrations. While we see plenty of good work done by banks in both of these areas, we would also note that these seem to be some of the most common areas about which we, and also often examiners, provide recommendations for improvements in practices.

Conclusion
Effectively managing concentrations of credit will remain important for as long as lending remains a primary source of income for banks (in other words, forever). Young & Associates, Inc. has assisted clients by providing portfolio stress testing services (both CRE and ag), loan reviews, and more targeted consulting focused on enhancing collateral valuation processes or credit policies. We also assist clients by facilitating strategic planning sessions that encourage the board and management to think about and plan for the future of the bank. This can result in a bank better defining its lending strategy and ensuring its lending approach is consistent with its overall strategy. To discuss this article or any of our services further, please contact Tommy Troyer at ttroyer@younginc.com or 330.422.3475.

Young & Associates, Inc. Changes Ownership on 1/31/18

Written by admin on February 28, 2018. Posted in Management & Planning.

We are pleased to announce that Young & Associates, Inc. has been sold by Gary J. Young, the company’s founder, to Jerry Sutherin, a Senior Consultant with the firm, effective January 31, 2018. While ownership has changed, the company’s name, mission, personnel, quality of services, and structure will not change in any way.

Upon the effective date of the sale, Mr. Young became Chairman of the Board, and Mr. Sutherin became President and CEO. Young will remain actively involved with the firm for one year, continuing to provide the same high quality service he has provided for the past 40 years. Mr. Young said, “I founded Young & Associates with a goal of assisting community banks while maintaining a family atmosphere that valued and respected all of the people that I work with. After 39+ years, I have accomplished that goal, and that mission will continue through Jerry’s leadership.”

Tommy Troyer, Executive Vice President, will continue to serve in that position, where he successfully uses his professional expertise, detail-oriented management style, and excellent people skills while working with both clients and employees.

Mr. Sutherin has worked at Young & Associates, Inc. for nearly four years. Mr. Sutherin said, “I look forward to making a seamless transition at Young & Associates, building upon the solid foundation that Gary has built over the past 40 years. It is my goal that our clients and employees will continue to receive the same professional, high-quality experience that they have come to expect here over the years.”

With over 30 years in the financial services industry, Sutherin has worked primarily in the company’s Lending and Loan Review Division where he provided community banks throughout the U.S. with third-party loan review, lending policies and procedures, loan portfolio due diligence, and ALLL Review services. Prior to joining Young & Associates, Inc., Sutherin worked in varying capacities ranging from overseeing an Asset Quality/Loan Review function at a large regional bank, to managing a $2.5 billion loan portfolio responsible for loan performance, credit quality, and departmental efficiency.

Young & Associates, Inc. has provided practical products and services to community financial institutions since 1978, and we look forward to serving our clients for many years to come. Please join us in congratulating both Jerry and Gary on this sale.

CFPB Amends HMDA Rule

Written by admin on November 20, 2017. Posted in Compliance & Regulations.

By: William J. Showalter, CRCM, CRP; Senior Consultant

The Consumer Financial Protection Bureau (CFPB) issued a final rule making several technical corrections and clarifications to the expanded data collection under Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The regulation is also being amended to temporarily raise the threshold at which banks are required to report data on home equity lines of credit (HELOC).

These amendments take effect on January 1, 2018, along with compliance for most other provisions of the newly expanded Regulation C.

Background
Since the mid-1970s, HMDA has provided the public and public officials with information about mortgage lending activity within communities by requiring financial institutions to collect, report, and disclose certain data about their mortgage activities. The Dodd-Frank Act amended HMDA, transferring rule-writing authority to the CFPB and expanding the scope of information that must be collected, reported, and disclosed under HMDA, among other changes.

In October 2015, the CFPB issued the 2015 HMDA Final Rule implementing the Dodd-Frank Act amendments to HMDA. The 2015 HMDA Final Rule modified the types of institutions and transactions subject to Regulation C, the types of data that institutions are required to collect, and the processes for reporting and disclosing the required data. In addition, the 2015 HMDA Final Rule established transactional thresholds that determine whether financial institutions are required to collect data on open-end lines of credit or closed-end mortgage loans.

The CFPB has identified a number of areas in which implementation of the 2015 HMDA Final Rule could be facilitated through clarifications, technical corrections, or minor changes. In April 2017, the agency published a notice of proposed rulemaking that would make certain amendments to Regulation C to address those areas. In addition, since issuing the 2015 HMDA Final Rule, the agency has heard concerns that the open-end threshold at 100 transactions is too low. In July 2017, the CFPB published a proposal to address the threshold for reporting open-end lines of credit. The agency is now publishing final amendments to Regulation C pursuant to the April and July HMDA proposals.

HELOC Threshold
Under the rule as originally written, banks originating more than 100 HELOCs would have been generally required to report under HMDA, but the final rule temporarily raises that threshold to 500 HELOCS for data collection in calendar years 2018 and 2019, allowing the CFPB time to assess whether to make the adjusted threshold permanent.

In addition, the final rule corrects a drafting error by clarifying both the open-end and closed-end thresholds so that only financial institutions that meet the threshold for two years in a row are required to collect data in the following calendar years. With these amendments, financial institutions that originated between 100 and 499 open-end lines of credit in either of the two preceding calendar years will not be required to begin collecting data on their open-end lending (HELOCs) before January 1, 2020.

Technical Amendments and Clarifications
The final rule establishes transition rules for two data points – loan purpose and the unique identifier for the loan originator. The transition rules require, in the case of loan purpose, or permit, in the case of the unique identifier for the loan originator, financial institutions to report “not applicable” for these data points when reporting certain loans that they purchased and that were originated before certain regulatory requirements took effect. The final rule also makes additional amendments to clarify certain key terms, such as “multifamily dwelling,” “temporary financing,” and “automated underwriting system.” It also creates a new reporting exception for certain transactions associated with New York State consolidation, extension, and modification agreements.

In addition, the 2017 HMDA Final Rule facilitates reporting the census tract of the property securing or, in the case of an application, proposed to secure a covered loan that is required to be reported by Regulation C. The CFPB plans to make available on its website a geocoding tool that financial institutions may use to identify the census tract in which a property is located. The final rule establishes that a financial institution would not violate Regulation C by reporting an incorrect census tract for a particular property if the financial institution obtained the incorrect census tract number from the geocoding tool on the agency’s website, provided that the financial institution entered an accurate property address into the tool and the tool returned a census tract for the address entered.

Finally, the final rule also makes certain technical corrections. These technical corrections include, for example, a change to the calculation of the check digit and replacement of the word “income” with the correct word “age” in one comment.

The HMDA final rule is available at www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/regulation-c-home-mortgage-disclosure-act/.

Updated HMDA Resources
The CFPB also has updated its website to include resources for financial institutions required to file HMDA data. The updated resources include filing instruction guides for HMDA data collected in 2017 and 2018, and HMDA loan scenarios. They are available at www.consumerfinance.gov/data-research/hmda/for-filers.

For More Information
For more information on this article, contact Bill Showalter at 330-422-3473 or
wshowalter@younginc.com.

For information about Young & Associates, Inc.’s newly updated HMDA Reporting
policy, click here. In addition, we are currently updating our HMDA Toolkit.

To be notified when the HMDA Toolkit is available for purchase, contact Bryan
Fetty at bfetty@younginc.com.

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