Climate Change and Mortgage Lenders

Climate Change and Mortgage Lenders

A home is a safe haven for members, and the biggest, most important purchase many will ever make. As a trusted source of lending and financial expertise, credit unions have an obligation to administer the benefits of fair rates on mortgage lending, as well as provide financial education to understand the risks involved with owning and operating a home. A lot of that risk can depend on location and the changing climates. This is why we wanted to look at climate change and mortgage lenders today.

Natural disasters cannot be predicted, but property-owning members and financial lending institutions can be prepared for them. Fires in the west, blizzards in the north, flooding in the south; over the past years, many homeowners have been surprised by nature’s destructive and abrupt course. Many of those caught in these disasters were not prepared with insurance to cover any and all possibilities of property destruction in their areas.

This unpreparedness puts the majority in jeopardy and causes debt, mortgage defaults, and eventually, property loss. With these defaults and strained situations, most lenders look to Fannie May and Freddie Mac to take on property mortgages to lighten portfolios and escape delinquency. It is then up to taxpayers and the government to clean up and fund reconstruction, which shifts state and federal spending and debt.

Whether one believes in global warming or not, climate change and natural disaster rates have been available as proof that the world is changing along with past regulatory forecasts. On the horizon of increasing climate-shift awareness, it becomes imperative for lenders to consistently be aware of possible risks and forecasted possibilities, as well as relay information, require necessary insurance, and provide compliant forms and disclosures to protect the institution, member, and community.

Fixed Mortgage Rates & Climate Change

Fixed mortgage rates lock in home buyers to essential regulations and disclosures for 30+ years. A length of time which can hardly perceive the possible changes in shifting climates and incoming disasters.

According to MarketWatch.com “The number and total value of flood insurance policies have been declining since 2006, meaning that households that purchased a property in coastal areas especially may be at increased risk of defaulting on their mortgages. Commercial banks, including two of the largest U.S. mortgage lenders, JPMorgan Chase JPM, +0.69%, and Wells Fargo WFC, -0.08%, have the ability to price mortgages for flood risk, and by design they can securitize some of these loans, thereby spreading the risk to more parties.”

Leaning on government funding agencies fuels lending for financial institutions as a safety net for defaulted portfolios. This allows unassuming members who strive for the status of homeownership to jump into high-priced mortgages in potential hazard and climate-changing zones, ultimately putting the property, buyers, and lender in a risk area that inadvertently will be picked up by taxpayers and hurt real estate economy, through Fannie and Freddie in a time of disastrous outcomes.

The seeds of change have been planted, with many startup companies beginning to dive deep into climate change forecasting and disaster risks measured to inform the housing market and more importantly, the lenders and buyers.

”Some of the players include Four Twenty Seven Inc., which this year was acquired by the credit-ratings firm Moody’s, and a 3-year-old firm called Jupiter, which converts flood, fire, heat, drought, cold, wind, and hail events into risk modeling for real estate assets, including in such high-population coastal areas as New York and Miami.” MarketWatch.com

Some are requesting reforms to Fannie and Freddie that would require insurance or raise guarantee fees as a precursor to absorbing mortgages from lenders. Making mortgage terms flexible in change regulations for changing climates in terms of necessary insurances will make lenders and buyers responsible and less likely to default and lose property in the face of disaster. When it comes to climate change and mortgage lenders it pays to prepare and plan ahead.

Oak Tree is compliant in all 50 states, and creates customized form packages containing compliant, informed, and prepared forms and disclosures for your credit union including flood hazard determination forms or flood hazard insurance notice. Don’t wait for another disaster to strike: get your lending team and your members prepared and secured for the future. Contact us today!

TRID & What It Means for Your Forms

TRID & What It Means for Your Forms at Your Credit Union

In a commentary article posted on Credit Union Times our CEO, Richard Gallagher discusses TRID and what it means for your forms. For Credit Unions, TRID requires not only adjusting model forms but also includes changes to computer software. Picking the right business partners to satisfy the TRID disclosure requirements is more critical than ever, and a reliable document provider is every bit as important as finding a qualified loan processor. 

What do you get when you attempt to abbreviate “Truth-in-Lending Act,” “Real Estate Settlement Procedures Act” and “Integrated Disclosures?” Well, if you are the CFPB, you get TRID, an acronym for two consolidated consumer real estate loan disclosure forms that represent many years and countless hours of research and development. The TRID forms consolidate two separate loan disclosures that had been required for decades by two different federal consumer protection laws and regulations recombining them into two different forms; one to be provided at the time of application and the other, at the time a closed-end consumer real estate loan is closed. For those wanting to dig a little deeper, let’s break this down.

On Aug. 11, 2017, the CFPB published a Final Rule in the Federal Register to formalize guidance and to provide greater clarity and certainty regarding specific mortgage disclosure provisions implemented by Regulation Z (2017 TILA-RESPA Rule). Although the Final Rule became effective on Oct. 10, 2017, 60 days after publication, compliance is not mandatory until Oct. 1, 2018. Confused? Aren’t the TRID disclosures already required? Let’s back up and review.

Richard Gallagher

To read more about TRID and how it affects your credit union, go check out the CU Times article and then check out our home equity lending documents for your credit union.

_{(note: this is an older blog entry and has been edited since originally posted.)}

5 Misconceptions about Home Equity Lending

In a commentary article posted on Credit Union Management, our CEO, Richard Gallagher discusses the top 5 misconceptions about home equity lending. There are two types of home equity lending, closed-end home equity and open-end or home equity line of credit. The article goes into more depth and how your credit union can ensure your members understand the top 5 misconceptions about home equity lending.

Here’s how you can clarify the situation and avoid confusion-related mistakes.

Home equity loans are a great way for your members to get money for needed expenses like home repairs or college tuition. They can also be used for things like vacations or new cars. The two types of home equity lending—closed-end home equity and open-end or home equity line of credit—each have marked differences. Misconceptions abound, in part because the two are so closely related. False assumptions are made by homeowners, which can result in mistakes being made by the lender. Let’s look at five common misconceptions and issues you can easily avoid.

1. The loan can’t be modified. While it is true that closed-end home equity loans cannot be modified, the same cannot be said for home equity lines of credit. The limit on the line of credit is based on the value of the owner’s home. If the value drops due to market conditions, the lender may have the right to adjust the amount of available credit accordingly. Not explaining this clearly upfront could spell trouble for you in the long run. Make sure you do. Also, let your members know you may decrease the amount of available credit if you reasonably believe that the consumer will be unable to fulfill the repayment obligations because of a material change in their financial circumstances. For a no-modification option, steer them to a traditional closed-end home equity loan through which they receive a lump-sum payout and repay the money over time with a structured payment schedule.

Richard Gallagher

To read more about how your credit union members can understand the common misconceptions about home equity lending, go check out the CU Management article and then check out our home equity lending documents for your credit union.

_{(note: this is an older blog entry and has been edited since originally posted.)}

TRID Enforcement Grace Period

CFPB Allows for Grace Period for TRID Enforcement

2015 TRID Enforcement Grace Period

TILA-RESPA Integrated Disclosure requirements go into effect August 1, 2015, but now there will be a good-faith enforcement grace period. The CFPB will be allowing for a TRID enforcement grace period. Stevens said that the grace period allows for institutions that are working in good faith to implement the rule, “the regulatory framework in this country will use what they can to provide instructive guidance during this delay period.” This goes beyond lenders, including “service companies, real estate companies, and third-party vendors” who need to make their systems compliant according to Stevens. This grace period is open-ended and will go to at least the end of 2015. However, this grace period timeline could be extended if needed, depending on how disruptive the new regulatory implementation is.

Cynthia Lowman, president of United Bank Mortgage Corp., pointed out the impact these new rules will have on the entire mortgage-lending industry, and if it is not approached the right way that it “will have a negative impact on consumers, banks, and the recovery of the housing industry.” The main concern with this new rule is the lack of time to “test the new closing process in real-time.” The TRID rule does not provide lenders an opportunity to start using disclosures before August 1, and the fact that lenders are not able to test their systems and procedures ahead of time increases the risks of unanticipated disruptions. This argument leads to the TRID enforcement grace period. This grace period is to ensure that there is a successful implementation of the Rule.

According to Housing Wire, “in May, the House passed H.R. 2213, introduced by Congressman Steve Pearce, R-N.M., and co-sponsored by Congressman Brad Sherman, D-Calif., which prevents enforcement of the integrated disclosure requirements and the filing of any related lawsuit if (1) the person has made a good-faith effort to comply with the requirements, and (2) the conduct alleged to be in violation of the requirements occurred on or before Dec. 31, 2015, thus allowing stakeholders and the CFPB to test the effective operation of the rule.”

If you have further questions regarding the new RESPA-TILA integration or would like to know more about how Oak Tree can help your credit union, please email ClientServices@oaktreebiz.com.

Garrison, Trey “It’s official: CFPB will grant grace period on TRID enforcement.” Housing Wire., 3 June 2015.

(note: this is an older blog entry and has been edited since originally posted.)

2015 Integrated RESPA/TILA Disclosures

2015 New Integrated RESPA/TILA Disclosures

Implementation and Transition November of 2013 was a busy time for Federal regulators as they approved final rules combining some of the RESPA rules with other rules still required under The TILA. Congress’s intent is to create an entirely new set of disclosures that when in place, will provide consumers with information (both new & old) formatted in such a way that provides the utmost clarity and consumer understanding. Let’s discuss the New Integrated RESPA/TILA Disclosures.

The new integrated disclosures will fall into two categories (e.g. “Loan Estimate” and “Closing Disclosure”). The “Who, What, When, Where & Why” The new integrated disclosures will need to be provided by creditors or mortgage brokers that receive an application [Emphasis Added] from a consumer for a closed-end credit transaction secured by real property on or after August 1st, 2015. Creditors are prohibited from using the new disclosures for applications that are received prior to that August 1st date and will instead need to follow the current disclosure requirements under Regulations X and Z, and use the existing forms (e.g. Truth-In-Lending disclosures, GFE, Settlement Statements, etc.). The Federal regulators have built in a “transition period” or overlap of time, during which both sets of disclosures will need to be available and creditors will need to use the forms/disclosures that are appropriate to the specific transaction at hand. As applications received prior to August 1st, 2015 are consummated, withdrawn, or canceled, use of the existing GFE, Settlement Statements, and Truth-In-Lending forms will, for the most part, no longer apply. Closed-end reverse mortgages will still be subject to the current disclosure requirements under Regulations X and Z. As this particular “overlap” of disclosures can be particularly tricky, you really need to contact our Client Services Department for full details (Jenny@oaktreebiz.com – 800.537.9598). While August 1st may seem like a long way off, from a practical standpoint it isn’t, and for that reason, the construction of the new forms at Oak Tree is well underway to be certain of their availability in time for the new deadline. Given the size of the new documents and the scope of the transaction-specific information that must be mapped or otherwise programmed by your data processor, once you receive your proofs you will want to approve and return them as quickly as possible.

ELECTRONIC FUND TRANSFER AGREEMENT (REGULATION E) The Electronic Fund Transfer Act is a consumer protection statute that, among other things, limits a consumer’s potential liability for unauthorized transactions made with an approved account access device. The exact amount of the liability is for the most part, determined through the use of a tiered approach that is driven by the time within which a consumer notifies the financial institution. For example, when a consumer notifies a financial institution within two (2) business days after his learning of the loss or theft of the access device, the regulation provides that the consumer’s liability will be restricted to the lesser of $50.00 or the sum of the unauthorized transfers that occur before notice. In the event that the consumer fails to notify the financial institution within two (2) business days after learning of the loss or theft of the access device, the consumer’s liability will increase to the lesser of $500.00, or: (i) $50.00 or the amount of unauthorized transfers that occur within the two (2) business days, whichever is less plus (ii) The amount of unauthorized transfers that occur after the close of two (2) business days and before notice to the institution, provided the institution establishes that these transfers would not have occurred had the consumer notified the institution within that two-day period. The consumer may be liable for additional amounts, depending on the specific set of circumstances.

Since this regulation only establishes a consumer’s maximum liability, institutions are permitted to reduce these limits. Such is the case with the Zero Liability Rules that have been issued by both Visa and MasterCard. With respect to MasterCard, their revised zero liability rule now requires that the consumer use reasonable care in safeguarding the Card from loss or theft; and upon becoming aware of such loss or theft, promptly report that loss or theft to the Credit Union.

There’s more detail to be had here (“the fine print”) and we’re always available to pass it along to you. When you use Oak Tree for your credit union document needs, you can be sure we are keeping an eye on these kinds of changes to keep your forms compliant. We will ensure you are ready for the next “New Integrated RESPA/TILA Disclosures”.

(note: this is an older blog entry and has been edited since originally posted.)