Jon Campbell & Associates
Issue # 2 August 2010                                
 We understand that banks are grappling with the many recent regulatory changes....
Our goal is to provide guidance in an understandable format on the practical application of these ongoing changes
In This Issue
Don't Assume Your Bank Is Not Originating Any Higher Priced Mortgage Loans
Loan Modifications
In The Next Issue

Compliance Calendar
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  • Be on the lookout for the Bank's HMDA Disclosure Statement;  when received, place in the Bank's CRA Public File within three (3) business days of receipt, as applicable;

  • 10/1/2010 - Fees assessed for paying checks and other items with insufficient funds that overdraw the account must be referred to on the periodic statement, in accordance with Section 230.11(a) of Regulation DD, as "Total Overdraft Fees."
  • 10/30/2010 - Ensure that the Bank's 2010 HMDA LAR includes all HMDA reportable entries through September 30, 2010.

Fair Lending Risk Assessment
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It has become an expectation of Bank Regulators that all financial institutions conduct a Fair Lending Risk Assessment to identify any exposure to fair lending issues.  Fair lending risk is the risk that a bank will engage in practices of illegal discrimination or violations of the Fair Lending laws (The Fair Housing Act and Regulations B, C, and BB)

Fair lending risk stems from three sources:
  1. Overtly discriminatory policies and practices.
  2. Unnecessary application of a nondiscriminatory policy that has a discriminatory effect.
  3. Adverse use of discretion in the lending function relative to a prohibited bases
Should your Bank be looking for assistance or guidance in performing and documenting its Fair Lending Risk, Campbell & Associates has facilitated the fair lending risk assessment process for many of our existing clients.  This process includes interviews with lending personnel and management as well as an analysis of the Bank's loan related products, loan policy, underwriting criteria, etc. and is presented in an Executive Summary with supporting matrices.

Please contact Jon Campbell at

or Maureen Busch at for further information

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ACH Risk Assessment

As of June 18, 2010, each participating depository institution is required to perform a Risk Assessment of the bank's ACH operations.   Such a risk assessment not only fulfills NACHA compliance requirements, but is helpful in ensuring that Management is aware of and understands the level of risk presented by the Bank's ACH activities.  The assessment should pertain to all aspects of ACH operations (i.e., RDFI and ODFI operations) and address the following types of risk: credit, operational, fraud, reputational, and compliance.  

Should your Bank be looking for assistance or guidance in performing and documenting its ACH Risk Assessment, use Campbell & Associates as a resource.  As part of the risk assessment process, we will explore the Bank's RDFI and ODFI, as applicable, policies, procedures and processes to ensure that threats to the Bank's ACH operations as well as mitigating controls are identified in order to accurately define and measure the Bank's ACH risk.  

Please contact Jon Campbell at

or Maureen Busch at for further information

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Don't Assume Your Bank Is Not Originating Any Higher Priced Mortgage Loans (HPMLs)
House IconEven though the HPML provisions of Regulation Z (Truth in Lending Act (TILA)) became effective over six months ago, it seems like just yesterday that they went into effect.   If a loan meets the criteria for a HPML, the Bank must abide by various additional provisions for Regulation Z.  That is, the rules for higher-priced mortgage loans outlined in Section 226.35 of Regulation Z indicate that the Bank 1) shall not extend credit based on the value of the consumer's collateral without regard to the consumer's repayment ability as of consummation; 2) must abide by certain restrictions regarding prepayment penalties, 3) must establish an escrow account (for at least the first year of the loan term) for taxes and applicable insurance premiums for loans secured by a first lien on a principal dwelling (Note:  The escrow requirements became effective April 1, 2010; however, October 1, 2010 is the effective date for the escrow requirement for mobile homes); and 4) shall not structure a home-secured loan as an open-end plan to evade these HPML requirements.  

What we have noticed since the HPML provisions became effective, is that in several cases and for a variety of reasons, some banks have originated an HPML, though the application/loan was not identified as such.  If your bank originates residential mortgage loans, it should not be assumed that it does not have any loans that meet the HPML criteria.   Unfortunately, if you do not identify a HPML and the loan is closed without escrows, not only has the bank violated Regulation Z, but it is likely that RESPA violations would also be cited as the customer should have been informed of the escrow amounts on the GFE and HUD-1, not to mention that the bank may miss the deadline for providing the initial escrow account statement (i.e., at settlement or within 45 days of settlement).  

Therefore, for any residential loan application received that is covered by Regulation Z, we recommend the following:
  1. At the time the early TIL disclosure is generated, perform a test (which can be performed at to determine whether the application is subject to section 226.35 of Regulation Z (HPML provisions).  
a. If the application meets the criteria for an HPML, the bank should then:
i. Maintain documentation that the application is subject to the HPML requirements;

ii. If the Bank escrows
  1. Ensure that the related provisions of Sections 226.35 and 34 are met and sufficiently documented;
  2. Ensure that the Escrow Information Section on the GFE is properly completed.
iii. If the Bank does not intend to escrow:
      1. Revisit/reduce the rate or associated fees or, if the loan is an adjustable rate mortgage (ARM), the Bank may consider increasing the period for which the initial rate is fixed to ensure that the HPML provisions are not triggered;
      2. Deny the request as the bank does not offer this product.

WARNING!!!!  If scenario "1.a.iii." above applies, ensure the bank is consistent in its actions (e.g., if the bank is inconsistent and denies some applications and reduces rates/fees on others, fair lending issues may ensue).

b. If the application does not meet the criteria for an HPML:
i. Maintain documentation to support that the application is not subject to the HPML requirements.

Click HERE to read the full article

Loan Modifications - Careful, They May Trigger Different Compliance Requirements
Loan Modification Loan modifications are no doubt on the rise and, depending on the circumstances, certain regulations and provisions of regulations may or may not apply.  Accordingly, one may be asking more often " What is required from a compliance perspective to extend a ballooning Home Equity Line of Credit (HELOC) for five more years versus converting it to a closed end mortgage?"  We have received numerous questions from our clients on what is required from a disclosure standpoint when modifying a loan. 

As such, following we will explore several common loan modification examples.  We do not, however, intend for this to cover all situations; the purpose of this article is to demonstrate the complexity of compliance requirements and the need to thoroughly analyze each loan modification on its own.  In the examples noted below, the following assumption is made:  all loans are consumer purpose loans secured by the borrower's principal residence.  Additionally, it should be noted that current regulatory guidance does not always specifically address the modification/renewal/extension/etc. situations banks face today.  Accordingly, we are providing to you the best information we have based on our research and the current interpretation of applicable regulations. 

The following examples are provided:

Example 1 - Modification of a Fixed Rate Mortgage: A Rate Reduction with a Corresponding Change in Payment Schedule or Institution of a Stepped-Rate Feature that does not result in an increase to the APR (No new money)

Click HERE to read the full article

In the Next Issue of Compliance Insights
Consumer protection is a regulatory focus now and more than ever.  In our next issue of Compliance Insights, we will explore additional areas to be cognizant of to ensure that your bank is providing consumers with clear, consistent, and meaningful information.
We will also provide guidance on complying with the Risk Based Pricing disclosure requirements as well as the new Privacy model notice, both of which have mandatory compliance dates of January 1, 2011

Your Questions And Input Are Welcome:

With all the regulatory changes that have been implemented and are out on the horizon, it's a seemingly insurmountable goal to keep all the changes and implementation dates straight. We will continue to address some of the nuances and provide tips for compliance in our future updates to Compliance Insights.

We can project and speculate on compliance challenges, but hearing from you on what specific challenges and questions you face is helpful.

Should you have specific questions that you would like addressed and possibly featured in future updates to Compliance Insights, please e-mail them to Maureen Busch at


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Jon Campbell & Associates | 1757 South Kings Avenue | Brandon | FL | 33511