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Wednesday, October 22, 2014

Flood Insurance Rules on Escrow, Detached Structures Proposed

The FDIC board voted to issue a proposed rule implementing the mandatory escrow and detached structure requirements in this year’s Homeowner Flood Insurance Affordability Act, which addressed affordability problems in the 2012 Biggert-Waters flood insurance reform law.

The proposal — issued jointly with the OCC, Federal Reserve, Farm Credit Administration and National Credit Union Administration — would exempt detached structures that are not used as a residence from a requirement to be insured, protecting homeowners from steep insurance bills for storage sheds or garages. While this provision was effective on enactment, the proposal would formally include it in the agencies’ rules, and the agencies solicited comment on necessary clarifications.

The proposal also addressed HFIAA-required exceptions to the mandatory escrow requirement covering subordinate loans on the same property, loans for condos or coops, loans with a primary purpose of business or agriculture, home equity lines of credit, nonperforming loans and loans with terms of less than one year. Lenders would be required to offer customers an option to escrow starting in January 2016, when the escrow requirements begin for new and renewed loans. The proposal also included new and revised sample forms and contract text.

The agencies said they plan to address in a separate rulemaking provisions of Biggert-Waters on the acceptability of non-NFIP policies and expectations for lender-placed flood insurance. Comments are due 60 days after publication in the Federal Register.

Read the proposed rule.

Bipartisan House Letter Seeks Resolution to Sub S Basel III Disparity

A bipartisan group of 43 House members called on the prudential bank regulators to take additional steps to resolve a provision in the Basel III capital standards that disadvantages the 2,000 community banks organized as Subchapter S corporations. “Given the continued stress seen throughout community banking, we hope you will agree that more must be done on this issue,” the representatives wrote.

Basel III’s capital conservation buffer prevents banks from making distributions to shareholders when capital falls below a threshold, but because federal tax liability passes through a Sub S bank to individual shareholders, Sub S shareholders might face tax liability even when they had not received a distribution. C corporation banks subject to the capital buffer pay any taxes due directly out of the bank’s income.

The FDIC said earlier this year that it will generally approve dividend requests of up to 40% by Sub S banks with CAMELS ratings of 1 or 2 but that fall below the Basel III buffer.

Read the letter.

Tuesday, October 21, 2014

ABA: Pleased with QRM Final Rule

“We are largely pleased with the Qualified Residential Mortgage rule…which will help ensure the largest number of creditworthy borrowers are able to access safe, quality loan products at competitive prices,” ABA president and CEO Frank Keating said about the QRM final rule.

The QRM rule, which is required by the Dodd-Frank Act to ensure loans sold into the secondary market are properly underwritten, aligned the definition of QRM with QM, as ABA has advocated. The agencies will review the definition of QRM periodically, and may request a review of the definition at any time.

In addition, the agencies are adopting the minimum risk retention requirements and risk retention options. The final rule applies a minimum 5% base risk retention requirement to all securitization transactions that are within the scope of the Exchange Act and prohibits the sponsor from hedging or otherwise transferring its retained interest prior to the applicable sunset date.

The final rule also allows a sponsor to satisfy its risk retention obligation by retaining an eligible vertical interest, an eligible horizontal residual interest, or any combination thereof as long as the amount of the eligible vertical interest and the amount of the eligible horizontal residual interest combined is no less than 5%.

Read the ABA press release.
Read the final rule.

CFPB Finalizes Conditions for Easing Privacy Notice Requirement

The CFPB finalized a rule to ease the annual privacy notice requirement under the Gramm-Leach-Bliley Act. Effective upon publication in the Federal Register, financial institutions may post their privacy notices online rather than delivering them individually in certain circumstances.

Specifically, a bank may forgo mailing the annual GLBA disclosure if the information on it has not changed since the previous notice, if it does not share the customer’s personal information in a way that triggers GLBA opt-out rights, if it has other channels for disclosures or opt-outs required by the Fair Credit Reporting Act and if the bank uses the federal agencies’ model privacy notice form.

Instead, banks would be required to post their privacy notices online in an accessible and conspicuous way and notify customers in other required notices where to find it, that it has not changed, and that it will be promptly mailed upon request. The final rule is largely unchanged from the proposed rule, which ABA and other groups said would have “very little practical value to consumers or financial service providers.”

Read the final rule.

Monday, October 20, 2014

Fed Finalizes Shift in Stress Test, CCAR Schedules

The Federal Reserve finalized shifting the timing of the annual stress test and capital planning cycle by three months, a change long sought by ABA.

The planning and testing cycle beginning on Oct. 1 in a given year will be shifted to Jan. 1 of the following year. Starting with the 2015-16 planning cycle, submissions to the agencies will be due by April 5 for banks with over $50 billion in assets and July 31 for banks with $10-50 billion in assets.

The rule included several additional changes to the stress testing and Comprehensive Capital Analysis and Review program. The Fed made other small changes to its proposed rule based on ABA’s comments, including providing more flexibility in the net distribution test.

Read the final rule.

Sen. Crapo Calls for Community Bank Regulatory Relief

Senate Banking Committee Ranking Member Mike Crapo (R-Idaho) argued for community bank regulatory relief in an American Banker op-ed. “If regulators and Congress miss this opportunity to lift unnecessary regulatory burdens, many more small banks will disappear,” he said.

Crapo specifically called for eliminating the annual privacy notice requirement when nothing has changed and ensuring a more aggressive effort by regulators to pare back unnecessary rules during the ongoing Economic Growth and Regulatory Paperwork Reduction Act process. “We cannot afford another tepid review process,” he explained.

Crapo cited ABA Chairman Jeff Plagge’s September testimony before the Senate panel, in which he warned that excessive regulation “could threaten the model of community banking that is so important to strong communities, strong job growth and a better standard of living.” Added Crapo: “I could not agree more.”

Read the op-ed.