1. finance
2. bank

SUMMER 2014
Washington DC Visit
September 30 - October 2, 2014
AzBA 111th Annual Meeting &
Convention Attendees
The Enchantment Resort
Sedona, Arizona
Inside:
6 | Getting to Know New AzBA Board Chairman Mike Thorell
8 | AzBA 111th Annual Convention in Sedona
17 | Shifting Gears From Legislation to Elections
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A M E S S A G E F R O M TH E PRESIDENT
By PAUL HICKMAN, President & CEO
All Hands On Deck
R
EFLECTING BACK ON THE 2014 ARIZONA LEGISLATIVE
SESSION, IT IS A GOOD TIME TO MENTION THE CRITICAL
IMPORTANCE OF BANKER ENGAGEMENT. I CONSIDER
MAINTAINING A HIGH LEVEL OF GRASSROOTS INVOLVEment from our banking community to be one of the most
important functions of my job.
That means getting the banking community—at all levels
of banking—involved in the political process at ALL levels of
government. Whether you are a president, CEO, loan officer,
teller, security guard, or director—you embody the Arizona
banking industry, are a constituent of an Arizona elected
official and we at the Arizona Bankers Association need your
help. We need you with us when we make the case for the issues that greatly impact our industry. We need you with us in
Washington, and we need you with us in Arizona.
Simply put, the banking community has borne the brunt
of a lot of unfair criticism in the last several years and opportunistic politicians are much less likely to act contrary
to our interests if bankers make the case. The professional
government relations staff here at the Arizona Bankers Association does a fabulous job of expressing the viewpoint of the
industry collectively, keeping us abreast of what may be about
to happen and even pinpointing where we need to focus our
efforts. However, there are times when the collective voice
of the industry isn’t enough and that is when we activate our
grassroots via call to action alerts.
Additionally, I take a group of Arizona bankers to Washington, D. C. several times a year to address the key issues of
banking with our congressional delegation. We recently made
the case that efforts to expand the business lending cap for
credit unions is an abuse of a taxpayer funded corporate subsidy and directly threatens our bottom line. No one can make
these cases more persuasively and passionately than a banker.
As I write this column, I can recall numerous issues that have
ended up as wins for Arizona banks due to our treks to D.C.
We need engagement at the state level as well. We were able
to make huge strides in amending the anti-deficiency statute through aggressive grassroots engagement of legislators
this year. We were also able to block the entrance of tax lien
lending companies, and we prevented the codification of the
federal mortgage servicing rules at the state level.
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Advocacy is multifaceted. We need all pistons firing from
our lobbying machine….to grassroots activism….to engagement on the electoral playing field, which is where we’re
headed this fall in our mid-term elections.
There will be plenty of opportunities to get involved this
fall through our Political Action Committee (PAC), participating in our Washington, D.C. mission in October, or
contributing directly to AzBA candidates’ campaigns.
The Arizona Bankers Association affiliates with the American Bankers Association for our Political Action Committee.
This gives us a little more than twice the resources we would
otherwise have to contribute to candidates that support the
banking industry. Mike Thorell and I presented a check of almost $13,000 from YOU, our banking industry employees, to
the American Banking Association Political Action Committee in Denver this past July. This will translate into roughly
$30,000 that we can deploy to help pro-banking candidates
get elected this fall.
I hope you enjoy this issue, especially the recap of our
recent Annual Meeting and Convention in Sedona. It received
great reviews for both professional development and personal
relationship building. Thank you to everyone that attended
and helped make it such a success. We always welcome your
feedback and opinion. Keep in touch! w
Consultants to the Financial Industry
Young & Associates, Inc.
111 West Monroe, Suite 440
Phoenix, Arizona 85003
Phone: (602) 258-1200 • Fax: (602) 258-8980
AzBA BOARD OF DIRECTORS
2014-2015
Mike Thorell, Chairman
President
Pinnacle Bank
Benito Almanza, Chairman-Elect
Implementing
Successful Plans for 35 Years
Arizona President
Bank of America
Toby Day, Vice-Chair
Arizona President
Arizona Business Bank
Phoenix, AZ • Kent, OH
Dave Ralston, Treasurer
At Young & Associates, Inc., we focus on
proven methodologies for enhancing
long-term profitability, effective capital
utilization, and optimizing shareholder value
within the accepted appetite for risk.
Lynne Herndon, Immediate Past Chairman
Our goal is to build the planning process that
best meets the needs of your bank and helps
you create a vision for the bank’s short and
long-term future.
•
Strategic Planning
•
Capital Planning
•
Profit Planning
•
Budgeting
•
Liquidity Planning
•
Succession Planning
•
Human Capital
CEO
Bank of Arizona
City President
BBVA Compass Bank
Jack Barry
Chairman & CEO, Arizona Region
Enterprise Bank & Trust
Chuck Luhtala
President
Canyon Community Bank
James Lundy
Chairman CEO
Alliance Bank of Arizona
Annette Musa
Arizona Market President
Comerica
Brian Riley
President & CEO
Mohave State Bank
Brian Ruisinger
President & CEO
Bank 1440
Brian Schwallie
Arizona Market President
US Bank
Gerrit Van Huisstede
Regional President
Wells Fargo Bank
Candace Wiest
President & CEO
West Valley National Bank
AzBA STAFF
Kyle Curtis
602.903.2975
35
CELEBRATING
John Fahrendorf
602.321.9463
YEARS
Paul Hickman
President & CEO
Bill Ridenour
General Counsel
Theresa Kleinlein
Marketing and Member Services
Jan Arredondo
Administration
1978 - 2013
SUMMER 2014
5
Getting to Know
Mike Thorell
New AzBA Board Chairman and
President of Pinnacle Bank
When did you decide to become a banker and why?
I started my banking career in May
1989 for State Savings Bank after
graduating from the University of
Arizona with Finance and Real Estate
Majors. It was right in the midst of
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the Savings & Loan Crisis and the
economy was very weak so finding
a job was difficult. Quite honestly,
I was really interested in just finding any job to start my professional
career and I feel blessed that the
executives at the bank offered me a
position albeit extremely entry level.
I just wanted a chance and a start.
What is your niche in this
market?
Pinnacle Bank is a Small Business
Lender with expertise in SBA 7(a)
and 504 Loans. We are also a Residential Mortgage and Custom Home
Construction Lender. We have real
strong expertise in both of these areas that has developed over years of
specific concentration on these type
of lending opportunities.
After school, I remained in Arizona
and moved to Scottsdale, as I was
engaged to marry my wife (Liz) in
1990.
Where are you from? What In your view, what will the brought you to Arizona?
Arizona banking industry
look like 10 years from toI was born in Lincoln Nebraska and
day?
raised in Denver, Colorado. My father (Jim) was a stock broker and my
mother (Karen) still lives in Denver. I
came to the University of Arizona to
play baseball, which I did for 4 years.
I think we will have fewer banks in
Arizona than we do today. Unfortunately, new banking regulations
Save the Date
will force the smaller institutions to
merge with larger institutions to be
able to handle the increased compliance costs of banking.
What is something about
you that will surprise our
readers?
I enjoy cooking as much as possible for family and friends. I am not
afraid to explore new recipes to get
people excited about enjoying time
together through food. w
CPE Credit Available
Agenda Available Soon at
www.Azbankers.org
Directors’ College
October 30, 2014
1:00pm to 5:00pm
The University Club of Phoenix
SUMMER 2014
7
AzBA 111th Annual
Convention in Sedona
T
HE LEADERS OF ARIZONA’S BANKING INDUSTRY GOT TOGETHER IN
SEDONA THIS SUMMER FOR SOME
FRANK AND COMPELLING discussions and economic forecasts. We
had about 150 executives and directors
from the state’s banks and the businesses that service them on hand for the
Arizona Bankers Association’s 111th
annual meeting and convention.
We heard from, among others, our
state regulator, several economists,
and the general counsel of the FHFA.
Additionally, we heard from two legal
experts in the field of cybersecurity
and we were briefed on the current
employment and banking issues ema-
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nating from the legalization of medical
marijuana in Arizona. Finally, we had a
forum featuring two of Arizona’s leading candidates for governor.
Arizona’s Superintendent of Financial Institutions, Lauren Kingry, gave
a snapshot of the industry in Arizona.
He noted that, while the last five years
have been difficult, most of the relevant
metrics are improving for the industry
in Arizona.
The economists presented a more
complex picture of where things are
and where they are likely to go. The
question that provoked the most interest
was when the Federal Reserve may raise
short term interest rates. Our national
economist believes that won’t happen
until late next year.
We also heard from Alfred Pollard,
General Counsel of the Federal Housing
Finance Agency (FHFA), the receiver for
Fannie Mae and Freddie Mac. Pollard
discussed current issues confronting
mortgage finance markets. He also
addressed FHFA actions relating to the
Federal Home Loan Banks, and he gave
the group his takeaways from The Great
Recession.
The cybersecurity legal team from
Quarles & Brady briefed us on some
alarming trends in cyber-attacks and
Alfred Pollard of FHFA; Paul Hickman, President of AzBA; Wes Hoskins of ABA; Matt
Brown of ABA; Lynne Herndon, BBVA Commpass City President and AzBA Immediate Past Chairman; James Ballentine of ABA
data breaches. They noted that cybercriminals are becoming much more
adept at compromising data security
systems, particularly at the merchant
level. The attacks are becoming more
sophisticated and frequent.
How businesses are responding to
the state level legalization of marijuana
was also examined. Washington and
Colorado have legalized retail sales
of marijuana and an additional 21
states and the District of Columbia
have legalized medicinal marijuana.
Arizona’s medical marijuana statute
provides specific workplace discrimination protections to registered medical
marijuana card holders, which presents
Alfred Pollard, General Counsel for The Federal Housing Finance Agency
some unique challenges to all employers
in this state, not just banks.
Smith engaged in a lively discussion
moderated by Arizona’s former Attorney General Grant Woods.
One of the most interesting aspects of
the issue from a legal perspective, however, may be how the banking industry
has inadvertently become the major
obstacle to the marijuana industry’s access to the payments system. This is due
to the fact that marijuana is still illegal
under federal law.
Banking is an extremely competitive
industry, but these annual meetings
always prove to be an enjoyable opportunity to reconnect with colleagues
and learn from peers. The bankers are
proud to hold their annual meetings in
Arizona and look forward to next year’s
gathering in Tucson. w
At the end of the conference we heard
from two leading candidates to be Arizona’s next governor. Former Clinton
Administration White House aide Fred
DuVal and former Mesa Mayor Scott
n Annual
Convention — continued on page 10
SUMMER 2014
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n Annual
Convention — continued from page 9
Shane Randall, EVP of Western State Bank; Justin Corey, IBIS; Kristin Godfrey, Stinson Leonard Street; Darrell Husband, Riley Carlock & Applewhite
Patricia Rourke; President of Bankers Trust
Nancy Gray, Harland Clarke
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www.azbankers.org
Terry Frydenlund, President of 1st Bank Yuma; John McCormack, FHLB San
Francisco; Jerry Ernst, President of Horizon Community Bank and
Steve Jerome, Snell & Wilmer
Dr. Dennis Hoffman, Economist and ASU Professor
Jim Pishue, President of Washington Bankers Association;
Scott Jenkins, Ryley Carlock & Applewhite; Mike Thorell, President of
Pinnacle Bank; Nancy Gray, Harland Clarke.
Jim Patterson, CEO of UMB Bank Arizona; Nick Chatham, Eide Bailly; Kevin Halloran, Mutual of Omaha Bank; Darrell Husband, Ryley Carlock & Applewhite
n Annual
Convention — continued on page 12
SUMMER 2014
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n Annual
Convention — continued from page 11
Curt Hansen, National Bank of Arizona; Glenn Martin, Promontory
Interfinancial Network
Red Rock Banquet
Christopher Owen, President of Nordstrom Bank; Cyndi Luhtala;
Chuck Luhtala, President Canyon Community Bank; Liz Thorell; Mike Thorell,
President of Pinnacle Bank.
Brian Ruisinger, President Bank 1440; Linda Ruisinger; Travis Smith,
Moss Adams
Scott Smith, Former Mayor of Mesa; Grant Woods; Fred Duval
12
n Annual
www.azbankers.org
Convention — continued on page 14
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n Annual
Convention — continued from page 12
Jim Lundy, CEO of Alliance Bank of Arizona; Grant Woods; Lynne Herndon, BBVA
Compass City President and Immediate Past Chairman of AzBA; Fred DuVal; Scott
Smith; Mike Thorell, Pinnacle Bank President and AzBA Chairman; Paul Hickman,
AzBA President and CEO
Jim Patterson, UMB; Anita Patterson; Jeffrey Verbin, Greenberg Trauig
LLP; Jack Barry, CEO of Arizona Region of Enterprise Bank & Trust
14
www.azbankers.org
Brian Riley, President and CEO of Mohave State Bank, receives a prize
from Kevin Dugan of Travelers Insurance
Dan Rourke; Pat Rourke, President of Bankers Trust; Gary Smith, Eide Bailly; Mari Smith;
Nick Chatham, Eide Bailly; Jeff Ekbom, Stinson Leonard Street
Mike Thorell, President of Pinnacle Bank and new AzBA Board Chairman,
having fun at the IBIS booth.
Paul Hickman, AzBA President and CEO; Theresa Kleinlein, AzBA Director of Communications; James Ballentine, ABA Vice President
Mary Lynn Lenz, President of The Foothills Bank, receiving a prize for visiting
Lauren Whitt at Jackson White LLP booth
Awarding the IPad Mini Prize to Regina Edwards, Board of Directors for
Republic BankAZ.
Michael Brown, Wells Fargo Economist
SUMMER 2014
15
111th Annual Convention & Meeting
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Shifting Gears From
Legislation to Elections
By JAY KAPROSY, Veridus, Director
T
HE LAST DAY OF ARIZONA’S 2014
LEGISLATIVE SESSION ALREADY
SEEMS TO BE PART OF THE DISTANT PAST. WE HAVE
celebrated our legislative victories, of
which there were many including big
victories on anti-deficiency legislation, derivatives, and UCC. We have
breathed a sigh of relief that the banking industry escaped another legislative
session unscathed. The economic
recession and the resulting foreclosures
have made banks an unfair target of
poor public policy, but the Association
and its allies have defeated every one of
these potentially damaging proposals.
The Annual End of Session report has
been delivered and the Arizona Bankers Association Annual Conference has
come and gone. But the work is never
done.
The flip side of the coin in politics
and lobbying is elections. 2014 is a big
election year in Arizona. All ninety legislators and all the top statewide offices
will be up for grabs. A new Governor
will be elected and the Speaker’s chair
in the House will be vacant. For those
that watch elections closely, this will be
an exciting election to watch as it is the
first election since the very contentious
issue of Medicaid expansion split the
Republican caucuses.
A successful legislative strategy starts
with identifying, educating, and supporting high quality legislators. After
all, these are the men and women who
will deliberate on legislation and cast the
votes that will mean success or failure.
In fact, the most important part of an
elections strategy is educating future
legislators about the issues they will face
if and when they are elected. Arizona
prides itself on having a citizen Legislature. Arizona legislators are: ranchers,
realtors, small businesspersons, bus drivers, lawyers and everything in between.
They can’t be expected to be an expert
on every issue. How many average people understand the regulatory demands
of Dodd-Frank? How many understand
the foreclosure or tax lien sale processes? Of course, the answer is very
few. That is why your Arizona Bankers
Association and its contract lobbyists at
Veridus are out meeting with candidates
and letting them know the issues that
are important to banking. We are making ourselves available as a resource for
legislators seeking to learn more.
While many complain that there
is too much money in politics, it is a
necessity in order for a quality candidate
to make their voice heard and deliver
their message to voters. Organizations
that financially support high quality candidates are carrying out a civic
responsibility. The banking industry is
impacted by so many areas of public
policy that it behooves the industry to
support candidates that demonstrate a
strong character, a willingness and ability to listen, and a dedication to doing
what is in the best interest of Arizona.
One of the easiest ways to support a
strong well-informed electorate is to support the Arizona Bankers Association
PAC.
Voting will begin when early ballots
for the Primary Election are mailed out
on July 31st for the August 26th primary election. General election voting
will begin when early ballots are mailed
out for the November 4th General Election. w
SUMMER 2014
17
COUNSELOR’S CORNER
Enforcing Real Estate
Collateral Judicially
Now Less of a Lesser Alternative
By CHRISTOPHER M. MCNICHOL, Gust Rosenfeld P.L.C.
foreclosures as it relates to property
on 2 ½ acres or less and limited and
utilized as a dwelling (think: residential). If the lender forecloses via trustee's
sale, it makes no difference whether
the loan was for purchase money. The
lender may not then recover a deficiency.
However, in a judicial foreclosure,
only "purchase money" loans on such
properties are protected. Thus, a lender
holding a non-purchase money loan
(e.g., a home equity loan) may still seek
a deficiency if it forecloses judicially,
even if the property were to otherwise
qualify for anti-deficiency protection.
Refinanced Loans. A fairly recent
Arizona Court of Appeals decision
clarified that while a refinanced loan
is technically still a "purchase money"
loan, the "cash-out" equity from a
refinance is not encompassed within the
anti-deficiency protection. Only the
original purchase money amounts in a
refinance, not the monies representing
“cashed out” equity, is insulated. This
bifurcation of the loan may inform the
lender's decision about what foreclosure
option to pursue.
A
LENDER FACED WITH FORECLOSING A DEED OF TRUST
AFTER A BORROWER’S DEFAULT MAY CHOOSE BETWEEN
two alternate remedies: foreclose by
non-judicial trustee's sale; or file a complaint in court for judicial foreclosure.
(As an aside, if an Arizona lender still
has that almost extinct lien instrument
called a mortgage, judicial foreclosure is
the only option.)
A lender almost always will pursue
a trustee's sale. It requires no judicial
involvement (unless a borrower or thirdparty files a lawsuit to block it), it is
quicker (can be completed in as little as
91 days after recording a notice of trustee's sale), and there is no redemption
period after the issuance of the trustee's
deed, although there are exceptions for
the I.R.S. and some other federal liens.
18
www.azbankers.org
Acceleration of Loan and Avoiding Reinstatement. While a trustee’s
In contrast, a judicial foreclosure
takes much longer and costs more,
including necessary attorneys' fees and
court costs. And the usual six-month
statutory redemption period after a
sheriff's sale means that the lender, if
it is the successful bidder, may not get
clear title through the sheriff's deed
until a year or more after the action was
first filed.
But wait. There are times when a judicial foreclosure is more advantageous
to the lender. Recent cases and statutory changes mean lenders may choose to
eschew the more summary trustee's sale
process in favor of the lengthier judicial
foreclosure. In particular:
Deficiency Rights. There is a
slight yet key difference in the wording of Arizona's anti-deficiency statutes
relating to trustee’s sales and judicial
sale is pending, the borrower may “reinstate” the loan by curing all defaults.
By contrast, filing a judicial foreclosure
action enforces acceleration, and allows
the lender to deal effectively with the
chronically defaulting borrower, at least
regarding monetary obligations.
Validating the Loan and the
Lien. A judicial foreclosure establishes
the validity of the loan and the loan
documents. The Court determination
implicit in a judgment may be particularly desirable when there is some
question about the execution of the
documents, the amount of the loan,
the legal description of the encumbered
property, or a non-monetary default,
such as waste.
Priority of the Lien. Similarly, a
judicial foreclosure may establish the
priority of other liens, such as whether
a mechanics' lien breaks the priority of the deed of trust, or
whether an advance under a senior loan remains prior to a
junior loan.
Joining With Additional Claims/Multi-State Matters. Additional claims that can only be brought in a court
We Are
Your Solution!
action, such as for the appointment of a receiver, waste,
guarantor liability, and of course deficiency liability, may be
handled in a single judicial proceeding. This may become
even more relevant to a loan that includes collateral outside
of Arizona, requiring multi-state enforcement, particularly
where the laws of different states may conflict concerning
the timing, sequencing, and effect of lien enforcement and
deficiency rights.
Now, more than ever, lenders should consider at the outset
the possible benefits of pursuing judicial foreclosure, even
with the extra time and costs when compared to the far more
common trustee's sale. w
For more information contact Christopher M. McNichol at 602-257-7496;
mcnichol@gustlaw.com. Chris practices in the area of real estate transactions
and litigation. He is a Partner and Chair of the Real Estate Section at Gust
Rosenfeld PLC.
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regulatory compliance, or trust audits, or a
compliance training partner, we are your solution!
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September 30th - October 2nd, 2014
SUMMER 2014
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RESPA/TILA Reform -
forms, but to also simplify the forms to
be easily understood by the consumer.
By DARLIA FOGARTY, Director of Compliance and Dimitris Rousseas
Association General Counsel
Before we go into the requirements of
the new forms we would be remiss if we
did not also note that the proposed integrated mortgage disclosure rule added
some language to the official interpretation of Regulation Z which is seemingly
unrelated to integrated disclosures. The
CFPB slipped in a fairly big change that
may broaden the scope of Regulation Z
to expressly include loans to trusts.
Through Mortgage Disclosure
Integration
Section 1026.3(a)(2) of Reg Z specifically exempts extensions of credit “to
other than a natural person.” Many
compliance specialists often argued
that because trusts are not defined as
“natural persons,” a loan to such an
entity would be exempt from the regulation. While there has been debate to
the contrary, and even some case law
suggesting that revocable trusts are still
subject to the rule, there was no definitive guidance — until now.
R
EMEMBER BACK IN 2012 WHEN
THE CFPB PROPOSED THE “INTEGRATED MORTGAGE
DISCLOSURES?” THIS RULE
requiring the know-before-you-owe
disclosures was touted by many as the
perfect marriage of TILA and RESPA.
Before we buy into that description,
let’s take a deeper dive into exactly
what changes are found buried within
the 1,888 pages of explanations, requirements and model disclosures.
The CFPB received over 3,000 comments when the rule was first proposed.
The CFPB expected this type of reaction
because of the significant changes. The
new requirements not only affect two
major regulations, they also affect the
entire residential real estate industry.
The CFPB responded to the comments
by adding over 750 pages to the regulation, bringing the total to 1,888 pages
for this amendment alone. Of course
the agency is justifying these changes by
stating that the actual regulatory chang-
es only account for 70 pages, bringing
the total to 279 pages in length. By any
standard, that is a lot of information
to digest and implement. Ah, I digress.
Let’s put these facts out of our mind and
move on to what this actually means to
us as bankers.
The purpose of the rule is to improve
the way consumers get loan information when they apply for and close
on a mortgage loan. The majority of
the requirements are about the two
required disclosure documents, which
are the Loan Estimate (replaces the
current GFE, Appraisal Notice, Servicing Disclosure, ECOA Notice and the
Early Truth-in-Lending) and the Closing
Disclosure (replaces the current HUD
and the Final Truth-in-Lending). The
rule also contains some key provisions
about the timing of these disclosures.
The purpose of reducing the number of
the disclosures to only two is not only
to reduce the burden on the lenders and
other loan personnel who prepare these
The integrated disclosure rule now
amends the commentary to section
1026.3(a)(2) and provides, in part that,
“Credit extended for consumer purposes to certain trusts is considered to
be credit extended to a natural person
rather than credit extended to an organization.” (Commentary to 12 CFR
1026.3(a)). The commentary further
explains: “Regardless of the capacity or
capacities in which the loan documents
are executed, assuming the transaction is primarily for personal, family
or household purposes, the transaction
is subject to the regulation because in
substance (if not form) consumer credit
is being extended.” If a loan to a trust
is for a consumer purpose, then Regulation Z, and all its glory, will apply.
Now for the agencies’ stated purpose
of the rule, let’s break the requirements
of the final rule into five sections:
First, either the lender or the broker
may deliver the Loan Estimate to the
n RESPA/TILA
— continued on page 22
SUMMER 2014
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n RESPA/TILA
— continued from page 21
THE FINAL FORM DE-EMPHASIZES APR BECAUSE, IN TESTING, THE
CONSUMERS FOUND THE APR TO BE CONFUSING, BUT INCLUDES SOME
NEW DISCLOSURES THAT WERE MANDATED BY DODD-FRANK, SUCH AS
TOTAL INTEREST PERCENTAGE AND THE “IN 5 YEARS” CALCULATION.
consumer; however, ultimate responsibility falls on the lender.
The final form that the CFPB developed is a three-page form. The final
form de-emphasizes APR because, in
testing, the consumers found the APR
to be confusing, but includes some
new disclosures that were mandated
by Dodd-Frank, such as total interest
percentage and the “In 5 Years” calculation.
Second, there are multiple versions of
the loan closing form to account for different transaction types, for example a
refinance and a purchase have different
forms from each other. This will be a
training concern — ensure lending staff
understands the definition of each type
of transaction and the “real purpose of
the loan.” For instance, staff should be
able to differentiate between a land-only
loan, construction-only and construction-to-permanent loan.
There also is a “seller-only” form
required for closed-end loans in residential transactions. Other loans, such as
reverse mortgages and home equity lines
of credit and other mortgages secured
by a mobile home or by a dwelling that
is not attached to the real property, will
still use the HUD-1 form.
The new Loan Estimate co-mingles
lender and settlement costs with loan
terms and replaces the HUD line numbers with an alphanumeric system. The
Closing Disclosure itemizes the costs
and includes section totals rather than
lumping costs together and rolling them
up into one line item. Because the form
22
www.azbankers.org
is a combination of loan information
and settlement costs, communication
and cooperation between the lender
and closing agent is vital. If the settlement agent completes the loan closing
disclosure form, the lender needs to
provide a copy of the loan estimate form
to provide the information necessary for
an accurate Closing Disclosure.
Third, the initial Loan Estimate must
be delivered or mailed to the borrower
no later than three business days after
the lender receives the mortgage application and no less than seven business
days before consummation of the loan.
A revised Loan Estimate due to changed
circumstances must be delivered or
placed in the mail within three business days of the lender’s knowledge of
a changed circumstance; however the
borrower must receive it no later than
four business days before consummation of the loan.
The borrower must receive the
Closing Disclosure no later than three
business days prior to the consummation of the loan. A revised loan Closing
Disclosure can, in most cases, be delivered and received at the closing. Key
points of the Three-day Rule include:
• If disclosures are not delivered in
person, but are instead delivered
by mail, electronic media or a courier; the borrower is considered to
have received the disclosure three
business days after being placed in
the mail, sent by email or placed
with a courier. Accordingly, if
delivering other than in person,
an additional three business days
is required in order to ensure
•
•
receipt by the borrower no later
than three business days prior to
consummation.
The lender is allowed to rely on
evidence that the consumers actually received the disclosure earlier,
if the disclosure is sent by email
(assuming the consumer has consented to email and complied with
E-sign requirements), and receipt
is acknowledged the same day
as the lender sent them, then the
lender can rely on the actual day
of receipt and consummation may
take place on the third business
day after the actual receipt.
The loan closing disclosure can
change from the time received by
the borrower and consummation
unless (a) the APR changes by 1/8
of 1%, or (b) the loan product
changes, or (c) a prepayment penalty is added. In any of those three
instances, a re-disclosure must be
received by the borrower three
business days before consummation, meaning that consummation
would be delayed.
Fourth, the “tolerance levels” are
kept intact; however, some of the items
falling within the “buckets” will be
changed for loans that require the
disclosures.
In the zero tolerance bucket, there
can be no increase for any item in this
bucket in the amount paid at closing
over the estimated amount on the loan
estimate form for borrower paid:
• Charges paid to the lender and/or
broker for their own fees, such as
origination charges;
•
•
•
Transfer taxes;
Fees paid to an affiliate of the
lender or broker for a service
required by the lender (this is a
change from the current tolerances); and
Fees paid to an unaffiliated service
provider for a service required by
the lender if the borrower was not
allowed to shop for the provider
(which is not a zero tolerance item
under current HUD regulations)
In the 10 percent bucket, charges for
services that can increase, but by no
more than 10 percent in the aggregate
are:
• Fees paid to a third-party provider
not affiliated with the lender for
a service required by the lender if
the lender permitted the borrower
to shop and the borrower still
selected off the lender’s provider
list; and
• Recording fees paid by the borrower
Changes that can increase by an
unlimited amount over the estimated
amounts on the loan estimate form
include:
• Prepaid interest;
• Property insurance;
• Amounts for escrow deposits
(taxes, insurance);
• Fees paid to third-party providers
selected by the borrower and not
on the lender’s list of providers;
and
• Charges paid for third-party services not required by the lender
The lender can issue a revised Loan
Estimate if a “changed circumstance”
occurs. If a “changed circumstance”
occurs causing an increase in charges
above the applicable “tolerance level,”
the lender must provide an updated loan
estimate form within three business
days after having knowledge of the
change. Examples of “changed circumstances” that would allow for revisions
in the loan estimate include:
Bank Consultants
ATM Authority................................................................... Page 2
Banking Equipment & Security Services
Diebold............................................................................ Page 25
Compliance and Internal Audit Services
Iversen & Anderson........................................................ Page 19
•
•
•
•
•
•
The consumer asks for a change;
Information provided in the application was inaccurate or has
changed since the application;
New information as to the consumer or transaction is provided
that the lender had not relied on;
The Loan Estimate expires;
Interest rate dependent charges
(when the rate is locked by the
consumer, lender must provide
revised loan estimate showing all
such changed charges); and
Extraordinary event occurs beyond the control of any party
It is critical to start now on system
changes, training (to include how to
complete the new forms), policy and
procedures/processes. It may seem like
the mandatory compliance date of Aug.
15, 2015, is far off, but the clock is
ticking and there is a lot of work to be
done. w
Jennings Strouss................................................................ Page 3
Ryley Carlock & Applewhite............................................ Page 27
Stinson Leonard Street.................................................... Page 13
Receiverships/Property Management
Young & Associates .......................................................... Page 5
Law Firm
Engelman Berger, PC....................................................... Page 24
Gust Rosenfeld................................................................ Page 28
SUMMER 2014
23
24
www.azbankers.org
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