Sen. Travis Holdman A Duty for Public Service INDIANA BANKERS ASSOCIATION MAY / JUNE 2023 PLUS! FLD Day at the Statehouse
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DIRECTORS & STAFF PUBLISHER Amber R. Van Til EDITOR Evan Hoffmeyer ADVERTISING Rod Lasley DESIGN The Westcott Group Inc. SUBMISSIONS HB@indiana.bank ADVERTISING Media kits are available at indiana.bank. Advertising is reserved for members and associate members of the Indiana Bankers Association. DEADLINES Editorial and ad reservations are due the 20th of the month, two months before publication. SUBSCRIPTIONS Subscriptions are provided free of charge to members and associate members of the Indiana Bankers Association. ABOUT The flagship publication of the Indiana Bankers Association, Hoosier Banker is distributed to all banks and thrifts headquartered in Indiana, IBA-member banks headquartered out-of-state and IBA associate members. PUBLICATION DISCLAIMER Hoosier Banker (ISSN 0018 473X) is published bimonthly by the IBA Service Corp., a subsidiary of IBA Holding Company Inc., which is a wholly owned subsidiary of the Indiana Bankers Association. Material published in Hoosier Banker and on the IBA website is the property of the IBA. All rights reserved. CONTACT IBA Email IBA staff using first name initial and last name, plus “@indiana.bank” – example: jdoe@indiana.bank INDIANA BANKERS ASSOCIATION 8425 Woodfield Crossing Blvd., Suite 155E Indianapolis, IN 46240-7321 Vol. 107 No. 3 IBA BOARD OF DIRECTORS Officers Jamie R. Shinabarger, Chairman..........Springs Valley Bank & Trust Company, Jasper Benjamin J. Bochnowski, First Vice Chairman ..............................Peoples Bank, Munster Matthew W. Howrey, Second Vice Chairman ..............................North Salem State Bank Garry D. Kleer, Immediate Past Chairman ............................................. First Bank Richmond Amber R. Van Til, President and CEO ........................................Indiana Bankers Association Constituent Directors Michael K. Bauer, ABA Membership Council ..............WesBanco Bank, Wheeling, WV Sherri L. Reagin, ICBA State Director.................................................. North Salem State Bank Brock C. Goggins, IBA FLD President............................... German American Bank, Jasper Joseph F. Breen, Non-IN HQ Banks ...........Huntington National Bank, Columbus, OH Regional and At-Large Directors David M. Findlay, At-Large ..........................................................................Lake City Bank, Warsaw Kent A. Liechty, At-Large.........................................................................................First Bank of Berne J. Daniel Maddox, North Region ...........................................Citizens State Bank, New Castle Bradley J. Monts, North Region..............Hoosier Heartland State Bank, Crawfordsville Jacqueline M. Ruge-Perkins, North Region ...............................First State Bank of Porter Lisa Arnold, South Region...........................................................................Home Bank, Martinsville Mark E. Bruin, South Region ...............................................The National Bank of Indianapolis Gregory Inman, South Region .......................Scottsburg Building and Loan Association IBA FUTURE LEADERSHIP DIVISION ADVISORY BOARD Brock C. Goggins, President ................................................... German American Bank, Jasper Michael J. Clampitt, Vice President .....................................................North Salem State Bank Ryan Anderson .............................................................The Fountain Trust Company, Covington Greg Barnes Jr. .....................................................................................................STAR Bank, Fort Wayne Jenilee Bransteter........................................................................................................First Bank of Berne Ryan Cook .................................................................................................Mutual Savings Bank, Franklin Kyle Goodwin ................................................................................................................DeMotte State Bank Christopher Griffith ..............................................................................First Harrison Bank, Corydon Zach Hockersmith ...........................................Hoosier Heartland State Bank, Crawfordsville Casey Johnson ....................................................................................................Home Bank, Martinsville Jonathon Malin ........................................................Community First Bank of Indiana, Kokomo Andrea McGordon .................................................................................Old National Bank, Evansville Amanda Morris-Feldman ............................................First Federal Savings Bank, Rochester Jon-Myckle D. Price .............................................Security Federal Savings Bank, Logansport Laura Shake.....................................................................................The National Bank of Indianapolis Casey Shireman ...........................................................................................................NWSB, Charlestown IBA STAFF Amber R. Van Til ............................................................................................................President and CEO Rod Lasley ................................................................................................................Chief Operating Officer Dax Denton ........................................................................................................................Chief Policy Officer Christina M. Bennett, CMP...............................................Vice President - Meetings & Events Josh Myers............................................................................Vice President - Member Engagement Laurie A. Rees ........................................................................Vice President - Education & Training Ross Teare .............................................................................Vice President - Government Relations Evan Hoffmeyer ....................................................Assistant Vice President - Communications Emily Brooks............................................................................................................Digital Media Manager Maria L. Dowers ...........................................Executive & Government Relations Coordinator Susan Clark ...............................................................................Events & Products/Services Assistant Elizabeth DeHaven ....................................................................................................Education Manager Beth Abney ..........................................................................................Education Meeting Coordinator Timothy Fry ............................................................................................................................Staff Accountant Tracy Kubly ...................................................................................................................Technology Manager Silvia Peraza ..........................................................................................................Administrative Assistant HB HOOSIER BANKER indiana.bank OUR ASPIRATION The Indiana Bankers Association strives to grow stronger banks and stronger communities. OUR VALUES In fulfilling our mission, we will: Maintain the highest ethics, integrity and respect for others; Serve with professionalism, innovation and resourcefulness; Instill passion, positive attitude and enthusiasm; Remain mindful that the success of the IBA is judged by the success of its members.
IN THIS ISSUE 8 MEMBER VALUE 2022 Benefits Report Get a breakdown of everything the Indiana Bankers Association offered to its membership last year – and make sure you take advantage of all these same benefits this year! 14 ARTICLE SPOTLIGHT Grassroots Advocacy FLD Day at the Statehouse More than 60 bankers gathered at the Statehouse March 7 for the annual event introducing the next generation of leaders to how they can be a voice for the industry in the state’s halls of power. “I feel this is my calling to serve our customers and community.” 54 CLOSING NOTE IBA Board Review Bradley J. Monts, Hoosier Heartland State Bank Get to know Brad Monts, who joins the Indiana Bankers Association Board of Directors this year as a director representing the North Region. 12 Sen. Travis Holdman A Duty for Public Service
PRODUCT & SERVICES PROFILE 34 Expand Your Services and Your Bottom Line Rod Lasley, IBA OPERATIONS & TECHNOLOGY 38 Open Banking & the Future of Financial Services Shanda Purcell, CSI CLOSING NOTE 54 IBA Board Review Bradley J. Monts, Hoosier Heartland State Bank DEPARTMENTS 19 Aniversary Milestone 21 IBA ‘High Five’ Awards 24 Honorable Mentions 31 From the Board Room 37 New Bank Member 40 Banking on Community 42 Associate Members' Corner 44 Bankers on the Move 53 Advertisers Index FEATURES 06 VANTAGE VIEWPOINT Amber R. Van Til, IBA 07 CHAIRMAN'S REPORT Jamie R. Shinabarger, Springs Valley Bank & Trust Company, Jasper 08 MEMBER BENEFITS REPORT 11 IBA CALENDAR OF EVENTS COVER STORY 12 Sen. Travis Holdman 28 PERSONAL STORIES OF COMMUNITY BANKING Rebeca Romero Rainey, ICBA 30 MEETING IN THE MIDDLE (ware) Robert S. Nichols, ABA 36 LOAN REVIEW BEST PRACTICES David Ruffin, IntelliCredit ARTICLES ARTICLE SPOTLIGHT 14 Grassroots Advocacy Josh Myers, IBA DIRECTORS / SENIOR MANAGEMENT 18 What the MIP Cut Means to MBS Investors Andrea F. Pringle, The Baker Group COMPLIANCE CONNECTION 20 Electronic Mortgage Loan Transactions Maria M. Vladimirova, Krieg DeVault LLP PSP SHOWCASE 22 Buydown Program Considerations Elizabeth Madlem, Bankers Alliance INDIANA BANK & THRIFT UPDATE 26 Stock Analysis Michael A. Renninger, Renninger & Associates LLC HUMAN RESOURCES 32 Time to Update Severance Agreements Debra A. Mastrian, Amundsen Davis LLC 24 40 INTERACT WITH US
6 MAY / JUNE 2023 Don’t Miss Out! Commercial Lending School June 5-9 Mid-level bank officers and commercial loan officers receive a thorough understanding of commercial loan administration. Annual Convention Aug. 27-29 Indiana bank leaders convene, connect and conduct business in scenic French Lick. IBA Annual Washington Trip Sept. 25-27 Join the chorus and make your voice heard on industry issues in our nation’s capital. For event updates, visit: indiana.bank/calendar Amber R. Van Til President and CEO Indiana Bankers Association AVanTil@indiana.bank VANTAGE VIEWPOINT One of the many things that I love about my job is how easy it is to show you exactly how well your Association is doing year after year with our annual Member Benefits Report. As always, last year was another busy one as we returned to having every one of our signature events in-person after a year – or even two, in some cases – of virtual alternatives due to COVID-19. A huge thank-you to our Board of Directors, professional staff, volunteers and members for your continued support and engagement. Special recognition goes to our associate members for supporting our events and other programming at such a generous level that we have been able to hold IBA's dues structure to be one of the lowest of any state bankers association in the nation. The charts on this page show how the IBA continues to spend relatively little on office management and administration, instead spending the bulk of our investments on member benefits from education and events to communications and government relations. You can find a more detailed breakdown of what the Association provided in the full 2022 report, which is laid out on pages 8-9 of this issue. We’ll also have printed copies available at many of our in-person events throughout the rest of the year, including our Regional Meetings this summer. If we've learned anything so far this year, it's that we can never grow complacent. While we beat back anti-ESG (environmental, social and governance) legislation at the Statehouse last year, it came roaring back even stronger this year. Our incredible government relations team spent last summer working with lawmakers, knowing that this issue was going to return this year. That diligence paid off with a measured and thoughtful product that addressed legislator concerns while appropriately exempting bank holding companies and their subsidiaries from the bill's provisions. We also saw positive movement on a number of other key issues, including data privacy. Dax Denton and Ross Teare will have a full recap of their work with legislators in the July/August Hoosier Banker. In the wake of the failures of Silicon Valley Bank and Signature Bank on the coasts, we’re also seeing a fresh wave of negative stories about banks in the media. We will continue to be your public voice, telling the story of how Indiana banks are as strong – or stronger – than ever. Hoosier bankers are dependable partners standing alongside your communities every day. If you ever feel discouraged by media coverage, focus on the one-on-one conversations you have with your clients. Hoosiers know they can trust their community banks to give them accurate information and valuable advice for their specific needs. If the Association can ever be an added resource to you, reach out to anyone on staff. I look forward to this time next year when we’re celebrating an incredible 2023! HB 5% Communications 4% Products & Services 48% Education, Training & Events 23% Management & General 20% Government Relations 25% Membership Dues 2% Contributions 14% Investment Income 16% Products & Services 40% Education, Training & Events 3% Communications IBA INCOME IBA EXPENSES
Hoosier Banker 7 Every bank in Indiana is looking for ways to stretch a dollar, improve organizational efficiency, grow our people, find great third-party products and partners, and positively influence a pro-banking climate (at both the state and federal level). What’s one simple way to accomplish all these objectives simultaneously? Fully engage with your Indiana Bankers Association! Only through an “all-in” commitment to fully engage and actively partner with IBA can an institution truly maximize their membership value. Your purchasing power increases exponentially when combined with all the other banks throughout the state. The various IBA peer groups for officers and key banker roles provide a forum for the exchange of ideas across many areas. The leadership development opportunities are many (Future Leadership Division, FLD Day at the Statehouse, Banking on Women, etc.) and the educational sessions offered up and down the banking org chart are extensive. As the saying goes, “If we don’t offer it, chances are you don’t need it!” The role that IBA plays through the vetting of Preferred Service Providers and associate members strategically jump-starts any member’s due-diligence efforts and shortens the search time (and lessens the expenditure of critical resources) for that next key product or partner. And we can’t forget the diamond in the crown of IBA, our Government Relations team. With one of the biggest PACs in the state and deep relationships with key state legislative leaders, you can be assured your voice resonates loud and clear in the halls of the Indiana Statehouse. Our annual Washington, D.C. trip is a combination of civics lesson, relationship building, lobbying and networking that can’t be equaled! Combine this with some of the largest state association federal PAC dollars proportionately up-streamed to our national affiliates, ABA and ICBA, and you get Indiana banks indelibly leaving our mark on Capitol Hill. Jamie R. Shinabarger Chairman Indiana Bankers Association CEO and Director Springs Valley Bank & Trust Company, Jasper CHAIRMAN'S REPORT First Federal Savings Bank of Angola • @ffsbangola Apr 19 President Scott Gruner recently led Hendry Park 3rd Graders on a bank tour, with demonstrations by Operations Officer Angela Crone and other staff. It was an exciting hour with many great questions coming from Mrs. Gruner’s class! Stock Yards Bank & Trust Company • @sybsince1904 Apr 18 SYBT was the presenting sponsor for the inaugural Dash by the Past 5K benefiting @Eskenazi Health Mental Health awareness campaign. Petunia (our beloved inflatable pig!) loved meeting everyone at the finish line this past Saturday. Many thanks to all those who came out! Community First Bank of Indiana • @CFBIndiana Apr 17 A great day spent sharing our Financial Literacy curriculum with the incredible students at Noblesville’s Miller Success Academy! #FinancialLiteracyMonth STAR Bank • @STARFinancial • Apr 13 STAR Personal Banker Tyraine Mabon spent some time with students at our Immersive Learning Branch at Zionsville High School on possible career paths in banking. #BankOnSTAR #IndianaBornForIndianaBanking #ThinkOutsideTheBank 1st Source Bank • @1stSourceBank • Apr 6 The SB Thrive project is going to have such a positive impact by offering equitable housing to individuals and families in our community. The 1st Source Foundation is proud to support the important work being done by the South Bend Heritage Foundation through this project! Follow IBA Twitter @indianabankers NOTABLE QUOTES Bank Community Service on Twitter N A communications toolkit created by the Indiana Bankers Association helps member banks share good-news stories with media outlets. View the toolkit at: indiana.bank/communications-toolkit. Toolkit Helps ‘Tell the Story’ of Banking Tell the Story May I leave you with a few thought-provoking quotes around the kind of success that only comes when we work collectively and engage wholeheartedly? Talent wins games, but teamwork and intelligence win championships – Michael Jordan Teamwork is the fuel that allows common people to attain uncommon results – Andrew Carnegie It is literally true that you can succeed best and quickest by helping others to succeed – Napoleon Hill The difference between involvement and commitment is like ham and eggs. The chicken is involved; the pig is committed – Martina Navratilova Choose to fully engage on as many levels of your IBA membership as you possibly can. You’ll “get” in proportion to what you “give.” HB
IBA 19 Preferred Service Providers 202 Associate Members 10 Diamond Associate Members 0 200 400 600 800 1000 1200 890 1,100 460 260 50 450 $0K $50K $100K $150K $200K $250K $300K $350K $400K $450K BANKPAC Dollars Raised Dollars Distributed $410,000 $405,000 137 candidates supported 71 Fair Share contributor banks 81% bank member participation BANKPAC 200% CLUB 22
9 6 Hoosier Banker E-News Directory of Financial Institutions Insighter FLD Focus Service Provider Showcase 0 10 20 30 40 50 60 70 80 90 100 67 Networking Lunches 92 Leadership Conference 70 Mega Conference Networking Reception 53 Day at the Statehouse $2,700 2
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View full calendar and register online at indiana.bank/calendar, or click on the icons above in HB Digital. IBA Center for Professional Development | 8425 Woodfield Crossing Blvd., Suite 155E | Indianapolis, IN 46240 | 317-387-9380 ONLINE Build knowledge via webinars or on-demand. CLASSROOM Learn with peers in a classroom setting. SCHOOLS Deepen understanding through multi-day learning. EVENTS Experience a variety of IBA gatherings. CONFERENCES Convene and connect at signature IBA events. Calendar of Events Compliance Officer Forum June 1 • IBA Center Commercial Lending School June 5-9 • IBA Center CFO Forum – Group 1 June 8 • IBA Center CFO Forum – Group 2 June 9 • IBA Center Bank Operations Bootcamp June 13 • IBA Center Commercial Loan Documentation June 13 • IBA Center Compliance for Lenders and Loan Processors June 14 • IBA Center Senior Lender Forum – Group 1 June 14 • IBA Center Senior Lender Forum – Group 2 June 15 • IBA Center Safe Deposit Regulatory Compliance & Security Issues June 15 • Virtual Emerging Leader Digital Program: Managing and Performance (1 of 6) June 20 • Virtual BSA/AML Compliance School June 21-22 • IBA Center Website Optimization and Content Strategy Bootcamp June 26 • IBA Center Marketing Directors Forum June 27 • IBA Center Frontline Branch Series – Session 2: Wowing the Customer June 28 • Virtual Information/Cybersecurity/IT/ Operations Officer Forum – Group 1 June 28 • IBA Center Information/Cybersecurity/IT/ Operations Officer Forum – Group 2 June 29 • IBA Center Professional Development/Education/ Training Forum July 11 • IBA Center Essentials of Banking: Credit and the Banking Business (3 of 4) July 11 • Virtual Essentials of Commercial Credit Analysis Series: Effective Credit Memos, Proper Loan Grading, Portfolio Management and Relationship Building (4 of 4) July 12 • IBA Center Outside Calling School – Part 1 July 13 • Virtual Retail Lending Series: Building Client Loyalty and Growing the Bank (4 of 4) July 13 • IBA Center Human Resources Directors Forum July 18 • IBA Center Risk Management Forum July 20 • IBA Center Outside Calling School – Part 2 July 20 • Virtual Emerging Leader Digital Program: Influence & Relationships (2 of 6) July 25 • Virtual Frontline Branch Series – Session 3: Your Advisory Role July 26 • Virtual Community Bankers for Compliance Program – Session 3 Aug. 8 • IBA Center Flood Insurance Aug. 9 • IBA Center Retail Banking Management Series: Serving with Excellence and Growing the Retail Branch (3 of 4) Aug. 15 • IBA Center Emerging Leader Digital Program: Time Management (3 of 6) Aug. 15 • Virtual Certified Banking Vendor Manager Aug. 16-17 • Lewis University Oak Brook, Ill. Consumer Lending School Aug. 21-22 • IBA Center Loan Operations Manager Forum Aug. 23 • IBA Center Leadership Development Program – Session 3 Aug. 22-24 • Abe Martin Lodge Brown County State Park Annual Convention Aug. 27-29 • French Lick Resort Frontline Branch Series – Session 4: Ambassadorship and Growth Aug. 30 • Virtual 2023 Security & Technology Conference Sept. 6-8 • Renaissance Hotel • Carmel NOTE: For the latest information about IBA event dates, locations and format, please visit: indiana.bank/calendar CALENDAR UPDATE
12 MAY / JUNE 2023 COVER STORY The Indiana General Assembly has wrapped up another “long session.” Those are the sessions in odd-numbered years that traditionally run a full four months from the first week of January through the end of April. That gives lawmakers some extra time to consider the state’s biennial budget in addition to their normal legislative business. Indiana’s banking community is fortunate to have a number of lawmakers in both the House and Senate with direct banking backgrounds and/or experience serving on bank boards, giving them better insight into how the laws they consider will impact not only Hoosier bankers but the communities we serve. One of those lawmakers is Sen. Travis Holdman, a Republican serving Adams, Allen, Blackford, Jay and Wells counties in the northeast portion of the state. Sen. Holdman was gracious enough to take some time while still in the middle of this legislative session to answer some questions from Hoosier Banker about his experience in the Indiana Senate and how bankers can take part in advocacy engagement. Why did you choose to enter public service? I grew up in a God-fearing household where my parents were public servants, and they raised my seven siblings and me to find our God-given duty for service. What are your responsibilities as majority caucus chair? As caucus chairman, I am a part of our leadership team. I am tasked with scheduling and running our caucus conversations. I have been in the Indiana legislature since 2008, so I also bring institutional knowledge and am a mentor for younger legislators. What would you like for bankers to understand about the legislative process? Constituents and businesses are key to the effectiveness of the legislative process. Indiana banks and bankers are very much respected amongst legislators. For bankers interested in increasing their advocacy engagement, what advice would you offer? I would advise bankers to get to know legislators and the legislators who represent them. This could include sending an invitation for coffee, asking them to tour your bank’s facilities and/or tell the story of what your bank does for its community. As a former board chair for the Community Bankers Association of Indiana and Indiana Department of Financial Institutions, you are well acquainted with the Indiana banking community. How do you see the state’s banking industry moving through the next few years? It will be very difficult to wade through federal regulation for years to come as it has been difficult for small banks to cover the cost of compliance and improving technology with the onslaught of federal regulation on the industry. Make sure the banks are ready to take on these challenges. You hold a very significant role as chairman of the Senate Tax and Fiscal Policy Committee. What are Sen. Travis Holdman A duty for public service Sen. Travis Holdman Majority Caucus Chair Indiana State Senate
Hoosier Banker 13 your key priorities or areas of focus moving through 2023 and into 2024? I am focused on taking a holistic view of Indiana’s current tax structure with the upcoming tax commission work. Another priority is to continue to pay down the Pre-1996 Teachers’ Retirement Fund, which is a major obligation. Each year, we have a standard payment of about $1 billion we make to the fund. Once this pension plan no longer has an unfunded liability, Indiana will have freed up nearly $2 billion in the state’s biennial budget. You were first elected to the state senate in 2008. What is one of the accomplishments you are most proud of from the past 15 years? A few years ago, I was elected by my majority colleagues to become the Senate Republican Caucus chair. Becoming a leader in the caucus was a goal of mine, and I was very pleased when I was able to achieve that accomplishment. Tell us a bit about your home life and favorite hobbies/pastimes. My wife Becky and I enjoy traveling around the country and the world. We love to stay involved with our two children and our three grandchildren, with one on the way. We attend and I am a member of the board for the Tower Life Center church. HB ABOVE: Sen. Travis Holdman, R-Adams, Allen, Blackford, Jay and Wells counties, addresses the Indiana State Senate. Holdman served as chair of the Community Bankers Association of Indiana in 2004 and is also a past chair of the Indiana Department of Financial Institutions. Sen. Holdman serves as Majority Caucus Chair for the Indiana State Senate as well as chair of the Tax & Fiscal Policy Committee. He is also a member of the Rules & Legislative Procedures Committee and the powerful Appropriations Committee.
Grassroots Advocacy FLD engages bankers with annual Day at the Statehouse
Hoosier Banker 15 Josh Myers Vice President - Member Engagement Indiana Bankers Association JMyers@indiana.bank Direct engagement with your lawmakers is one of the strongest forms of advocacy, but it can also be nerve-racking if you’ve never done it before. The Indiana Bankers Association’s Future Leadership Division engaged members in grassroots advocacy with its annual FLD Day at the Statehouse March 7. More than 60 bankers took part, meeting key legislative leaders and learning the importance that advocacy plays in growing as an industry leader. The day started at the Hilton Indianapolis Hotel & Suites with a welcome from FLD Advisory Board President Brock C. Goggins of German American Bank, Jasper. He encouraged their continued participation in grassroots advocacy and suggested signing up for FLD membership as a way to enhance their career by getting involved in the industry. Participants then enjoyed a short trivia competition about the legislative session that included various facts about the legislative process, committees and more. Dax Denton and Ross Teare, IBA’s Government Relations team at the Statehouse, provided attendees with an overview of the Association’s grassroots advocacy efforts, explained their role in the legislative process and why bankers should be involved. They also took the opportunity to share the latest developments and major issues that have surfaced during the 2023 legislative session to provide insight before the day’s upcoming meetings with legislators. Bankers then traveled across the street, through Statehouse security and into the Senate Chambers for an opportunity to visit with Senate Insurance and Financial Institutions Committee Chairman Scott Baldwin, as well as Senate Majority Floor Leader and 2022 IBA Legislator of the Year award recipient Sen. Chris Garten. Both senators shared insights about their roles in the Indiana General Assembly and their work to improve their communities They also discussed the legislative session that ended in late April before taking questions from attendees on topics that were important to them. After a lively conversation, attendees traveled to the other side of the Statehouse to the House Chambers. House Majority Floor Leader Rep. Matt Lehman and Rep. Beau Baird spoke with bankers about their roles in the General Assembly and some of the major issues being discussed at the Statehouse. Bankers then broke into smaller groups for their choice of touring the Statehouse or visiting with their own state legislators. Nearly half of the event attendees took advantage of the opportunity to connect with at least one of their legislators while in the Statehouse, some creating new relationships and others reconnecting with their legislators. The group traveled back to the Hilton for a delicious networking lunch with peers. Newly elected State Treasurer Daniel Elliott spoke about why grassroots advocacy and lines of open communication with elected officials are vital for communities to thrive. He also discussed initiatives that the Treasurer’s office will be working on and opened the floor for questions from bankers. The day wrapped up with a brief discussion on how attendees can get involved and stay connected in grassroots advocacy and FLD opportunities. All in all, the 2023 FLD Day at the Statehouse was a highly successful event that was attended by many new participants and several returning attendees. For those who attended, seeing the Statehouse in-person and connecting with legislators who impact our daily lives formed a sense of familiarity with the legislative process that we hope will create grassroots advocates for the banking industry who will feel empowered to make their voice heard in the future. Thank you to the bankers who attended, the elected officials who took time to speak with our members and the legislators who met with bankers from their districts. The FLD Day at the Statehouse is a premier event of the Future Leadership Division, and we were excited to see the strong participation from our valued members. HB ARTICLE SPOTLIGHT
FLD STATEHOUSE GALLERY 16 MAY / JUNE 2023
18 MAY / JUNE 2023 DIRECTORS / SENIOR MANAGEMENT Andrea F. Pringle Financial Strategist & MBS Analyst The Baker Group APringle@GoBaker.com The Baker Group is a Preferred Service Provider of the Indiana Bankers Association and an IBA Diamond Associate Member. The Federal Housing Administration (FHA) recently announced a decrease to the annual premium charged to borrowers with FHA-backed loans. The reduction goes into effect for newly originated purchase or refi loans endorsed on or after March 20, 2023. This annual premium, called the mortgage insurance premium (MIP), is a monthly fee that FHA borrowers pay into the fund that insures FHAbacked mortgages, the Mutual Mortgage Insurance Fund (MMIF). This fund exists to guarantee lenders against loss for loans made under the FHA mortgage program. FHA mortgages are considered higher-risk because the program permits low down payments and less stringent credit qualifications than conventional home loans backed by Fannie Mae and Freddie Mac. The guarantee gives lending institutions comfort extending credit to borrowers who might not otherwise qualify for a home loan and enables them to offer these borrowers better terms. In order to fund the MMIF, FHA borrowers pay a monthly fee: the annual MIP multiplied by their loan amount (divided by 12 to arrive at a monthly amount). Prior to the recent cut, the annual premium was between 80-105 bps, based on the size of the loan and the Loan-to-Value (LTV) ratio. The new premium is 50-75 bps, a 30 bp decrease across the board. For most borrowers the fee is either 50 or 55 bps. These fees amass in the MMIF and are used to cover any losses in the event of default by an FHA borrower. This was especially important when a wave of mortWhat the MIP Cut Means to MBS Investors gage defaults associated with the Great Financial Crisis hit the fund beginning in 2008. By 2009, the fund’s capital ratio fell below its statutory minimum of 2.0% and stayed below that level until 2014. Since then, the MMIF has grown substantially, especially over the last few years when record home-price appreciation, a housing boom and significant refinance activity drove more funds into the system. By November 2022, the MMIF reported a record 11.11% capital ratio. Speculation about a cut to the MIP had been swirling for more than a year as the fund got larger and larger. By late February 2023 when the cut was announced, the move had been well telegraphed to the market and the cut largely priced in. Given how well advertised the cut was and how little of the mortgage universe is in-the-money to refinance, the cut may not mean much to mortgage-backed securities (MBS) investors in the near term. In a more normal interest rate environment, the effect of reducing the MIP would be faster prepayment speeds on Ginnie Mae MBS (FHA mortgages are securitized into Ginnie Mae MBS). This is because borrowers would be incentivized to lower their monthly mortgage payment by refinancing their loans with a new FHA mortgage tied to the lower MIP. However, today’s prevailing mortgage rates are so much higher than most existing mortgages, which were originated with historically low rates over the last few years, that this exercise will not save most borrowers money. A 30 bp cut to the MIP simply is not enough to offset newer mortgage rates that are 300+ bps higher. Further, in order to qualify for a streamlined refinance of an FHA
Hoosier Banker 19 loan, a borrower’s new all-in payment rate (mortgage rate + MIP) must be at least 50 bps below their current level. That simply is not possible for most FHA mortgages in existence today. As a result, the impact on prepayment speeds for Ginnie Mae MBS will be minimal, at least for now. The landscape will certainly change if rates fall materially in the future but we should not expect to see a significant impact on prepayment speeds in the near term. Instead, the most consequential outcome of the MIP cut may be a marginal shift in production from conventional loans to FHA loans. In January, Fannie Mae and Freddie Mac announced a range of pricing changes applicable for conventional loans that will become effective in May 2023. Some borrowers’ costs will be reduced while others will go up. The MIP cut, which reduces monthly payments for all FHA borrowers across the board, combined with the pricing changes on conventional loans, will make FHA loans comparatively less costly than conventional loans for a swath of borrowers, those with FICO scores between 680-760 and LTVs below 95. As a result, we could see some loans that would have otherwise been securitized into Fannie or Freddie MBS shift into Ginnie MBS. That would translate into a marginal increase in the supply of Ginnie MBS at the expense of Fannie and Freddie MBS. This should not have a material effect on valuations or demand but would swing the supply needle further toward Ginnie Mae production at a time when their market share is already rising. As persistently high home prices and rising mortgage rates have eroded affordability, many borrowers have fallen out of conventional loan eligibility and sought refuge in the looser credit qualifications of FHA loans, a trend which may only be exacerbated by the MIP cut. The upside for investors is slightly faster prepayment speeds if rates fall and potential for increased supply of loans available for pooling into attractive Ginnie CMO structures with 0% risk weighting. HB It takes more than good intentions to transform communities. It takes capital, development capacity and trusted partnerships. In 30 years, we’ve delivered more than $9.3 billion in community impact. Overcoming challenges. Solving problems. Backed by a commitment to creating healthy communities that has never wavered. The Return on Investment: Safe, Affordable Homes. Healthy Communities. Better Lives. Transforming Communities. Transforming Lives. CINNAIRE.COM INVESTING IN HEALTHY COMMUNITIES FOR 30 YEARS. ANNIVERSARY MILESTONE Congratulations to Horizon Bank, Michigan City, on the bank’s 150th anniversary. The bank received its first charter under the name of First National Bank in April 1873. The pillars outside its headquarters in Michigan City still stand from the original location 150 years ago. During the last century and a half, the bank has grown from a single location in northwest Indiana to over 70 locations across 40 counties throughout Indiana and Michigan with over $7 billion in assets. HB
20 MAY / JUNE 2023 Maria M. Vladimirova Senior Associate Krieg DeVault LLP MVladimirova@ KDLegal.com Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association. Electronic Mortgage Loan Transactions COMPLIANCE CONNECTION Answer: Yes, Indiana law permits residential mortgage loan transactions to be completed using an entirely electronic online process, including execution of loan documents, an electronic closing (e-closing) and recording of the conveyance documents via an electronic mortgage transaction. Acceptance and validity of electronic signatures has been around for over two decades and is not a new concept in Indiana. Indiana adopted the model Uniform Electronic Transaction Act in 2000, ensuring that electronic signatures were given the same legal effect as a traditional wet ink signature. Indiana law defines an electronic signature as an “electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.”1 This allows for various methods of electronically signing a document, including clicking a button or signing a document via touchscreen. As such, signatures obtained in connection with a residential mortgage transaction are considered valid and legally enforceable under Indiana law. Indiana also adopted the remote online notary statute to permit a remote notary public to perform “remote notarial acts” such as “taking an acknowledgement, administering an affirmation or oath, taking a verification on an oath or affirmation, attesting to or witnessing a signature, and attesting to or certifying a copy of a document of record.”2 The remote notary public must be physically present in the State of Indiana, but may appear by audiovisual communication approved by the Indiana Secretary of State3 to perform identity verification; meanwhile, the individuals e-signing the documents may be located anywhere in the United States when executing, so long as the remote notary public can verify their identity. Additionally, the remote notary public must provide an authentication of their remote notarial act by including an “electronic notarial certificate.”4 Once the documents are electronically signed, an e-closing will not present any issues recording the documents with county recorders’ offices. As of July 1, 2022, Indiana county recorders are required to accept electronic signatures as original signatures in real estate conveyance documents.5 Note that this does not prevent a bank from submitting tangible paper copies with wet ink signatures to the county recorders.6 When considering the potential risks associated with an electronic mortgage transaction, you should consider the same risks as any residential mortgage transaction closed in person: risk of foreclosure or risk of litigation. The fact that a bank does not maintain possession of the physical mortgage does not preclude the bank from filing a pleading on a copy, which is presumed validly executed unless disputed by the defendant under oath.7 A bank may still enforce its residential mortgage loan documents, even if it’s not in possession of the originals. However, to avoid questions of whether original documents are available for inspection, or even lost, it’s advisable that a bank have its customers execute a formal agreement or acknowledgement indicating Question: Does Indiana law permit an entirely electronic mortgage loan transaction? If so, what are the potential risks on the bank’s ability to enforce its security interests in the event of a borrower default?
Hoosier Banker 21 Congratulations to Timothy Fry and Beth Abney, who were honored with the Indiana Bankers Association High Five Award in February and March, respectively. Fry is IBA’s staff accountant and Abney serves as IBA’s education meeting coordinator. The High Five Awards support professional development by inviting Association members and staff to submit names of IBA employees who perform outstanding acts of service. Nominations are read at monthly staff meetings, and a drawing determines the winner. To nominate an IBA employee for the High Five Award, call 317-387-9380 or email HB@indiana.bank. HB The information herein is provided for general education purposes and is not intended to be legal advice. Please consult legal counsel for specific guidance as to how this information applies to your institution’s circumstances or situation. 1 Ind. Code § 26-2-8-102(10) 2 Ind. Code § 33-42-17-3(b) that both parties consent to conduct their business electronically. This will limit potential claims that parties did not consent to electronically signing or that they are in possession of the original wet ink copy. Finally, an additional risk in conducting electronic mortgage transactions may be an increased potential of fraud; however, the risk is arguably not more elevated than a traditional in-person closing. In both an Brett J. Ashton Kay Dee Baird John B. Baxter Julia A. Carpenter Maria M. Vladimirova Michael J. Messaglia C. Daniel Motsinger Nicole R. Finelli Michael E. Williams PARTNER PARTNER PARTNER xDɷ x°p¡.f PARTNER ¡.pRxɷASSOCIATE PARTNER PARTNER PARTNER 317.238.6291 bashton@kdlegal.com 317.238.6306 kbaird@kdlegal.com 317.238.6311 jbaxter@kdlegal.com 317.238.6273 jcarpenter@kdlegal.com 317.238.6374 nfinelli@kdlegal.com 317.238.6268 mvladimirova@kdlegal.com 317.238.6249 mmessaglia@kdlegal.com 317.238.6237 cmotsinger@kdlegal.com 317.238.6220 mwilliams@kdlegal.com Financial Services Team 20+ YEAR PARTNERSHIP WITH INDIANA BANKERS ASSOCIATION Years But Who’s Counting? OVER 20 Krieg DeVault LLP has been involved in every major event that has shaped the evolution of Indiana’s financial institutions. In addition to leading commercial and investment banks, our clients include specialty finance companies, insurance carriers and agents, broker-dealers, and investment advisers. www.kriegdevault.com © 2023 Krieg DeVault LLP. This constitutes attorney advertising. Krieg DeVault LLP, Indianapolis, IN, is responsible for this content. Jeffrey L. Ledbetter OF COUNSEL 317.238.6216 jledbetter@kdlegal.com e-closing and a traditional in-person closing, much of the risk of fraud is allocated to the remote notary public who must verify the parties’ identities. This is because Indiana law provides that a properly notarized document – whether it is notarized remotely or in person – is prima facie evidence that a signature is genuine.8 HB 3 Id. at (c) 4 Ind. Code § 33-42-17-7 5 Ind. Code § 32-21-2.5-8 6 Id. 7 Ind. T. R. 9.2(A)(1)(a) 8 Ind. Code § 33-42-9-7(b) Timothy Fry HI 5 IBA ‘HIGH FIVE’ AWARDS Beth Abney
22 MAY / JUNE 2023 Buydown Program Considerations Keep it long enough and it will come back in fashion PSP SHOWCASE The early 2000s are remerging with their crop tops, low rise jeans, flip phones and mortgage buydowns. Deja-vu! Pre-crisis teaser rates have been reborn into mortgage buydowns, both temporary and permanent. With the housing markets remaining pricey and rates still higher than they have been in years, many buyers are looking for assistance in any form. As the refinancing market cools down, mortgage originators are becoming increasingly more creative finding innovative ways to bring business through the door. This has led to lender, builder and seller concessions to help close deals. Buydowns generally are going to refer to when a borrower pays “points” upfront to reduce the mortgage rate to a level that places their monthly payments in a range they can afford. It is thought that the rate has been “bought down” from its original rate for the entirety of the mortgage by paying a lump sum up front. The more recent trend has been for these to be seller-paid rate buydown concessions, with the seller offering to reduce to buyer’s mortgage interest rate for either the first few years (temporary) or for the duration of the loan (permanent). The seller is either contributing to the buyer’s closing costs or paying for a temporary rate buydown. What the market is seeing now is an influx of temporary buydowns, with the most common ones being a “2-1” and “1-0,” meaning a two-percentagepoint interest rate reduction in the first year and a one-percentage-point reduction in the second year, or a one-percentage-point interest rate reduction in the first year only, respectively. Sellers, builders, lenders or a combination of all three put up money to cover the difference in interest rate payments between the original mortgage rate and the reduced mortgage rate. For a 2-1 example, the mortgage rate is reduced by two percentage points for the first year and then will step up Elizabeth Madlem Vice President – Compliance Operations Bankers Alliance info@BankersAlliance.org by one percentage point in the second year, and another percentage point in the third year to reach the actual mortgage rate at origination. It essentially works as a subsidy for the first two years of the mortgage before reverting to the full monthly payment. The benefits are there for consumers – it can make purchasing a home more affordable (even if temporarily) and can buy time for borrowers to refinance into a lower rate should interest rates fall. With permanent rate buydowns, generally, it will be a seller paying a portion of the buyer’s closing costs that are used toward buying mortgage discount points, with each point reducing the rate on average by about 25 basis points, costing 1% of the loan amount. So if a borrower bought a $500,000 home with a 20% down payment, the mortgage amount would be $400,000, with each point costing $4,000. With permanent buydowns, borrowers are historically slower to refinance given the cost/benefit decisions taking place with recouping upfront money put down for the loan versus refinancing costs associated with a new loan. One of the biggest issues with buydowns, either temporary or permanent, is proper disclosure on the Loan Estimate (LE) and Closing Disclosure (CD). For disclosure purposes, there are specific Regulation Z contemplated buydowns: % third-party buydowns reflected in a credit contract; % third-party buydowns not reflected in a credit contract; % consumer buydowns; % lender buydowns reflected in a credit contract; % lender buydowns not reflected in a credit contract; and % split buydowns (see 12 CFR 1026, Supp. I, Paragraph 17[c][1]—3 through 5). Regulation Z provides numerous scenarios that determine whether the terms of the buydown should Bankers Alliance is a Preferred Service Provider of the Indiana Bankers Association. BANKERS A Holding Company for Review Alliance and Compliance Alliance
Hoosier Banker 23 be reflected in the LE and CD. Generally, the following buydowns are reflected in the disclosures: % third-party buydowns reflected in a credit contract; % consumer buydowns; % lender buydowns reflected in a credit contract; and % split buydowns (consumer portion only). Otherwise, a third-party buydown not reflected in a credit contract, a lender buydown not reflected in a credit contract, and a split buydown (not third-party, e.g., seller’s portion) are not included. With most of the criteria for determining whether a buydown is reflected on the LE and CD being dependent upon a credit contract, it is important to note that Regulation Z does not define a credit contract. But it is stated as being a contract that forms a legal obligation between the creditor and the consumer, as determined by applicable state law or other law. So whether a buydown agreement would be considered a credit contract or legal obligation between the creditor and consumer depends upon what “state law or other law” considers to be a legal obligation. Whether a buydown agreement is actually modifying the terms of a note or contract is going to depend on how it is structured and whether that note or contract ultimately is reflecting that lowered interest rate. Counsel should be included in any final determinations, as well as investor requirements. So where should the terms of the buydown be reflected in the LE and CD? Unfortunately, the commentary does not provide an “item-by-item” list of what parts of the LE and CD the buydown should be reflected in. The key requirement to remember is that if the buydown is required to be reflected, it must be reflected in the finance charge and all other disclosures affected by it. That includes: % the “Finance Charge” on page 5 of the CD (except for seller-paid buydown fees as those are considered seller’s points); % the “Annual Percentage Rate” on page 3 of the LE and page 5 of the CD; % the “Projected Payments” table on the first page of the LE and CD; and % the “Product” on the first page of the LE and CD reflecting a step rate. There are different ways proper disclosure can be made dependent upon the specific loan scenario. Sometimes a buydown is money going to the borrower from the seller, while other times it is money going to the bank from the seller. These would be disclosed differently. So, the first question to ask: Who is giving money to whom, and for what purpose? A more common scenario for temporary buydowns is where the buydown is seller paid and is not being reflected in the note or credit agreement as it is contracted for Explore how to budget for outsourcing on BSA or consumer compliance issues That’s Review Alliance. info@bankersalliance.org or(833) 683-0701. Holding Company of Compliance Alliance and Review Alliance Support your CMS program with needs-based outsourcing. Scan our QR code to view B/A’s services & programs.
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