through revised account disclosures, the changed term must be highlighted in some manner. For example, financial institutions may note that a particular fee has been changed (also specifying the new amount) or use an accompanying letter that refers to the changed term. So, your cover letter will need to point customers to the changes that increase their costs (or reduce their earnings — interest rates). RESPA/TILA/Privacy. Q: We are purchasing a small number of residential loans from another financial institution. We have confirmed that the selling bank will be sending out a Notice of Servicing Transfer Letter. Do we have to send out our own Notice of Servicing Transfer Letter as well? In addition, are there any other required notices that have to be sent to the borrowers — for example, our privacy notice, first payment coupons, etc.? A: Either separate mortgage servicing transfer notices, or one combined notice, may be sent — as long as the proper notice is given in the proper time, as required by Regulation X (RESPA). If the seller is not including your bank’s notice information in its notice, then your bank will have to send its own buyer’s notice. There is also a mortgage transfer notice required by Regulation Z since the bank is acquiring the loan itself, as well as the servicing of those loans. The bank’s privacy notice should also be sent since this is the beginning of these borrowers’ customer relationship with a new-to-them bank. Other notices or documents might be required by your state’s laws, but you need to check with your legal counsel on that issue. CRA/Interstate Branching Q: We have one branch in a neighboring state and the loan-to-deposit ratio for that branch was 33% at the end of 2022. The Section 109 Host State Loan to Deposit Ratio for that state, as of June 30, 2021, is 69%. We are supposed to be lending there at a level that is at least one-half of the Host State Loan to Deposit Ratio for that state. Since we failed this first Section 109 test, we have to show the bank is reasonably trying to help meet the credit needs of the communities served by our interstate branches. First off, is this that big of a deal? Second, should the bank be doing additional advertising, outreach, etc. to try and generate more loans? A: Yes, it is a big deal. The regulators could require the bank to close the interstate branch if both tests are failed: LTD ratio is below the threshold (which you say it is) and the branch is not adequately meeting local credit needs. Determining and documenting the latter is what you need to concentrate on. The FDIC’s examination manual has a section on these requirements (as do the examination manuals from the other regulators). TILA. Q: With rates increasing, our adjustable-rate mortgages (ARM) are coming back into play. Is there a rule regarding how to calculate the annual percentage rate (APR) for ARM loans to use for advertising? We want to advertise our 5/1 ARM, with a fixed rate period APR (for five years). We notice that other banks’ APRs seem to be lower than ours. We want to be sure we are advertising correctly but not scaring folks away with a too-high APR number. A: How to compute the APR for an ARM depends on what type of ARM it is. For a plain vanilla ARM (no initial discount/premium), the lender is required to assume that the initial rate will remain in effect for the loan term (since future changes are not known). This is the method to be used for an ARM with an initial fixed-rate period only if that initial rate is computed using the same formula (e.g., index plus margin) that will be used for future rate changes. For an ARM with an initial discounted/ premium rate, the lender is required to compute a composite APR based on the initial rate for the time it is to be in effect and the rate for the remaining loan term once the discount/premium goes away (which might take more than one rate change to accomplish depending on the magnitude of the initial discount/premium amount compared to any periodic rate change caps). Young & Associates provides banks and thrifts with support for their compliance programs, independent reviews, and inbank training, as well as a full menu of management consulting, loan review, IT consulting, and policy systems. 17 In Touch
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