The American Bankers Association’s (ABA) Regulatory Compliance Conference wrapped up recently with its annual supersession, discussing the regulatory lessons from the show with takeaways moving forward.

Moderated by Virginia O’Neill, senior vice president at the ABA’s Center for Regulatory Compliance, the session discussed ability to repay and qualified mortgage standards, Home Mortgage Disclosure Act changes, TRID amendments and fair lending issues, among others.

‘Wait before you do anything’

Rod Alba, senior vice president of the ABA Real Estate Finance and Senior Regulatory Counsel, spoke on stage about trends in mortgage lending and servicing.

“The most pressing issue is how to begin to come into compliance with the new legislation under S. 2155 (the Economic Growth, Regulatory Relief and Consumer Protection Act),” Alba said.

S. 2155, signed into law by President Donald Trump on May 24, is the first major bipartisan banking legislation  enacted in 10 years, Alba said. The law contains several commonsense fixes to rules that make it easier for banks to lend to creditworthy customers and reflects years of advocacy on the part of bankers, state associations and ABA to address the negative effects of ill-fitting financial rules.

“That legislation sets forth quite a bit of relief – particularly for smaller institutions on the QM (Qualified Mortgage), the TRID waiting period, escrow requirements and rural appraisal relief,” Alba said.

However, he cautioned that new provisions to the law are going to be receiving plenty of attention by the Consumer Financial Protection Bureau (CFPB) and other regulators.

“There is a planned directive,” Alba said. “In the next six to eight weeks, we hope to get something in writing from the CFPB about how to comply, what are the timelines and where this is going. We hope to learn if there will be more rulemaking, or whether directives will be sufficient. So wait before you do anything. Don’t change what you’re doing, but wait for further directives from the bureau.”

Alba also predicts more regulation proposals aside from S. 2155.

“Further regulating proposals are going to deal with, quite possibly, TRID, certainly ability to repay, LO (loan originator) compensation and other matters,” he said.

Alba added that fuller reforms of mortgage regulations affecting mortgages in general are also likely.

“Do not forget RESPA Section 8,” he cautioned. “It is going to be a risk going forward. Do not forget that Section 8 of RESPA also applies on the Internet when you go online and you’re making cyber decisions, and cyber lending. Do not forget that if you step into the cyber world, you don’t step away from Section 8 of RESPA.”

More changes coming

As for TRID, Alba said some of the larger institutions already have begun implementing the technical corrections that officially go into effect Oct. 1.

“What has been their experience so far? It is harder than they expected,” Alba said. “They are using perhaps two times, perhaps three times, perhaps four times the resources they initially planned for TRID implementation.”

Rick Freer, senior director of the ABA’s Exam and Compliance Programs, gave an update on Home Mortgage Disclosure Act (HMDA) data implementation.

“More changes are coming,” Freer said. “HMDA is a primary data element for fair lending analysis. Now while (examiners) may not be looking at your HMDA data to see that you are calculating everything correctly and putting it in, they didn’t say they wouldn’t be looking at fair lending issues. You need to know your data. You need to know what it says.

“When an examiner says they found something, your answer should always be, ‘We know. We saw it, and we fixed it.’ You might even want to be a bit more proactive and let them know in advance that you found an issue and this is what you’ve done to correct it to show that you are not a discriminatory lender.”

Risky business

Robert Rowe, vice president and associate chief counsel at the Center for Regulatory Compliance, addressed fair lending hot topics.

“Redlining is still an issue,” Rowe said. “It’s still something that regulators are looking at when they come in to check out your bank. It’s also something consumer groups are watching out for.”

Jonathan Thessin, senior counsel II for the Center for Regulatory Compliance, spoke of data mining’s potential to help banks improve their lending predictions.

“But one must be careful,” Thessin said. “Data mining can be used to discriminate, or it can be used to avoid discrimination. The key here is not obtaining the right algorithm or the right staff. The key is a large amount of high-quality data.”

Rowe also spoke about the complications of cannabis in the banking industry.

“Cannabis remains illegal under federal law, even though 30 states have legalized to some degree,” he said. “That sets up a classic federal-state conflict. It is very risky business.”

According to the Financial Crimes Enforcement Network (FinCEN), 400 depository institutions are providing banking services to marijuana-related businesses. Rowe noted that banks doing business with such companies are subject to significant penalties, including the loss of banking charter, fines and prison.

“So far, no banks have been prosecuted for providing service to state-legal marijuana businesses,” Rowe said. “But do you want to be the first poster child for that? The good news is, if you follow the (2014) FinCEN Guidance on Banking Marijuana, you should be OK.”

Earlier in July, the New York Department of Financial Services announced new guidance for state-chartered banks and credit unions to provide banking services for the state’s medical marijuana and industrial hemp businesses.