Tag Archives: dodd-frank act

redTape

Credit unions seek relief from red tape og financial reform

Dan Berger

Dan Berger

Robert D. Ramirez

Robert D. Ramirez

Mark Robey

Mark Robey

July marked the four-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was meant to reform and stabilize our financial system.
So, has it?

“Since the implementation of the Dodd-Frank Act and establishment of Consumer Financial Protection Bureau (CFPB), more than 800 credit unions have closed their doors,” said Dan Berger, president and CEO of the National Association of Federal Credit Unions (NAFCU). “Compliance costs have taken a serious toll on credit unions that do not have the resources that big banks do — and the regulations keep coming.”

According to Mark Robey, senior vice president of regulatory affairs for the Mountain West Credit Union Association, credit unions in Arizona want to work with consumers and small businesses to provide affordable credit and attractive savings to help stabilize the economy.

“But the mortgage requirements under the Dodd-Frank Act and the rules issued by the (CFPB) make it more costly for creditors to make loans,” Robey said. “Moreover, the ‘Ability to Repay Rule’ required by Dodd-Frank and issued by the CFPB encourages creditors to make mortgage loans only to borrowers with a debt-to-income ratio of no higher than 43 percent. That can cut borrowers out of a home purchase if they don’t meet that threshold, even if the borrower can actually afford to repay the loan.”

Since its enactment, the 849-page Dodd-Frank has imposed $21.8 billion in compliance costs while producing regulations that require nearly 60 million hours of paperwork with which to comply, according to estimates by the American Action Forum. These compliance costs can be devastating to small community banks and credit unions.

“In order to help credit unions avoid being susceptible to penalties and compliance violations, it will be necessary to add additional staff, training, hardware, software etc.,” said Robert D. Ramirez, president and CEO of Vantage West Credit Union. “All of that further impacts the bottom line. This could hit smaller credit unions particularly hard or possibly force them to limit or exclude mortgage options.”

To help ease the regulatory burden on credit unions, the NAFCU has issued its “Five-Point Plan for Regulatory Relief,” which includes administrative improvements to the National Credit Union Administration (NCUA), capital reforms, structural improvements, operational improvements and data security reforms. To see NAFCU’s complete Five-Point Plan, visit nafcu.org.
Ramirez stressed that while financial institutions should have learned lessons from the financial crisis, consumers should take responsibility, too.

“The (Dodd-Frank Wall Street Reform and Consumer Protection Act) calls for a provision to create an Office of Financial Education,” Ramirez said. “However, the regulation does not do enough to require or even encourage consumers to share the burden of responsibility of gaining full understanding of the loan requirements prior to entering into the loan agreement. It would be helpful if there were a reduction in the number of regulations that impact our ability to serve our membership, and instead did more to encourage members to be proactive in taking advantage of financial literacy opportunities to ensure they were fully informed about the risks and benefits of entering into a loan agreement.”

Now that even lawmakers from President Barack Obama’s own party see the financial reform legislation as a destabilizing force, credit union officials say it’s time to re-examine Dodd-Frank.
“Lawmakers and regulators agree that credit unions were not responsible for the financial crisis,” Berger said. “It’s time to say ‘enough is enough’ and end the rampant overregulation of credit unions.”

121956596

Mortgage lenders prepare for impact of Dodd-Frank Act

Stan Feffer is president and chief operating officer of Grand Canyon Title Agency, Inc. – a Phoenix-based firm with 18 offices located throughout Maricopa County. When Feffer is not leading Grand Canyon’s 120 employees, he prefers to navigate the cool waters off the coast of San Diego on his surf board. Patiently waiting for the right set of waves and watching the horizon closely helps him choose the right wave to commit his efforts. Diligence in picking the right waves makes for a good day surfing.

While at work, Feffer is focused on the pending impact of the Dodd-Frank Act on the mortgage lending community and in particular the title industry. Prepared with more than 30 years’ experience in the real estate and title and escrow industry working both for a large, public firm and a local title agency, Feffer has charted a course for Grand Canyon to successfully navigate these uncertain waters and in doing so, established the organization as a leader nationally with its underwriters. By embracing industry reform, Grand Canyon is better prepared to deal with lenders’ compliance needs and to protect consumers’ privacy needs.

In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act created the Consumer Financial Protection Bureau (CFPB) and provided authority for the CFPB to supervise financial institutions for compliance with federal consumer financial laws. Providing real estate settlement services to one of these regulated financial institutions (like your bank or mortgage lender) is deemed to be providing financial products or services under the act. As a result, the CFPB can bring enforcement actions directly against a real estate settlement services provider (such as your title insurance agent) for a violation of a consumer financial protection law or against the financial institution making the loan.

With the increased risk, banks are giving a hard look at all of their service providers. Complicating the matter, the CFPB has been faulted for its lack of transparency and guidance leaving many uncertain as to how to comply with the new requirements.

As a result, the Wall Street Journal reports that the CFPB’s actions are stirring concerns about large scale consolidation of closing services providers by the banks and the potential that some title companies – especially smaller firms that serve isolated and rural communities – will be forced out of business.

“When the Bureau (CFPB) operates in a transparent … and open … manner, the results are generally positive … However, when the bureau makes unilateral decisions, rolls out initiatives, rules or processes in a more closed deliberation, the results are far more likely to be problematic,” American Land Title Association (ALTA) President Rob Chapman said in testimony on May 21 before the Financial Institutions and Consumer Credit subcommittee of the House Committee on Financial Services.

To strategically position itself and avoid this existential threat, Grand Canyon Title’s Feffer aggressively moved to establish the agency as a leader in “compliance” with the emerging rules to present an easy choice for lenders to work with. In late 2012, Feffer began steering the organization to adopt a series of industry “best practices” put forth by the ALTA intended to put settlement service providers (title agencies and escrow firms) in compliance with the CFPB regulations.

On July 19, 2013, when ALTA published its version 2.0 of “Title Insurance and Settlement Company Best Practices,” setting forth industry guidelines for business procedures and service levels, Feffer engaged WGM Associates LLC, a Scottsdale-based information technology and security consultancy with extensive banking and real estate experience to lead the effort. The ALTA best practices address seven main areas ranging from internal controls regarding trust accounts to protecting customers’ personal information and responding to complaints. Best Practice No. 3 deals specifically with protecting consumers Non-Public Personal Information or NPI. Best Practice No. 3 includes requirements and procedures for physical security of computers, “clean desk” policies, risk management, disaster recovery, information security practices and methods for the encryption of private data.

For instance, loan and closing documents emailed to you containing NPI must be encrypted. Collectively, these practices are a means for settlement service providers to address the need for increased lender oversight and to ensure necessary safeguards to protect consumers. According to Feffer, WGM’s direct industry knowledge and extensive information security experience made the process clear and kept the mission on track.

The implementation of the Best Practices is voluntary, but an important means to ensure reduction of risk in the overall financial system and to protect against identity fraud. Many settlement service providers have adopted a ‘wait-and ’see’ attitude. However, large banks such as Wells Fargo have embraced the ALTA Best Practices Program validating Feffer’s strategy. In their newsletter to Settlement Agents dated March 6, 2014, Wells Fargo says that ALTA’s Best Practices “… are designed to help illustrate to consumers and clients the industry’s professionalism and best practices to help ensure a positive and compliant real estate settlement experience. Wells Fargo supports ALTA’s Best Practices, and considers them to be guidelines for sound business practices that should ideally already be in place for businesses providing title and closing services for our customers.”

Under the ALTA Best Practice Program, settlement service providers perform a detailed review and assessment of their operations – typically using an experienced third-party expert like WGM. The resulting Best Practice Certification Package is then used to certify to consumers, mortgage originators and mortgage servicers that the assessment found the firm to be in compliance with the ALTA Best Practices in all material respects and represent the firm will remain in material compliance for the next two years.

In January of 2014, Grand Canyon successfully completed its first compliance review. Feffer proudly presented the document to his business partners as evidence of their continued leadership in the Phoenix marketplace. Recognizing the effort is a continuing commitment and ongoing journey, Feffer conducts regular training and educational seminars for Grand Canyon employees with WGM’s help. Now Feffer confidently presents copies of the Certification Package to lenders when they meet, assuring them of their continued compliance effort. Feffer’s hope is that mortgage lenders and their peers will recognize Grand Canyon’s efforts and see the company as a logical choice to provide closing services and to help mitigate risk in this changing environment.

Enron

Enron: 10 Years Later

Enron.

Similar to “Black Tuesday,” “Watergate” or “9/11,” the term has encapsulated a series of events into a single word or phrase. It is arguably the most well-known, and most scrutinized, financial collapse in U.S. history. This is evidenced by the multitude of books and movies that have rehashed and referenced the collapse.

December 2, 2011, marks the 10 year anniversary of the company filing for Chapter 11 bankruptcy protection. Ten years later, the term is still synonymous with fraud and is, perhaps, more relevant than ever before.

The scandal that was brought to light triggered a domino effect that can still be seen today. Most notably, Enron ignited the Sarbanes-Oxley (SOX) Act. This act resulted in the largest overhaul of the financial markets since the Exchange Act of 1934. This overhaul intended to prevent, discourage and/or identify future collapses.

One of the many significant SOX requirements was believed to be strict whistle-blower protections and protocols for public companies. These protections and protocols were included to safeguard and encourage whistleblowers who found themselves in the midst of Enron-like situations.

Ironically, these future whistleblowers started to use Enron as a reference point in their own claims.  Having worked as a forensic accountant in a post-Enron environment, I have seen multiple instances where the whistleblower actually cited Enron in their anonymous letter or hotline report. This practice has led to the inclusion of Enron as a keyword for investigations alongside terms like “illegal,” “cheat” and “hide.” Many of the vulnerabilities that led to the company’s collapse are now “red flags” for fraud.

Enron has become the ultimate example for whistleblowers to point to and for forensic accountants to measure against.

In response to events in more recent years and even larger corporate failures, including the fall of Wall Street heavyweights and the surfacing of multiple Ponzi schemes, many of the SOX whistleblower protocols have been amended or replaced by the Dodd-Frank Act.

The most recent changes, which went into effect earlier this year, encourage direct reporting to the appropriate government entity, extend the anti-retaliation periods and also provide greater incentives in the form of cash rewards. Theoretically, the current environment will result in more whistleblower reports and presumably more references to Enron allowing the term’s relevance to live on.

[stextbox id="grey"]For more information about the Sarbanes-Oxley (SOX) Act ignited by Enron, visit soxlaw.com.[/stextbox]