maurine c. padden executive vice president, chief administrative officer 916/438-4412...
TRANSCRIPT
Maurine C. Padden
Executive Vice President, Chief Administrative Officer
916/438-4412
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Hot Topics for Community Bank Lenders
Political Landscape
• California’s economic recovery continues to lag behind the nation• Unemployment rate remains at historically high levels• State’s budget/cash flow problems; structural state deficit• State legislative and congressional make-up• Legislative/congressional district maps finalized August 15, 2011
– subject to referendum
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Hot Topics
2011 State Legislative Statistics
• 2,719 bills introduced in 2011• 62 bills reviewed with active positions established by CBA’s State
Government Relations Committee• 26 identified as top priority issues for advocacy team efforts
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Hot Topics
2011 Federal Legislative Statistics
• 5799 bills introduced in 2011; lowest number in 14 years
• 66 bills and joint resolutions enacted; lowest number in 30 years
• 42 bills with active priority positions established by CBA Federal Government Relations Committee
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Hot Topics
Commercial Lending
A. State Loan Programs
• Cal CAP loan program amendments
-North American Industry Classification System
-Admin cost reimbursement limits
• PACE alternative loan program: Clean Energy Upgrade Program
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Hot Topics
• Clean Energy Upgrade loan program (cont’d.)
-Portfolio insurance concept
-Residential and commercial property
-Project cost limit: $25,000
-Loan limit:10 percent of property value
-Loan program must follow “best practices” to be established by state including energy efficiency, consumer protection standards, costs efficiency, demonstrated job creation and quality assurance
-Significant reporting requirements
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Hot Topics
• Commercial Building Retrofit Financing Act (SB 1130-De Leon): Proposed program pending enactment in 2012
-State authority will have power to issue revenue bonds secured by recorded energy remittance repayment agreement for retrofit
-Board of Equalization will collect installment payments from building owner
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Hot Topics
•Commercial Building Energy Retrofit Financing Act (cont’d.)
-Act creates a secondary market administered by the state to purchase and sell qualified loans (six month seasoning)
-CBA is working on language to assure lien priority of mortgages/deeds of trust
-Also negotiating to allow for the refinance of qualified loans previously issued under the federal PACE program
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Hot Topics
B. Mechanics/Design Liens & Bonded Stop Notices
• Re-codification of mechanics lien laws in Civil Code in 2010
-Two distinct sections: public works and private works of improvement
-Upgrade terminology: original contractor = direct contractor; materialsman = material
supplier
• Amendment to re-codification: effective July 1, 2012
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Hot Topics
B. Mechanics/Design Professionals Liens (cont’d.)
• Person who willfully includes in a lien claim labor, services, equipment or materials not furnished for the property will forfeit the lien
• Design professionals liens: engineer, architect
-Can covert lien to mechanics lien if design professionals lien expires without full payment
-Must record within 30 days
-Judgment lien priority
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Hot Topics
C. Bonded Stop Notices: National Bank Act Preemption claim
• C.A. O’Reilly & Associates Builders, Inc v Radlax Gateway Hotel LLC, et al.,
-Los Angeles Superior Court
-Field preemption claim that under OCC regulations, national banks and their operating subsidiaries are not subject to state laws that “obstruct, impair or condition” a bank’s exercise
of its federally authorized powers to make loans or take deposits
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C. Bonded Stop Notices/National Bank Act Preemption (cont’d.)
• Paveco Construction, Inc. v. East West Bank
-Post-Familian case re: accrued interest held by lender subject to bonded stop notice claim
-Upheld in an unpublished opinion
D. Enterprise Zones
• State legislation sponsored by Governor Brown to be introduced
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Hot Topics
D. Enterprise Zones (cont’d.)
• Net interest deductions and employee hiring credits at risk
E. Commercial Flood Insurance: Federal Flood Disaster Protection Act
• Applies to commercial property with structures
• Lender must ensure insurance is in place before loan closing
• SBA loans require it even if loan is for equipment only
• Non-SBA equipment loans: if loan is cross-collaterized with commercial property and equipment will be kept in a structure on site, insurance is required 13
Hot Topics
E. Commercial Flood Insurance
• Lender requirements: obtain flood determination; notify borrower; assess adequacy of borrower obtained flood insurance; force place within 45 days
F. Short Sales
• Existing law: if lender (as senior lienholder) agrees to conduct a short sale on loan secured by residential (1-4) property, no deficiency judgment permitted
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Hot Topics
F. Short Sales (cont’d.)
• Clarifies existing law to limit application of protections for residential mortgage short sale in a multi-collateral loan
package backing a commercial loan
•Expands the anti-deficiency provisions of the Code of Civil Procedure Section 580e to all mortgages and deeds of trust instead of first liens only
G. Loan Participation/Syndication Services
•BancAlliance
-Co-Founders John Delaney, chairman Capital Source Bank & Lee Sachs in 2010
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Hot Topics
G. Loan Participation/Syndication Services (cont’d.)
•BancAlliance- Blackrock invested
-Membership cooperative
-Current focus: cashflow-based corporate credits
•CIFC Corp and Sandler O’Neill-loan syndication
-Banks with assets of $1billion or more
-Established in 2006 by Peter Gleysteen,formerly, CFO for JP Morgan Chase
-Syndicates with 10 largest banks & GE Capital
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Hot Topics
G. Loan Participation/Syndication Services (cont’d.)
•CIFC Corp. and Sandler O’Neill
-Banks can participate in a syndicate with as little as
$500,000
-Firm constructs loan portfolios as small as $50 million
•OBL Loan Participation Services
-Established last year by Ohio Bankers League
-Online matching service for members
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Hot Topics
Home Equity Loans/Lines of Credit
A. Regulation Z- threshold exemption
• Increased from $25,000 to $50,000
B. Broker Compensation-Anti-Steering Rules
• Applies to brokers or other loan originators for closed-end home equity loans as well as first position mortgages/deeds of trust
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Hot Topics
Home Equity Loans/Lines of Credit (cont’d.)
B. Broker Compensation (cont’d.)
• Definitions
-Loan Originator vs. Creditor
table funding vs. warehouse line of credit
-Prohibited Compensation
Anti-steering rule
Consumer payment rule
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Hot Topics
Home Equity Loans/Lines of Credit (cont’d.)
B. Broker Compensation (cont’d.)
• Allowable compensation based upon:
-Total dollar amount or total # of loans over a period
-Long-term performance of loans
-Hourly rate of pay based on hours worked
-Payment fixed in advance for every loan arranged
-Quality of originators’ loan files
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Hot Topics
Home Equity Loans/Lines of Credit (cont’d.)
B. Broker Compensation (cont’d.)
• Allowable compensation based upon:
-Percentage of applications that result in loans
-Legitimate business expenses (fixed overhead costs)
-Compensation based upon the amount of credit extended
• Record retention: two years
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Hot Topics
Non-Judicial Foreclosure
A. Notice of Sale: new state disclosure requirements effective January 1, 2012
• Advise borrowers, during the foreclosure sale process, of how and where to access information pertaining to whether a property has been sold or if a sale is delayed
• Advise potential bidders of properties at auction regarding the importance of investigating the lien status of a property prior to becoming the successful bidder
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Hot Topics
Fair Lending
A. Additional focus by U.S. Attorney General’s office and banking regulators during bank exams
B. Also state attorneys general and CFPB
C. Recent high profile lawsuit settlements against banks include penalties and obligation to fund community
reinvestment and education programs with a price tag in the six figures
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Hot Topics
Fair Lending (cont’d.)
D. Expectation by regulators that each bank will have a fair-lending risk assessment
• Not just large banks
• Not just mortgages: credit cards, consumer loans and even small business loans
• Use proxy data that is surrogate information from census tracts to identify customers that may fall in a protected class even though unscientific
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Hot Topics
Fair Lending (cont’d.)
E. Adverse exam consequences may include a CRA compliance
markdown, management rating downgrade and or referral to the state or federal Department of Justice for investigation and further action
• U.S. AG relying on “disparate impact” discrimination test
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Hot Topics
Unfair Deceptive and Abusive Acts or Practices Act (UDAAP)
A. Definitions
•Unfairness: factors to consider
-Does the practice injure consumers?
-Does it violate an established public policy?
-Is it unethical or unscrupulous?
-Is it substantial?
- Is it outweighed by any countervailing benefit to consumers or competitors?
- Could the injury caused been reasonably avoided?
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Hot Topics
UDAAP (cont’d.)
•Deception: an oral or written misrepresentation, omission of material fact or a course of conduct or dealing that is likely to mislead given the totality of the circumstances.
-Factors to consider:
-How clear is the representation?
-How conspicuous is any qualifying info?
-How important is the omitted info?
-Do other sources for the omitted info exist?
-How familiar is the public with the product or service?
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Hot Topics
UDAAP (cont’d.)
A. Definitions (cont’d.)
• Abusive acts or practices-not yet defined
B. UDAAP Standard
• “Suitability” standard is not incorporated, expressly
• Fairness standard is a close substitute
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Hot Topics
UDAAP (cont’d.)
C. Enforcement: Consumer Financial Protection Bureau (CFPB) and U.S. and state attorneys general
D. Risk Management
• Review all products, services, functions and vendors using the “fairness concept”
• Engage executive team in the effort
• Consider designating one team member as a consumer representative tasked with providing the consumer view
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Hot Topics
UDAAP (cont’d.)
D. Risk Management (cont’d.)
• Create a written plan with guidelines
Consumer Financial Protection Bureau (CFPB) record-keeping and
reporting function
• CFPB has broad authority to require reports or “other information” from any bank
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Hot Topics
Simultaneously Recorded Deeds: Lien Priority
A. First Bank v East West Bank case: California appellate court ruling held that since both deeds of trust shared the same date and time of recording, they had equal lien priority in the real property
• Deeds must be indexed so that both recorded documents will be found in a title search, including a preliminary title report
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Hot Topics
Executive Compensation
A. FDIC proposed regulation:
• All “covered financial institutions” (i.e., banks, holding companies and other regulated entities with consolidated assets of $1 billion or more) must file an annual report detailing the structure of its incentive-based compensation plans
-Clear narrative
-Specify reasons why plan doesn’t encourage inappropriate risk-taking by “covered persons”
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Hot Topics
Executive Compensation (cont’d.)
A. FDIC proposed regulation (cont’d.)
-Excessive compensation through the use of an incentive-based compensation that could lead to a material financial loss
-”Covered person” is an executive officer, director or principal shareholder
-Must adopt policies and procedures appropriate to size and complexity of the institution to manage these risks
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Hot Topics
Executive Compensation (cont’d.)
A. FDIC proposed regulation (cont’d.)
• Incentive-based compensation program must:
-Balance risk and financial rewards, for example, by using deferral of payments, risk adjustment of
awards and/or extended performance periods
-Be compatible with effective controls and risk management
-Be subject to active and effective board oversight
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Hot Topics
Regulatory Exams
A. Best Practices:
• Build the relationship
• Consult with peers, trade association and advisors to identify the latest hot button issues in exams
• Review
• Set the professional tone throughout the bank
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Hot Topics
Pending Federal Legislation
A. Issues: Regulatory exam reform; SEC registration exemption for small businesses; credit union business lending cap; municipal advisors SEC registration exemption; GSE reform
Pending State Legislation
A. Issues: Business taxation; mortgage reform; payroll cards;
consumer lending requirements; state bank
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Hot Topics
QUESTIONS?
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