Regulatory Compliance Digest | March 2023

Author: Janet Golonka, Director, Risk & Accounting Advisory Services

The March issue of the Regulatory Compliance Digest features a summary of the latest on the HMDA Final Rule, the CRA annual threshold adjustments and the annual Regulation Z threshold adjustments. In addition, the Digest summarizes the latest compliance updates that may impact your institution.

The Regulatory Compliance Digest is intended to keep you informed of regulatory changes in advance of their effective date so your institution can evaluate changes or updates to necessary policies, procedures and processes in place to be compliant at the time of enactment.

Industry Trends & Insights

HMDA’s Closed-End Loan Reporting Threshold Changes

In September 2022, the 2020 Home Mortgage Disclosure Act (HMDA) Final Rule regarding the loan volume reporting threshold for closed-end mortgage loans was vacated. This change impacts the threshold for reporting data on closed-end mortgage by reverting to the threshold of 25 loans in each of the two preceding calendar years, as established by the 2015 HMDA Final Rule. The 100-loan threshold set by the 2020 HMDA Final Rule is no longer valid.

To allow time for financial institutions to comply, the regulatory agencies do not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2022, 2021, or 2020 for institutions subject to the regulatory enforcement or supervisory jurisdiction that meet Regulation C’s other coverage requirements and originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years.

CRA Annual Threshold Adjustments

The CRA regulations establish the framework and criteria by which the relevant agencies assess a financial institution’s record of helping to meet the credit needs of its community, including low- and moderate-income neighborhoods, consistent with safe and sound operations.  Financial institutions are evaluated under different CRA examination procedures based upon their asset-size classification. For example, banks meeting the small and intermediate small bank asset-size thresholds are not subject to the reporting requirements applicable to large banks, unless they choose to be evaluated as a large bank.

For 2023, the definitions of small and intermediate small banks for CRA examinations will change as follows:

• Small bank means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.503 billion.
• Intermediate small bank means a small institution with assets of at least $376 million as of December 31 of both of the prior two calendar years, and less than $1.503 billion as of December 31 of either of the prior two calendar years.

Truth in Lending (Regulation Z) Annual Threshold Adjustments (Credit Cards, HOEPA and Qualified Mortgages)

The final rule amends the regulation text and official interpretations for Regulation Z, which implements the Truth in Lending Act (TILA). Specifically, for open-end consumer credit plans under TILA, the threshold that triggers requirements to disclose minimum interest charges will remain unchanged at $1.00 in 2023.

For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages in 2023 will be $24,866. The adjusted points-and-fees dollar trigger for high-cost mortgages in 2023 will be $1,243.

For qualified mortgages (QMs) under the General QM loan definition in § 1026.43(e)(2), the thresholds for the spread between the annual percentage rate (APR) and the average prime offer rate (APOR) in 2023 will be:

• 2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $124,331
• 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $74,599, but less than $124,331
• 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $74,599
• 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $124,331
• 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $74,599
• 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $74,599

For all categories of QMs, the thresholds for total points and fees in 2023 will be:

• 3% of the total loan amount for a loan greater than or equal to $124,331
• $3,730 for a loan amount greater than or equal to $74,599, but less than $124,331
• 5% of the total loan amount for a loan greater than or equal to $24,866, but less than $74,599
• $1,243 for a loan amount greater than or equal to $15,541, but less than $24,866
• 8% of the total loan amount for a loan amount less than $15,541

Compliance Updates

Reportable HMDA Data: A Regulatory and Reporting Overview Reference Chart for HMDA Data Collected in 2023

The chart is intended to be used as a reference tool for data points required to be collected, recorded and reported under Regulation C for reporting year 2023.

Adjustable Rate Mortgages: Transitioning From LIBOR To Alternate Indices

HUD is removing the London Interbank Offered Rate (LIBOR) as an approved index for adjustable interest rate mortgages (ARMs), and replacing LIBOR with the Secured Overnight Financing Rate (SOFR) as a Secretary-approved index for newly originated forward ARMs. HUD is also codifying its removal of LIBOR and approval of SOFR as an index for newly originated Home Equity Conversion Mortgage (HECM or reverse mortgage) ARMs. In addition, HUD is establishing a spread-adjusted SOFR index as the Secretary-approved replacement index to transition existing forward and HECM ARMs off LIBOR. HUD is also making clarifying changes to its HECM Monthly ARM regulation and establishing a lifetime adjustment cap for monthly adjustable rate HECMs. This final rule adopts HUD’s October 19, 2022, proposed rule with minor changes. The effective date is March 31, 2023.

CFPB’s Issues Spotlight Public Benefits Delivery & Consumer Protection

The Issue Spotlight explores the challenges that recipients of public benefits programs offering cash assistance encounter in accessing funds through financial products or services. It also summarizes CFPB consumer complaints and the results of focus groups with cash assistance recipients. This report focuses on assistance provided on prepaid cards because of specific recurring issues we have seen arising with the provision of benefits by that method.

FinCEN Alert on Nationwide Surge in Mail Theft-Related Check Fraud Schemes Targeting the U.S. Mail

In light of a nationwide surge in check fraud schemes targeting the U.S. Mail (hereinafter “mail theft-related check fraud”), FinCEN is issuing the alert to financial institutions to be vigilant in identifying and reporting such activity. Mail theft-related check fraud generally pertains to the fraudulent negotiation of checks stolen from the U.S. Mail. Fraud, including check fraud, is the largest source of illicit proceeds in the U.S. and represents one of the most significant money laundering threats to the U.S., as highlighted in the U.S. Department of the Treasury’s most recent National Money Laundering Risk Assessment and National Strategy for Combatting Terrorist and other Illicit Financing. Fraud is also one of the anti-money laundering/countering the financing of terrorism (AML/CFT) National Priorities.

Have Questions?

If you would like to discuss any compliance matters for your institution, please contact your Cherry Bekaert Advisor or reach out to the Firm’s Risk Advisory regulatory compliance team today.

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