How COVID-19 is Impacting Regulatory Compliance for Financial Institutions

March 30, 2020 | Article

By Diane Wolfe

COVID-19 continues to impact organizations and individuals alike. For financial institutions, it’s not just a matter of maintaining their own organizations, they also must plan for how it will affect their customers.

We’ve developed resources to help organizations make sense of COVID-19’s impact.

Customer Pain Points to Consider
Here are points to keep in mind as you help your customers through this challenging time:

Payment deferrals and maintaining compliance with fair lending
Who will qualify for payment relief? While helping your customers work through their temporary cash flow shortfall is a crucial and time-sensitive issue, remaining compliant with federal regulations is something that is no doubt top-of-mind for your compliance staff. Detailed documentation of criteria used to qualify both commercial and consumer customers for payment deferrals will help keep fair lending and other federal regulations from becoming an issue.

Credit life/disability insurance
Does the customer have credit life/disability insurance on their loan? If payments are deferred and the insurance product runs less than the full term of the loan, you will want to disclose to the customer that they will be without coverage for a period of time. Credit life/disability insurance applies to consumer lending.

Escrow accounts
Does the customer have an escrow account related to their consumer residential real estate loan? If payments are deferred, the customer may have a shortage when running the annual analysis. To alleviate this potential shortage, have a discussion with the customer to see if they can afford to make just the escrow payment during the time regular principal and interest payments are deferred.

Another alternative might be to run a short-year escrow statement after the deferral period has passed. Doing this will prevent a large payment shock that likely will occur if you wait until the annual escrow analysis is due.

It is important to note the bank is still required to make any payments scheduled to be made for taxes, insurance, etc. from the escrow account on a timely basis even if it overdraws the escrow account. 

Mortgage servicing
The regulatory agencies released Interagency Guidance on April 3, 2020, titled “Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in Response to the COVID-19 Emergency and the CARES Act.”  Within the guidance it mentions FAQs that CFPB has released containing other regulatory flexibility. These documents provide additional guidance for large servicers as defined in Regulation X (or commonly referred to as RESPA). 

Other items to consider
Other items to consider when addressing consumer and commercial loan customers:

  • Try to avoid negative amortization when deciding on the number of payments to be deferred. 
  • If the deferred payments result in Making, Increasing, Renewing or Extending (MIRE) the loan, a new flood determination will need to be obtained.
  • Disclose to the customer whether or not interest will continue to accrue during the months payments are deferred.
  • Disclose to the customer how/when the deferred payment’s interest will be paid.
  • Disclose to the customer whether the deferred payment will result in additional interest over the life of the loan.
  • Disclose to the customer how the final loan payment will be affected: Will the maturity date be extended, or will there be a balloon payment due? 
  • Ensure your customer-facing employees have received training on completing your customer disclosure.

Always Keep Compliance Top of Mind
Incorporating these suggestions that apply to your bank’s circumstances will allow you to help your customers and remain compliant with federal regulations.

Have a question regarding the compliance of your financial institution during this uncertain time?

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