The Federal Reserve’s new Regulation Z requirements under the Home Ownership and Equity Protection Act (HOEPA) are set to take effect on October 1, 2009. The changes will require institutions to comply with several new rules tied to a new class of mortgages the Fed identifies as “higher-priced.”

Mortgage lending practices have come under fire as being a primary contributor to the nation's economic downturn. With home loan products and underwriting procedures under the microscope, regulators and Congress have gone on the offensive to reform the mortgage industry. The Federal Reserve's amendments to Regulation Z broaden the scope of mortgage loans subject to HOEPA by adjusting the price triggers used to determine coverage under the act. The rate-based trigger is lowered by two percentage points for first-lien mortgage loans. The fee-based trigger is revised to include the cost of optional credit insurance and similar debt protection products paid at closing.

The Minneapolis-based risk management and consultant company Wolters Kluwer Financial Services says it can help financial institutions begin preparing now to meet the Fed's new anti-predatory regulation changes.

Kurt Sames, VP and general manager of consumer compliance at Wolters Kluwer Financial Services, said, “The sooner lenders can prepare themselves for these new requirements the better. In light of the current financial crisis, they can be certain regulators will intensify their scrutiny of compliance with these changes and other fair and anti-predatory lending requirements. An institution’s business and reputation are on the line if they’re found to be engaged in prohibited lending practices.”

Wolters Kluwer Financial Services has compliance management professionals at the ready, who can be deployed on-site at institutions to help them revise policies and establish a systematic process for checking mortgage applications against the Fed's new higher-priced mortgage threshold. The company explained that some institutions will need to update their loan processing procedures to meet the revised rule, such as verifying a borrower’s ability to pay, limiting prepayment penalties, and establishing escrow accounts.

Sames added that Wolters Kluwer Financial Services’ Wiz Sentinel anti-predatory lending software can also test mortgages – either in real-time or in batches for post-closing audits – against the Federal Reserve's new higher-priced Reg Z revisions. He noted the company is already using the software and professional services to help lenders comply with a new Maryland state law that mirrors Regulation Z.

Carrie Bay | 05.13.09 www.dsnews.com