To the list of worries on community bankers' minds, add the new rules for mortgage disclosure and settlement practices.

On July 30, amendments to the Federal Reserve's Regulation Z went into effect to enforce speedy cost disclosures for consumers. This coming January, banks are bracing for the compliance deadline for related Real Estate Settlement Procedures Act (RESPA) changes, finalized last year by the Department of Housing and Urban Development to help consumers shop around for mortgage terms with easy-to-understand, good-faith estimates and limits on pre-closing fees.

For community bankers ramping up for more mortgage origination activity, working under these new rules is already proving to be a cumbersome exercise. RESPA and Reg Z (the Fed's Truth-in-Lending Act regulations) are forcing banks into costly upgrades of originations systems to accommodate compliance needs-processes, which many larger banks already have in place. Banks also must refocus their business-line and customer-service activities to meet with the inherent delays and confusion as part of new disclosure procedures. "We are handing our customers a letter at the time of the application spelling this out," said Tom Myers, executive vice president and chief lending officer at the $1.5 billion-asset Monroe Bank & Trust in Michigan. "In the past, if you were expecting to close this loan in 35 to 40 days, it's now 60 days."

According to a July industry survey by Wolters Kluwer Financial Services, the new disclosure and settlement rules are a big worry for compliance officers. Sixty percent said Truth-in-Lending compliance was a top concern; 58 percent also expressed anxiety with RESPA. "There are so many different regulations that are changing in the next 18 months or so, its kind of an overwhelming task," said James Barber, the chairman and chief executive at the $1.4 billion-asset Acacia Federal Savings Bank in Falls Church, Va.

The most immediate impact on these bankers has been the TIL rules, which were enacted by the 2008 Mortgage Disclosure Improvement Act. Mortgage lenders must now wait at least seven days after an early good-faith estimate disclosure before closing on a loan. If the APR at close varies by more than .125 percent from the early disclosure, a "re-disclosure," or new good-faith-estimate, is then required-which restarts the clock on the pre-close waiting period. That includes actions by consumers who decide at closing to buy down points or change terms themselves. "The customer can't make a change at the last minute," without delaying the close, said Monroe's Pat Williams. "If he wanted a $100,000 mortgage and now wants $102,000, he has to go back and have a seven-day waiting period."

The major RESPA changes included a new standardized good-faith-estimate form that gives more transparency on fees, settlement procedures and closing costs. But critics say consumers could potentially be perplexed by dual TIL and RESPA forms, since both estimates are derived from different numbers. RESPA calculates from the actual loan rates, while Reg Z is based from the annual percentage rate. "One relates to interest rates and one relates to fees," said Rod Alba, the senior regulatory counsel with the American Bankers Association. Both the ABA and the Mortgage Bankers Association are seeking a delay in the implementation of RESPA regulations until the two agencies can match up disclosure rules. The ABA "is not saying pull back the rule," said Alba. "We're saying delay the rule so you can work out the kinks with your sister agency."

In the meantime, community banks are bracing for more mortgage settlement requirements further down the road. Under TIL changes from last year's Home Ownership and Equity Protection Act, banks next April will have to establish escrow accounts for borrowers. Most community banks lack the service, which includes specialty payment processing and transaction disclosures, and has limits on how much can be collected above a homeowner's levies.

Larger competitors already have those in place, of course. "I would think many of the changes are going to end up decreasing competition," said Acacia's Barber. "As the regulatory hurdles increase, the barriers to entry to our industry are going to increase."

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