Divisionofbank'srequestforcomments

HowBankingShouldBe

August12,2015

Mr.DavidJ.Cotney,CommissionerofBanks

TheCommonwealthofMassachusetts

1000WashingtonStreet,10thFloor

Boston,MA02118-6400

RE:ReviewofRegulationsinconnectionwithExecutiveOrder562,March31,2015

DivisionofBank'sRequestforComments

DearCommissionerCotney,

IamwritinginresponsetotheDivision'srequestforcommentsrelatingtoGovernorBaker'sExecutiveOrder562,toreduceunnecessaryregulatoryburden.Iwouldliketothankyoufortheopportunitytoprovidethefollowingcommentsandrecommendations,andIappreciateyourtimeandconsiderationinthematter.

Forthepast13years,IhavebeentheChiefComplianceOfficerforalargeregionalindependentmortgagebankerandnowwithasmallcommunitybankinWoburn,MA.InmyworkwiththeindependentmortgagelenderIdirectedcomplianceforthreebusinesschannelsincludingwholesale,correspondentandretaillending.Iamwritingthisletterprimarilyfromacommunitybankperspective

andmainlyasceoforPatriotCommunityBank,butalsobasedonmycollectiveexperiencesIhavehad

andwhatIbelievewillhelpalleviatetheregulatoryburdenforallindustryparticipants.PatriotCommunityBankhasassetsof$150milliondollarswithonlyonemainofficeandemployslessthan30fulltimepermanentemployees.

IfirstwouldliketoaddressthecurrentregulatoryburdenandwhatittakestocomplywiththespecificMassachusettsrules,thenwillindicatewhichspecificregulationslistedintheDivisionsrequestIbelieveshouldbeconsideredforstreamlining.Iwillfollow withadditionalrecommendationsfortheDivisiontoconsiderasapartoftheExecutiveOrderreviewprocess.

Intoday'slendingandregulatoryenvironment,inorderforacomplianceofficertoensuretheircompanyiscomplyingproperly,thereareseveralstepsthathavetobetaken.LawsandRegulationsfromtheFederal,StateofMassachusetts,andotherstategovernments,aswellasagencyrequirementsfromtheprudentialregulators{liketheFederalReserve)andgovernmentagencieslikeFNMA,FHLMC,HUD,RHD,andtheVAmustbefollowed,keptup-to-dateandtested. Whenconsideringtesting,first

youmustbeontopofyoursoftwareproviderstoensuretheyhaveproperlyinterpretedtheregulationsandrulesandthatwhenupdatestothesoftwarearemadetherulesdidnotimpactthestateorothercomplianceprogramming.Youmustalsoensurethatyoursoftwareprovidersareprovidingaccurateinformationontheirdocuments,formsanddisclosures,andthattheyaremappedproperly.Whennewrulesareimplemented extensivetestingandfollowupmustbeperformedtoensurenewandongoingcompliance.Checklists,training,workflowandjobaidsmustbedeveloped,tracked,andmonitoredtoensurecompliance.Riskmanagementandthetasksinvolvingreviewsandanalysisareequallyimportant.Automationiscritical,butforasmallbanklikePatriotCommunityBank,itisnoteasyto

automateallcomplianceandriskmonitoring,thusmanualauditingandrelianceonoutsideconsultantsbecomesespeciallyimportant.Specialrulesonastatelevelrequireadditionalchecklistsandmonitoring,followupandwhennecessary,correctiveaction,andmoremonitoringandfollow-up.Constanteducationandfeedbackareimportant forcontinuedsuccess,especiallyifthebankhastodealwithemployeeturnover.AsapartoftheComplianceManagementSystemandmanagingregulatoryrisk,theComplianceOfficermustincludeallstateuniquerulesintheregularmonitoringandtestingprogram.

Tothisend,notonlytimeandhumanresourcesareimperative,butthecostassociatedisabig

factor.ForasmallbanklikePatriotCommunityBankwhoreliesheavilyonrevenuesfromtheresidentialmortgagelendingarea,butcloseslessthan1,000loansperyear,havingmorethanonecomplianceofficerandadditionalcomplianceandtrainingstaffisnotrealistic.Moreover,theComplianceOfficermusttendtodepository,commerciallending,andservicingcomplianceandisnotworkingexclusively

onmortgagelendingcompliance.WiththeTRIDproject,andnextyearthenewHMDArequirements,thebankhashadtooutsourcetheroutineQCandComplianceauditsforthemortgagelendingarea.Hereisaquickchartoftheitemstoconsider(justforMAresidentialmortgagelendingatthebank)thatcontribute totheregulatoryburdenandcosts:

SpecificUniqueMonitoringforStateofMA:

RegulationorBulletin / WhoMonitors/tests
Orperformsoperationaltask / Whomonitors,keepscurrent,conductstraining,corrective
action,reportingtoEVP
StateVSFederal
DifferencesinTILA / LoanProcessor / Consultant,CCO
Refinances-Borrower's
Interest / Underwriter / Consultant,CCO
AdverseAction-Noticeof
RighttoAppeal / Underwriter
SVP / ceo
SubprimeLoans-First
TimeHomebuyers / ceo / ceo
LateChargeFeesonNote(StandardlanguageoftheprincipalandinterestVSofthepayment / Processor
SVP / Consultant,CCO
ARMNoticePostClosing(FederaltimingVSstatetimingforARMChanges) / AVP / Consultant,CCO
FloodInsurance(Federal
VSState) / UnderwriterLoanCloserSVP / Consultant,CCO
RESPA/UnearnedFees / LoanCloser / Consultant,CCO
GoodFundsLaw / EVP / ceo

PleaserefertoExhibitAforanestimatedbreakdown ofthecostassociated withMAspecificcompliance.Intheend,foroursmallcommunitybank,thecostisequivalent tooneparttimeSeniorUnderwriter,atamonthly costof$1,977.50andannualat$23,730.00.Ifmyrecommendationsareenacted,itwouldsave

75%ofthiscostatasavingsof$17,797.50peryear.

209CMR32.00:TruthinLending

TheDivisiondidagreatjobofstreamlining209CMR32.00thispastyear.Theformatwasexcellentasitdidnotrepeattheverbiagethatstayedthesameasthefederal,soitwaseasytoreadthroughanddetermine whatinfactdifferedfromthefederallaw.GoodJob.OftheremainingitemsthatdodifferIwouldliketorequestthefollowingitemsbereconsidered:

•§32.15and32.23RightofRescission:TheMAfouryearrescissionperiodexceedsthefederalrequirement ofthreeyears.SincethestatelawMGL1400indicatesa4yearrescission,Irecommendthatthissectionberepealedandinstead,complywiththefederalTruthinLendingAct.

•§32.20DisclosurerequirementsregardingPost-ConsummationEvents:Thissectionpertainsspecificallytotherequirement forprovidinganoticetoaconsumertoletthemknowabouttheupcomingchangeininterestrateandpaymentonanARMmortgage.ThewaytheStatelawiswritten isverydifferentthanhowtheFederallawiswritten,buttheybothendupnotfarapartinthenetresult.Itisveryconfusingandtookmeseveraldays(includingemailsandlivediscussionswithacomplianceconsultant)tosortitout.Technicallythefederallawprovidesthedeliveryofthenoticeofinterestratechangefarenoughinadvancetocautiontheconsumer,however,Ithinktheintention oftheMAlawwasthattoofarinadvancemaynotnecessarilybeabenefittotheconsumer.Inanyevent,Ibelievethefederallawwouldtrumpthestatelaw,nevertheless,inthiscasethestateregulationisspecifictodepositorieshavingtocomplywithMGLC167E,andsincewearenotregulatedbytheCFPB,wechosetocomplywiththeMALaw.

IamnotanattorneyandIadmitIamconfusedbythissection.IsthereareasonwhythissectioncouldnotfollowtheFederallaw?Hereisanexcerptfromthebank'sMACompliancesectionofourcompliancepolicy,asitpertainsonlytothissection,anditwillexemplifythedifferencesI

amattempting topointout.

******************************************************************************

Closed-EndCredit

Thereareafewdifferencesthatmustbeadheredto:

I. / 32.20(3) / DisclosureRequirementsRegardingPost-ConsummationEvents-VariableRate
Adjustments
Thisrequirementisforthenoticetotheconsumerpriortotheratechangethatinforms
theconsumerofthenewinterestrateandpayment.
Initialrateandpaymentchange:

•PCBmustprovideanoticeatleast210butnotmorethan240daysbeforethe

firstpaymentatadjustedlevelisdue(7-8months).*

Ongoingrateandpayment changes:

•FederalTILAlooksattheactualfirstpaymentdate:Thedisclosureshallbeprovidedtoconsumersatleast60butnomorethan120daysbeforethefirstpaymentatadjustmentlevelisdue.

•MADOBlooksattheratechangedate:nosoonerthan60butnolaterthan30daysbeforetheratechange.

*Iftheinterestrateandpaymentisnotknownthisfarinadvance,anestimateisprovided,thenanothernoticeisprovided2-4monthsinadvanceoftheinterestrateandpaymentchange.

RateChangeDate / PaymentChange
Date
4/1 / 5/1
Federalnoticenolaterthan60daysbeforepayment
change,Noearlierthan120beforepaymentchange / Nolaterthan3/1
Noearlierthan1/1
Statenoticenolaterthan30daysbeforeratechange / Nolaterthan3/1
Noearlierthan2/1

Federallawtrumpsstatelawwhenitisinthebestinterestoftheconsumer.Itisarguableifreceivinganoticesofarinadvancebenefitstheconsumer;underFederalTILAlawmakersdetermineditwasintheconsumer'sbestinteresttobeinformed sofarinadvance.However,thenoticeperiodisarangewithout definitive setdatesinwhichtocomply,therefore PCBwillfollowtheMAStateLawrangesfornotifications.

******************************************************************************

•§32.32RequirementsforHighCostMortgages:TheFederalHighCostThresholdschangedeffectiveJanuary2014.ItappearsthattheMArequirementsdonotreflectthechanges.

oFederal:APRforfirstlien6.5%abovetheAPOR

oState:APR8%abovetheTCM

Whilethestateismoreliberalwiththethreshold,mostmortgagelendersselltheirloanstothesecondarymarketandagencyrequirementsfollowfederal,sothemoreconservativewillapply.Inanycasethe5%pointsandfeesthresholdisinlinewiththefederalandtheagencies.Itisstilladifferencewehavetotrackandmonitor.IrecommendliningitupwiththeFederallaw.

209CMR40.00:UnfairandDeceptivePracticesinConsumerTransactions

•§40.02DefinitionsHighCostHomeLoan:Refertonotesabovereferencing209CMR32.32.

•940CMR8AttorneyGeneral(93AProhibitedActs)8.06(15)"No-DocLoans"Thissectionnolongerapplies,anddocumentvendorslikeDocMagicstillincludethe"NoDoc"DisclosureinMALoanFiles.Wehavetomonitorthisandrequestthedisclosurebeomitted,anditappearsoutoftheblueonoccasion.Wewatchthisclosely.Theindustryhasnotoriginatedno-docloansinseveralyears.TILAnowincludesAbilitytoRepayandtheQMLoanssafeharborsdiscouragethistypeoflending.Irecommendrepealingonlysection8.06(15)oftheAct.

209CMR53.00:DeterminationofDocumentationofBorrower'sInterest

Whenthislawwasmadein2005therewasaveryimportant needfortherequirement.Manybanks,lendersandbrokerswere"churning"pipelinesandrefinancingborrowers,financinginclosingcostsandincreasingprincipalbalancesaswellasnotprovidingasubstantialbenefittotherefinance.Sincethenmanyconsumerprotection lawshavebeenputinplacetorestrictabusivelending.TheselawsincludeUDAAP,TILAabilitytorepayandqualifiedmortgagerules,andhighcostprohibitedactsandthehighpricedmortgageloanrules.Thesecondarymarketself-policesthispracticebyplacingrestrictionsonlendersthatrefinancethesameborrower inagiventimeframe(typically120-180days)andimposesseverefinancialpenaltiesforthosewhoviolatetherule.

ThisisanotherMArulewherethedocumentprovidersdon'tseemtogetitrightandwehavetoconstantlypolicetoensureformsrelatingtotherulearecorrectanddonotgetputinapplicationpackages.Additionally,ittakesourunderwritersatleast5minutesperloanfiletoreviewtheunderwritercertification andcompleteitwhiletheydetermineiftheruleneedstobecompliedwithorthetransactionisexempt.Werequirethissowehaveapapertrailtoprovecompliance.Thenwe

includethisinourcompliancereviewsandtraining.

WiththerevisionlastsummerexemptingQMloansfromtherequirements,itsubstantiallyreducedthenumberofloansthatfallintothiscategory,however,westillhavetogothroughthereviewprocessanddocumenttheexemption.Isitpossibletotakeitastepfurtherandrepealthelawentirely?

Itdoesnotappeartoserveabeneficialpurposeanymore,howeveritwasanimportant ruleatitstime.I

recommendrepealingthislaw.

Mass.RegulatoryBulletin1.30-0104(II):SubprimeLoanstoFirstTimeHomebuyers(MGL184,

§1781/2,Section7ofChapter206oftheActsof2007)

PiggybackingontheRefinancerule,whenthisrulecameoutin2007itwasneededanddidagoodjobprotectingfirsttimehomebuyersduringperiodsinthemarketwhenARMandnontraditionalmortgageswerepopular.

Wemonitorcompliancewiththisandin2014outof65ARMloansoriginatedbythebank,notonefellintothiscategory.Butstill,wehavetomonitor,auditandreportwhichrequirestimeandhumanresources.Today,forthereasonsmentionedabove,thisguidanceisoutdatedandnolongerneeded.Irecommendrepealingthisinitsentirety.

MortgageReviewBoardNotice

WhileIamnotsurehowfarthislawdatesback,Iamsurethatitservedacriticalimportancetothepreventionofredlining.Conversely,intoday'senvironment andfortherecentpast,onemustquestiontheeffectivenessofthislawandifthebenefitoutweighsthecost,fortheindustryaswellastheDivision.

Forthepast13yearsIoversawcompliancefortheoriginationofthousandsofloansinMAand

onlyhadthreetimesinwhichthenoticeprocesswasusedbyaconsumerandinallthreecasesthedecisionwasinfavorofthelender.

TheamountofworkthatgoesintothisprocessisexcessiveforthelenderandtheDivision.Today,theconsumerisveryawareoftheirrightsandhowtofileacomplaint.MAconsumerscanmakeacomplaintdirectlytotheDivision,MAAttorneyGeneral,ortheCFPB.ThenewLoanEstimatehastheCFPBwebsiteandtoolsreferencedontheform.TheCFPBLoanToolkitwhichisprovidedtoallborrowersatthetimeofapplicationdetailshowtosubmitacomplaint.WithCRAquotasandanemphasisonfairlendingreviewsbyregulators,andasrequiredpartofalender'scompliancemanagementsystem;thepotentialforredliningiscloselymonitored.Theamountoftimethatistakenwithintheloanprocess,thefollow-upmonitoring,auditingandtrainingthatmustbecompletedtakesuptimeandhumanresourceswithout anetbenefittoallinvolved,includingtheconsumer.ThecosttotheDivisionisalsoafactorandshouldbeconsidered.Irecommendthislawberepealedinitsentirety.

Insummary,Irecommendthefollowingbemodifiedandsimplified:

209CMR32.00:TruthinLending:

§32.15and32.23RightofRescission

§32.20DisclosurerequirementsregardingPost-ConsummationEvents

§32.32RequirementsforHighCostMortgages

209CMR40.00:UnfairandDeceptivePracticesinConsumerTransactions:

§40.02DefinitionsHighCostHomeLoan

Irecommendthefollowingsectiononlyberepealed:

•940CMR8AttorneyGeneral(93AProhibited Acts)8.06(15)"No-DocLoans"

Irecommendthefollowingbeingfullyrepealed:

•209CMR53.00:DeterminationofDocumentationofBorrower'sInterest

•Mass.RegulatoryBulletin1.30-0104(II):SubprimeLoanstoFirstTimeHomebuyers(MGL184,

§17B1/2,Section7ofChapter206oftheActsof2007)

•MortgageReviewBoardNotice

Inclosing,IwouldonceagainliketothanktheDivisionforthisopportunitytovoicemyrecommendationsonbehalfofthebankandmyself.WhilethiscomesasaresultoftheGovernor'sExecutiveOrder,theDivisionhasbeenproactiveinthepastwithreviewingandupdatingregulationsinthemortgagelendingarenaaswellasrecently,theBankModernization Act.TheDivisionhasalwaysbeentransparentandwillingtoworkwithindustrytoreformandmoveahead.Pleasefeelfreetocontactmeanytimeat(781)935-3318,ext.255,.

Cc:AnnetteJ.Hunt,ExecutiveVicePresident,PatriotCommunityBank

ExhibitA

InordertocalculatetherealtimecosttocomplywiththeMAlaws,whichincludetherulesthatrequirethemostattention,hereisabasicestimateofthetotalcost.Ofthattotalcost,iftherecommendedchangesweretobeimplemented,Iestimate75%ofthiscostwouldbesavedbythebank.

EstimatedMonthly CostsjustforMAStatespecificreviews/tasks:

JobTitle / HourlyPay / Task / TotalMonthly
Hours / TotalMonthly
Cost
Consultant / $110.00* / ComplianceAudit / 4 / $440.00
ceo / $48.00 / AdverseActionReviews / 10 / $480.00
ceo / $48.00 / Compliancereviews,research,training,monitoring / 10 / $480.00
Underwriter/SVP / $25.00*
$50.00* / CompletingAdverseAction(Noticeofrighttoappeal)andRefinanceWorksheets / 2
2 / $50.00
$100.00
Processor / $15.00* / Completingchecklists,monitoringCalyxforMAspecificrequirements / 12.5Hours** / $187.50
ceo / $48.00 / MonitoringMAlaws,changes,policies,procedures,checklists,etc. / 5 / $240.00
Totals / 45.50 / $1,977.50

*Averagecharge/expense

**SOloansamonthat15minutestotalintheprocessperfile

Theoverallestimatedtotalmonthlycostisequivalenttothecostofoneparttimeseniorunderwriterposition.Atamonthlycostof$1,977.50andannualat$23,730.00,ifmyrecommendationsareenacted,itwouldsave75%ofthiscostatasavings of$17,797.50peryearforthebank.