The Federal Home Loan Bank of Cincinnati (“FHLB Cincinnati”) supports the expansion of fair and equitable home ownership opportunities. To discourage predatory lending practices, which are inconsistent with such opportunities, and to protect FHLB Cincinnati from potential liabilities, FHLB Cincinnati has established the following anti-predatory lending APL Policy (“APL Policy”) with respect to residential mortgage loans and securities backed by residential mortgage loans pledged to it as collateral (“Residential Mortgage Collateral”).
FHLB Cincinnati requires that Residential Mortgage Collateral comply with applicable federal, state and local anti-predatory lending laws and other similar credit-related consumer protection laws, regulations and orders designed to prevent or regulate abusive and deceptive lending practices and loan terms (collectively, “Anti-Predatory Lending APL Laws”). For example, Anti-Predatory Lending APL Laws may prohibit or limit certain practices and characteristics, including, but not limited to the following:
- Requiring the borrower to obtain prepaid, single-premium credit life, credit disability, credit unemployment, or other similar credit insurance;
- Requiring mandatory arbitration provisions with respect to dispute resolution in the loan documents;
- Charging prepayment penalties for the payoff of the loan beyond the early years of such loan; or
- Originating high cost loans, that, for example, exceed the annual percentage rate, fee, or point’s thresholds of the Home Ownership and Equity Protection Act of 1994 and its implementing regulations (Federal Reserve Board Regulation Z).
Pledgors are responsible for avoiding all unlawful practices and terms prohibited by applicable APL Laws, regardless of whether they originate or purchase the Residential Mortgage Collateral being pledged to FHLB Cincinnati. Any Residential Mortgage Collateral that does not comply with all applicable APL Laws will be ineligible as collateral to support advances or other activity with FHLB Cincinnati. FHLB Cincinnati will take those steps it deems reasonably necessary in order to confirm or monitor pledgors’ compliance with this policy.
Monitoring for Predatory or Abusive Lending Practices
The FHLB Cincinnati will rely primarily on a financial institution’s regulator(s) to identify any illegal predatory lending activities, and in accordance with FHLB internal policies and guidelines, we will monitor appropriate publications and examination reports for such activities. In addition, the FHLB will monitor for activities that while legal, may be considered abusive or predatory in nature. Our activities in this regard will be incorporated in periodic collateral verification and/or loan portfolio due diligence processes and testing performed by the FHLB for other purposes. Credits secured by single family residential property included in standard loan samples will be reviewed to determine whether they reflect any of the above four bulleted characteristics. If any such loan is identified, its underwriting will be reviewed in the context of all relevant factors to determine whether the terms and conditions of the loan are such that a reasonable person would find them abusive. If abusive lending activities are identified, additional action will be taken to identify their extent. Any such loans would be removed from the eligible borrowing base and depending on specific circumstances; additional action may be taken to adjust a member’s borrowing capacity for these types of activities.
In addition to the above, the FHLB Cincinnati reserves the right to require evidence reasonably satisfactory to FHLB Cincinnati that Residential Mortgage Collateral does not violate applicable APL Laws. With respect to Residential Mortgage Collateral purchased by the pledgor, the pledgor is responsible for conducting due diligence that it deems sufficient to support its certification [and/or] indemnification agreements with FHLB Cincinnati.
Per the terms and conditions of the FHLB Cincinnati Blanket Security Agreement, each pledgor has represented and warranted to FHLB Cincinnati that it: (1) is aware of and will comply at all times with FHLB’s Cincinnati Credit Policy, including this APL Policy; (2) will comply at all times with the requirements of all applicable APL Laws; (3) will maintain qualifying collateral and substitute eligible collateral for any Residential Mortgage Collateral that does not comply in all material respects with applicable APL Laws or this APL Policy; and (4) will indemnify, defend and hold FHLB Cincinnati harmless from and against all losses, damages, claims, actions, causes of action, liabilities, obligations, judgments, penalties, fines, forfeitures, costs and expenses, including, without limitation, legal fees and expenses, that result from the pledge of any Residential Mortgage Collateral that does not comply in all material respects with applicable APL Laws or this APL Policy.
Additional Agreement May Be Required: Members that have not executed a version of the FHLB’s Blanket Security Agreement that contains the terms and conditions listed above must, in lieu of such an agreement, execute a Member or Member Affiliate Obligor Undertaking with FHLB Cincinnati that: (1) certifies its understanding and compliance with FHLB Cincinnati’s APL Policy and all applicable APL Laws; (2) certifies it will maintain qualifying collateral and substitute eligible collateral for any Residential Mortgage Collateral that does not comply in all material respects with applicable APL Laws or this APL Policy; and (3) indemnifies, defends and holds FHLB Cincinnati harmless from and against all losses, damages, claims, actions, causes of action, liabilities, obligations, judgments, penalties, fines, forfeitures, costs and expenses, including, without limitation, legal fees and expenses, that result from the pledge of any Residential Mortgage Collateral that does not comply in all material respects with applicable APL Laws or this APL Policy.
FHLB Cincinnati will not knowingly accept as eligible collateral Residential Mortgage Collateral that violates applicable APL Laws or this APL Policy. If FHLB Cincinnati knows or discovers that such Residential Mortgage Collateral violates applicable APL Laws or loans deemed predatory or abusive by the FHLB of Cincinnati having rates or fees that exceed those prohibited by the HOEPA, that contain mandatory arbitration clauses, that provide for prepayment penalties other than in the early stages of the loan, or that mandate single premium prepaid credit life insurance, regardless of whether any of these four provisions are in violation of an APL law or regulation., FHLB Cincinnati will, in addition to all available rights and remedies at law or in equity (1) require the pledgor to substitute eligible collateral, (2) value such Residential Mortgage Collateral at zero for collateral purposes, and (3) require the pledgor to undertake a review of its policies, practices, and procedures for complying with FHLB collateral policies.