November/December 2012

“Winter in Southwest Virginia,”Patsy Phillips, TruPoint BankFirst Place, VBA Photo Contest

IN THIS ISSUE

VBA LEGISLATIVE MEETINGSVBA LEGISLATIVE MEETINGSBankers Visit with Elected OfficialsBankers Visit with Elected Officials

GET SMART ABOUT CREDIT DAY | THE ELECTION IS OVER: NOW WHAT?

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2012-2013 OFFICERS AND DIRECTORS OF THEVIRGINIA BANKERS ASSOCIATION

Jeffrey M. Szyperski, Chairman, Chesapeake Bank

Gary R. Shook, Chairman-Elect, Middleburg Bank

William Couper, Immediate Past Chairman

O. R. Barham, Jr., StellarOne Corporation

Christopher W. Bergstrom, Cardinal Bank

Katherine E. Busser, Capital One Financial Corporation

Tim Butturini, Wells Fargo Bank, N.A.

Larry G. Dillon, C&F Bank

Randy K. Ferrell, The Fauquier Bank

Larry A. Heaton, Franklin Community Bank, NA

T. Gaylon Layfield, III, Xenith Bankshares, Inc.

John R. Milleson, Bank of Clarke County

Susan Ralston, Bank @Lantec

John G. Stallings, SunTrust Bank

David P. Summers, Virginia Heritage Bank

Daniel G. Waetjen, BB&T

Michael O. Walker, Benchmark Community Bank

AT-LARGE MEMBERS

Benefits Corporation Chair

Richard M. Liles, Bank of McKenney

Management Services Inc. Chair

Frank Bell, III, Chesapeake Bank

Government Relations Committee Chair

Monte L. Layman, Blue Ridge Bank

VBA Education Foundation Chair

H. Watts Steger, III, Botetourt Bankshares, Inc.

EDITORIAL & EXECUTIVE OFFICES

4490 Cox Road Glen Allen, VA 23060804-643-7469 Fax 804-643-6308www.vabankers.org

Bruce T. WhitehurstPresident and CEOVirginia Bankers Association

Chandler DeweyManager, Communications &

Government Relations Virginia Bankers Association

SUBSCRIPTIONSIf you would like to subscribe to Virginia Banking, contact Chandler Dewey at cdewey@vabankers.org. Virginia Banking is published bi-monthly. Copyright 2012.

Statements of fact and opinion aremade on the responsibility of theauthors alone and do not imply anopinion or endorsement on the partof the officers or members of VBA.

features

VBA Legislative MeetingsBankers Visit with Elected Officials

4 Calendar of Events 5 Insights 6 Worth Noting 7 Welcome New Associate Members

8 Legislative Update 9 Washington Update 10 Legal Line11 Compliance Corner 14 Bankers on the Move

Send us your thoughts or ideas on Virginia Banking! Please email Chandler Dewey at

cdewey@vabankers.org. Has your information changed? Please email Kellee Edelin at

kedelin@vabankers.org with your new contact information.

12

13

in every issue

Get Smart About Credit Day 2012Virginia Bankers Teach Children the Basics of Credit

The Warren GroupDesign / Production / Advertisingwww.thewarrengroup.comcustompubs@thewarrengroup.com

©2012 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: The Warren Group, 280 Summer Street, Boston, MA 02210. Call 800-356-8805.

PUBLISHED BY

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November/December 2012 | Virginia Banking 3

November/December 2012

Congratulations to Patsy Phillips from TruPoint Bank, the winner of our 2012 Photo Contest with her photo “Winter in Southwest Virginia.” To see all of the winners and winning photos, please visit us at www.vabankers.org under the Communications tab.

INSTRUCTOR-LED SEMINARS

COMPLIANCE WITH FEDERAL LENDING REGULATIONS SEMINAR, SANDSTON DECEMBER 18

IMPLEMENTING THE NEW CTR AND SAR, VIENNA OCTOBER 17

ONLINE SEMINARS /INSTRUCTOR-LED SEMINARS

AIB PRINCIPLES OF BANKING DECEMBER 10

AIB GENERAL ACCOUNTING DECEMBER 10

AIB ECONOMICS FOR BANKERS JANUARY 3

AIB GENERAL ACCOUNTING JANUARY 7

AIB ANALYZING FINANCIAL STATEMENTS JANUARY 7

AIB PRINCIPLES OF BANKING JANUARY 7

AIB CONSUMER LENDING JANUARY 15

AIB LAW AND BANKING: APPLICATIONS JANUARY 15

AIB PRINCIPLES OF BANKING ACCELERATED JANUARY 15

AIB PRINCIPLES OF BANKING JANUARY 21

ABA ONLINE REVIEW COURSE FOR THE CRCM EXAMINATION JANUARY 22

WEBINARS

AIB ANALYZING FINANCIAL STATEMENTS NOVEMBER 5

Live Event Online Seminar Webinars

4 Virginia Banking | November/December 2012 www.vabankers.org

Calendar of Events

2013 Financial ForecastRichmond Convention CenterJanuary 4, 2013

Bank Directors SymposiumThe Westin RichmondFebruary 26, 2013

The Inn at Virginia TechFebruary 27, 2013

Fairview Park MarriottMarch 6, 2013

Retail Banking & Marketing ConferenceOmni Charlottesville HotelMarch 12-13, 2013

Compliance School and Compliance Hot TopicsOmni Charlottesville HotelApril 8-12, 2013

Security WorkshopOmni Charlottesville HotelApril 24-25, 2013

HR & Benefits ConferenceOmni Charlottesville HotelMay 5-7, 2013

Operations & Technology ConferenceStonewall Jackson Hotel & Conference CenterMay 14-15, 2013

Trust & Wealth Management ConferenceVBA Training CenterMay 31, 2013

Annual ConventionThe HomesteadJune 16-19, 2013

CFO ConferenceOmni Charlottesville HotelAugust 26-28, 2013

Credit Management ConferenceOmni Charlottesville HotelOctober 7-8, 2013

Leadership ConferenceOctober 10-11, 2013TBD

Compliance Hot TopicsVBA Training CenterOctober 23-24, 2013

2013

For more information go to www.vabankers.org.

Information and online registration is available at the VBA website. Please either go to www.vabankers.org or use this form to check the box next to the program you

want information about, then fax the form to the VBA office at 804-643-6308. The VBA will send you information about the program as soon as it is available, usually

eight weeks before the program.

Name___________________________________________________ Bank/Firm _____________________________________________

Address ____________________________________________________________________________________________________________________

City________________________________________________________________ State/Zip ___________________________________

Phone___________________________ Fax_________________________ Email ___________________________________________________

This may surprise those of you who know me well, but this fall I competed in the Warrior Dash, a 3.5 mile race that includes

about a dozen obstacles. On a Saturday in Septem-ber, my wife Genise, daughter Cameron and I were among the 10,000 or so half-crazy individuals who converged on Berkeley Plantation east of Richmond for this festive and challenging event. We climbed walls, crawled through mud and under barbed wire, went into the James River three times with various obstacles included, climbed up and down a cargo net, jumped over fire and crawled through mud and under barbed wire again just before the finish line. Six months ago I never would have dreamed that I would compete in an event such as this one; fortu-nately, Genise has had all five Whitehursts on a fit-ness quest this year and we are much better off for it. I actually enjoyed the Warrior Dash, which I found to be fun and exhilarating.

Why am I writing about this in my column for Virginia Banking? I must confess that even as I ran in the race, I was thinking, “Wow, what a great meta-phor this event is for the challenges our banking in-dustry has faced over the last several years.” (Yes, I’m

that much of a nerd.)We have certainly faced a number of obstacles.

The economic and housing collapse of 2008 affected us deeply, not only with credit losses, but also as we were broadly blamed for the crisis, even though 94 percent of subprime mortgages were originated out-side the FDIC-insured banking industry. We have climbed steep walls of credit losses, as good people – developers, small business owners and individuals – simply could not ride out the deep recession and very slow recovery. We have climbed through the mud that has been slung at us and under the barbed wire of new regulatory proposals that will have far reaching impacts on our industry.

We wish we could take on these obstacles and chal-lenges without our customers and communities bear-ing the brunt, but we know that is just not possible. We have been frustrated at the overreaction that was bound to occur, but that nonetheless makes it harder for us to serve our customers and more expensive for them to bank with us.

Elections have consequences. That’s what many folks have said over the years, including President Obama, around the time he was inaugurated in 2009. Dodd-Frank is certainly a clear example that there is much truth in this statement. As I write this, the No-vember election is looming and I wish I had a crystal ball; as you read it, we know the outcome. But hear this, warriors: either way, we clearly have more ob-stacles ahead, but we now have more experience with which to face them and the calluses on our hands to prove that this is so. We have emerged stronger from the Warrior Dash that we have all run over the past few years.

I am proud to be a warrior for Virginia banking, as are all my teammates on the VBA staff. As we make plans for what we must accomplish in 2013, we are blessed with an army of strong and wise bankers who will make a difference for banking that allows us to serve our customers and communities and to fuel a more robust economic recovery for the benefit of all.

We charge ahead.

Bruce Whitehurst can be reached by email at bwhitehurst@vabankers.org.

Bruce Whitehurst

President and CEO,

Virginia Bankers Association

The Warrior Dash

www.vabankers.org

Insights

November/December 2012 | Virginia Banking 5

VBA President and CEO Bruce Whitehurst is willing to speak to your bank’s employees about critical issues facing the industry and why it’s important for you to get involved in grassroots efforts. If you would like Bruce to speak at one of your meetings, contact Bobbi Weimer at bweimer@vabankers.org.

www.vabankers.org

VIRGINIA BANK SCHOOL STUDENTS RAISE OVER $13,000 FOR THE VIRGINIA WOUNDED WARRIOR PROGRAM

The 2012 graduating class of the Virginia Bankers School of Bank Management raised $13,589.55 for the Virginia Wounded Warrior Program by organizing a fundraising event during their last summer session in August. The class not only put on a great bowling event to raise money for the program, but they also went the extra mile, fundraising at their respective banks throughout the year leading up to Bank School. Pictured here are (from left): Holly Blackwell, 2012 Bank School graduate; Chip Jones, 2012 Bank School graduate; Paul Galanti, commander, U.S. Navy (retired) and former POW in the Vietnam War; Katherine Wilson, executive director, Virginia Wounded Warrior Pro-gram, and captain, U.S. Navy (retired); and Camilla Schwoebel, region 1 director, Virginia Wounded Warrior Program. Holly and Chip presented the check to Paul at the Virginia War Memorial, and Paul could not have been more thrilled with the bankers’

efforts. Congratulations to the 2012 class on your amazing achievement!

BEALE AND WHITEHURST AMONG ABA ELECTED OFFICERS AND BOARD MEMBERS FOR 2012-2013

Members attending the American Bank-ers Association’s annual convention in San Diego in October elected new officers and directors to serve on ABA’s board for the 2012-2013 association year, and recognized those continuing to serve. Virginia’s own Billy Beale, CEO, Union First Market Bank, Richmond, will continue to serve on the ABA board and will also serve as vice chair-man of the Government Relations Council. The VBA’s Bruce Whitehurst will also serve on the board and as chairman of the Alli-ance of State Bankers Associations. Kudos to Billy and Bruce.

WE WILL MISS

Bruce Reginald Hazelgrove Jr. passed away on Sept. 6, 2012. Bruce worked at the State Planters Bank of Commerce and Trust and served 31 years, retiring from Crestar Bank. While at the bank, he completed the Virginia Bankers School of Bank Manage-ment at the University of Virginia. Bruce also worked for the Virginia Bankers As-sociation for seven years. Our thoughts are with Bruce’s family. He will be missed.

NotingWorth

6 Virginia Banking | November/December 2012

VBA EDUCATION FOUNDATION SPONSORED PROGRAM NOMINATED FOR AWARD

For 15 years, the prestigious Governor’s Technology Awards (GTA) program has recognized the success of public sector information technology projects (IT) which have improved government service delivery and efficiency. The Virginia Department of Education was nominated for an award in the category “Innovative Use of Technology in Education” based on their work on the VBA Education Foundation sponsored Virtual Virginia online course on Economics and Personal Finance. This category recognizes the innovative use of IT to support the unique missions of Virginia’s schools, colleges and universities. Cooperative projects between institutions and other governmental entities, including research and development programs, also fall into this category.

VBA MSI Welcomes New Endorsed VendorsPWCAMPBELL

PWCampbell is a design/build firm that offers a full range of services including strategic facility planning, market demographic research, retail branding, merchandising, site selection, space planning, green (LEED) building design, architecture and engineering, construction management, and total furniture coordination. For over 100 years, PWCampbell has been serving the banking industry in the mid-Atlantic region with quality design and construction. The benefits of working with PWCampbell have been enjoyed by numerous Virginia banks and extend well beyond facility planning. PWCampbell has increased their Virginia bank clients’ profitability and market share, and enhanced their operational efficiencies through their many

services and the banking experts employed by PWCampbell. For more information, call Erin Campbell, vice president of marketing and planning, at (800) 253-7430 or email her at Erin.Campbell@PWCampbell.com.

REODEEDWAGON.COMREOdeedwagon.com exists to allow banks

to showcase their real estate for sale in front of an audience of potential buyers that extends well beyond local markets. Created by bankers for bankers and their clients, REOdeedwagon.com provides buyers and sellers a simple, easy-to-use resource for identifying, acquiring or disposing of real estate owned (REO) properties. These properties are in possession of the banks as a result of foreclosure or forfeiture.

Member banks register as users of REOdeedwagon.com, a site where they can list any REO properties they have for sale. Each property listing contains detailed information about the property, plus contact information provided by the bank for either the bank itself or whoever the appropriate point of contact might be. This feature allows multiple properties all over the country to be listed together on one site, thus making it simple for users to search for properties without having to visit the REO sections of every bank’s own individual site. This is one-stop-shopping for property buying at its most efficient. For more information, contact John Bowers, director of member services at the VBA, at jbowers@vabankers.org or (804) 819-4732.

www.vabankers.org

ACCOUNTINGCHERRY, BEKAERT & HOLLAND, L.L.P.

2626 Glenwood Ave.Raleigh, NC 27608Phone: (919) 782-1040Fax: (919) 783-0976Website: www.cgh.comCONTACT: CID HICKMAN, PARTNEREmail: chickman@cbh.com

Cherry, Bekaert & Holland, L.L.P.’s Financial Services Group has a reputation as a leading provider of financial and consulting services in the Southeast. With relationships focused and built on trust, Cherry, Bekaert & Holland provides professional services from a banker’s perspective to a diverse and successful group of financial clients. Through all stages of development – start-up to growth, public offering to owner transition – the CB&H Financial Services Group is there to provide traditional accounting solutions and value-added benefits to their client base.

CONSULTING & TRAININGPROPERTY ENVIRONMENTAL SERVICES, INC.

9615 Blake LaneFairfax, VA 22031Phone: (703) 938-5050Fax: (877) 970-2970Website: PESEnvironmental.comCONTACT: GORDON CRUICKSHANK, PRESIDENTEmail: propertyinc@cox.net

PES, Inc. specializes in conducting due diligence studies for secure lending in commercial real estate. For 16 years, they have helped commercial bankers in providing the environmental consulting needed for sound decision-making.

FINANCIAL INSTITUTIONS, MORTGAGE & REAL ESTATE SERVICESALVAREZ & MARSAL

555 Thirteenth St., NW5th Floor WestWashington, DC 20004Phone: (202) 729-2123Fax: (202) 729-2101

Website: www.alvarezandmarsal.comCONTACT: SANDY DUNLEAVY, MANAGING DIRECTOREmail: sdunleavy@alvarezandmarsal.com

Alvarez & Marsal assists financial institutions to address industry challenges, including regulatory directives.

INVESTMENT BANKINGTHE BAKER GROUP

1601 NW Expressway, 20 FLOklahoma City, OK 73118Phone: (405) 415-7200Fax: (405) 715-7366Website: www.gobaker.comCONTACT: SKOSHI HERON, VICE PRESIDENTEmail: skoshi@gobaker.com

The Baker Group is a leader in the development of innovative asset/liability and investment portfolio management services for community financial institutions. They specialize in investment portfolio analysis, security selection and interest rate risk management.

Welcome New Associate Members

November/December 2012 | Virginia Banking 7

www.vabankers.org

The Election is Over: Now What?

Writing this article prior to the Nov. 6 election, I wish I could gaze into the crystal ball that would reveal

the by-now-decided outcome of the presidential campaign. Assuming there were no last-minute October surprises and the narrow overall mar-gin held, there are roughly an equal amount of people pleased with the outcome as there are those who wish for a do-over. No matter which side you are on, hopefully you took the time and participated in the democratic process of a free election so many have sacrificed to preserve. Now that the incessant campaign ads have been mercifully purged from our television screens and the debates, rallies, polls and – alas, likely – the campaign pledges recede into a fading memory, the attention now justifiably turns to how the election influences the governing direc-tion of our nation.

No matter the ultimate choice of who will re-side in the White House for the next four years, there are several critical policy decisions that the current “lame duck” Congress could – and should – address before the inauguration on Jan. 20. There are issues that impact the banking in-dustry specifically, as well as matters that have much broader consequences. While the 112th Congress will surely not be looked upon favor-ably for their performance and lack of meaning-ful accomplishment, time remains between their return on Nov. 13 through the end of the year to achieve agreement on several serious policy fronts. Let’s all hope that is not wishful thinking on my part, but rather a necessary prelude to a more solutions-oriented year in 2013.

On the forefront of the policy agenda to be tackled during the lame duck congressional ses-sion is how to avert driving over the looming fiscal cliff. More than $700 billion in automatic tax increases and spending cuts will occur after Dec. 31 if an accord is not reached. Set in motion as a consequence of the failure of last year’s Su-per Committee, the automatic across-the-board reductions in spending would – including to na-tional defense – set off harrowing repercussions across the country, and in the commonwealth.

Analysis estimates that over 207,000 Virginia jobs are at risk of being lost due to the cuts. Coupled with the expiration of the Bush tax cuts (“Taxmaggedon”), inaction has the potential to produce a significant drag on our national eco-nomic recovery and send us in the wrong direc-tion.

There are several potential outcomes the lame duck Congress may choose. The first is the reck-less path of inaction. Another is the character-istically Washington alternative of kicking the can down the road, extending the status quo and dealing with the problem later. Many policy prognosticators envision agreement on tempo-rary fixes that lay the groundwork for a more comprehensive tax reform deal in 2013. Some hold out hope for that as-yet elusive grand bar-gain that brings all sides into a compromise.

Beyond the critical decisions related to the fiscal cliff, there are other pending legislative is-sues that could be resolved prior to year end, in-cluding in the financial services arena. The farm bill authorization expired on Sept. 30 and could be addressed. Similarly, the Mortgage Forgive-ness Debt Relief Act expires at year end. Without an extension, borrowers who receive reductions in principal next year would be hit with federal income taxes at their regular marginal rates on the amounts forgiven. Finally, the Transaction Account Guarantee (TAG) program runs out at the end of the year. The VBA continues to advo-cate for a two-year extension of the program in the midst of the current economic uncertainty.

Whether or not you are pleased with the re-sults of the election, it is important to remem-ber that Nov. 6 was not a conclusion. Yes, the yard signs have come down and the campaign mailers have ceased, but hard work remains on a multitude of vital issues. Be it advocating for much-needed regulatory relief, encouraging a grand bargain on tax reform or pushing back on the latest assault from credit unions, it is im-portant for our industry to remain engaged in the legislative process. As we enter 2013, please commit or reaffirm to being an active partici-pant in the VBA’s advocacy efforts.

Matt BruningVice President, Government

Relations,Virginia Bankers

Association

UpdateLegislative

Matt Bruning can be reached by email at mbruning@vabankers.org.

8 Virginia Banking | November/December 2012

www.vabankers.org

Connecting the Dots

What happens when a candle is deprived of oxygen? The flame goes out, of course.

What hap-pens when banks are faced with more than 10,000 pages of proposed and final rules in just

two years? Their ability to effectively support their customers, communities and local econ-omy begins to sputter. This is counterproduc-tive, and our job is to continue to explain why.

In his book, “The Coming Jobs War,” Gal-lup Chairman Jim Clifton writes about the important relationship between small busi-nesses and job growth. Clifton’s view: “Very few Americans are aware that small- and medium-sized businesses are responsible for most of the jobs in America.

“During the past two decades in the U.S., small- and medium-sized enterprises have accounted for virtually all new jobs created,” Clifton said. “Jumbo-sized American busi-nesses are very important to the economic eco-system because they employ a lot of people, but mostly because they’re the key customers of small- to medium-sized companies.”

If few Americans understand small busi-ness’ contributions to the economy, even few-er appreciate banks’ role in supporting and growing those businesses. That’s where you come in.

Bankers need to continue to connect the dots – for policymakers and the public. We need to demonstrate the nexus between a healthy regulation of the banking industry and a vibrant economy that supports small businesses and jobs growth.

Some banks have driven that message home by inviting their lawmakers to the bank and showing them – literally – the volume

of rules and paperwork that the bank’s em-ployees must navigate daily. A show-and-tell meeting like this is not only memorable, it also helps build relationships with your elected representatives. It also can engage your front-line and back-room staff in the most critical policy issue facing banking today.

Others have made the more-is-less point about regulation in their comment letters on the Basel III capital proposals. “Even though our current capital would only be marginally affected at the present, these proposed rules will hamper flexibility for customer service and growth in the future,” wrote the CEO of one $85 million bank.

The CEO of a $650 million bank serving primarily business customers wrote: “We like most other community banks in our country

want to make sure we are able to continue serving our communities in the way we have in the past. A strong economy is dependent on job growth and job growth is dependent on availability of capital to fund the small busi-nesses of our communities that produce most of the jobs. We want to ensure that the new rules do not reduce the ability of our commu-nity banks to provide this capital.”

That’s a simple, straightforward mes-sage that explains how a decision in Wash-ington could reverberate in communi-ties across the country. The more bankers bring that point home for lawmakers and regulators – in letters, calls and visits – the closer we will come to smart bank regula-tion that supports, rather than extinguishes, economic growth.

Frank Keating President and CEO, American Bankers

Association

UpdateWashington

November/December 2012 | Virginia Banking 9

Jason Caskey, CPAFinancial Services Practice Chair

Not all of a bank’s assets are found on its balance sheet.

More than 100 banks in the Southeast, large and small, depend on

Elliott Davis for personal attention, industry experience and services,

including external and internal audit, SEC reporting, taxation and

compliance. Our financial services practice is 90 professionals strong,

with a 60-year reputation for helping banks operate stronger, wiser,

better. Let us know how we can be an asset to you.

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Gov. Frank Keating can be reached by email at keating@aba.com.

In Freeman v. Quicken Loans, Inc., the U.S. Su-preme Court recently confirmed that the Real Estate Settlement Procedures Act (RESPA)

prohibition on splitting unearned settlement ser-vice fees cannot be violated unless an unearned fee is, in fact, “split” among two or more parties. Ac-cordingly, a bank that alone receives all of an alleg-edly unearned fee would not be in violation of the prohibition on splitting an unearned fee.

The main issue in Freeman arose from two dif-fering interpretations of Section 8(b) of RESPA, 27 U.S.C. § 2607(b). The section states:

No person shall give and no person shall ac-cept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally re-lated mortgage loan other than for services actually performed.

The borrowers in the case claimed that Quicken Loans violated Section 8(b) by charging loan dis-count fees without actually lowering the interest rates on the loans in return. The borrowers urged the court to adopt HUD’s interpretation of the statute, which held a lender liable for fee splitting even without the presence of a third party. Under HUD’s reading of the statute, a lender could violate the statute by taking any portion or percentage of an unearned fee, including a 100 percent portion.

The court unanimously rejected the interpreta-tion promoted by HUD and the borrowers. In an opinion authored by Justice Antonin Scalia, the court repeatedly showed disfavor for a reading of the statute that did not incorporate a plain meaning of the word “split” when interpreting the statute’s text. The court stated that, “In our view, § 2607(b) unambiguously covers only a settlement-service provider’s splitting of a fee with one or more other persons; it cannot be understood to reach a single provider’s retention of an unearned fee.” The court also was concerned that the statute assigns liability to the party that gives a portion or percentage of an unearned fee. The court noted that under HUD’s interpretation, in a transaction involving only

a borrower and a lender, a defrauded borrower would be liable as the giver of an unearned fee. The court rejected this interpretation as going beyond the reach of the plain language of the statute.

The decision is a good one for lenders who can take comfort that RESPA Section 8(b) will not be used by regulators as a price fixing statute to dic-tate the fees banks charge for originating loans. However, this was a very narrow ruling and RE-SPA still has teeth and regulators have other means to reign in fees they don’t like.

In the Freeman opinion, the court reminds us of RESPA Section 8(a), 27 U.S.C. § 2607(a), which pro-vides that:

No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understand-ing, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

Of Section 8(a), the court says, “[t]hat prohibition is at once broader than § 2607(b) (because it applies to the transfer of any ‘thing of value,’ rather than to the dividing of a ‘charge’ paid by a consumer) and narrower (because it requires an ‘agreement or understanding’ to refer business).” The court goes on to say, “[t]hus, a settlement-service pro-vider who agrees to exchange valuable tickets to a sporting event in return for a referral of business would violate §2607(a) but not § 2607(b). So too a provider who agrees to pay a monetary referral fee that is not tied in any respect to a charge paid by a particular consumer – for instance, a ‘retainer’ agreement pursuant to which the provider pays a monthly lump sum in exchange for the recipi-ent’s agreement to refer any business that comes his way.” “By contrast,” the court continues, “a settlement-service provider who gives a portion of a charge to another person who has not rendered any services in return would violate § 2607(b), even if an express referral arrangement does not exist or cannot be shown. In short, each subsection reaches conduct that the other does not.”

www.vabankers.org

Freeman v. Quicken LoansLineLegal

Mel Tull General Counsel, Virginia Bankers

Association

Mel Tull can be reached by email at mtull@vabankers.org.

10 Virginia Banking | November/December 2012

U.S. Supreme Court Rejects HUD Interpretation, Rules that RESPA Fee Splitting Violations Must Involve Fees that are Actually Split

Mortgage lenders too often come across transactions that have us scratching our heads when we contemplate HMDA re-

porting. The Fed has indicated it is acceptable to establish

“reasonable standards” when guidance does not specifically address the particular details of a trans-action. Unfortunately, “reasonable standards” have not been defined and are open to interpretation.

Establishing a reasonable standard does allow lenders to report similar transactions on a consistent basis. The key is to establish the reasonableness of the standard. We need to justify the thought behind the standard.• What guidance is there that is relevant to the

standard?• How did we interpret the available guidance ap-

plicable to our transaction’s situation?

REFINANCING

The purpose of the loan being refinanced is not relevant to determining whether the new loan is a refinancing for HMDA purposes. Neither is the borrower’s intended use of any additional cash bor-rowed relevant to determining if the loan is a refi-nance, though the borrower’s intended use of the funds could make the transaction a home improve-ment loan or a home purchase loan.

Guidance indicates an institution may rely on the oral or written statement of an applicant regarding the proposed use of loan proceeds.

Lenders can rely on the borrower’s stated pur-pose to determine the reported purpose. The phrase “intended use” implies a future action (e.g., the bor-rower will buy or will improve a dwelling). An ac-tion which has already taken place would not quali-fy. If the transaction is a cash-out refinance (secured by a dwelling) for the purpose of compensating a borrower for a previous expenditure, it would be reported as a refinance.

What about the timing of the intended use? If the intended action is to happen shortly after the transaction, all is well. But if a subject property is not identified, is it reasonable to rely on the stated intended use where there is a possibility that a sub-ject property may not be found?

The FDIC responded this way to a similar question:Question. For a mortgage loan secured by a

dwelling the proceeds of which are to be “parked

away” pending realty investment opportunities (undecided yet as to whether it’ll be residential or commercial realty or both), should the loan be re-ported?

Answer. Without knowing the purpose of loan, it remains uncertain how to report this loan. If it is a closed end loan (and not a HELOC) and is a re-finance of a home purchase loan (existing lien), it would be reportable. It would be reported as a refi-nance if there is no indication that it will be used for home improvement or the purchase of a dwelling.

Be cautious of relying too heavily on information from webinar Q&As and similar sources, but the FDIC response reaffirms the reliance on intended use. It appears the stated intended use, if clearly in-dicated, would still be applicable even if a subject property had not been identified yet.

That said, and to be a bit more conservative, bank-ers may want to exclude these situations on the thought that it is not reasonable to accept a stated in-tent where a subject property has not been identified.

With regard to cash-out refinances for the pur-pose of purchasing land and constructing a dwell-ing, we look to the guidance on construction and permanent financing:

Home purchase loans include both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered “temporary financing” under Regula-tion C and is not reported.

If it doesn’t meet the definition of a “home pur-chase,” a cash-out refinance would be reported as a refinance if the loan satisfies and replaces a dwell-ing secured loan to the same borrower. Remember the primary consideration for determining if a loan is temporary financing is whether it will be replaced by permanent financing of a longer term.

Once your standard is established, you may want to gather the blessings of your federal regulator. You may be left without an opinion, at least until your next exam. But by documenting the standard, you will be able to refer to the reasons behind it, when the decision was made, and who made it.

VBA members seeking information about HMDA

reporting issues should call TCA’s toll-free number,

800-934-7347. TCA is the VBA’s endorsed provider of

compliance consulting and support.

November/December 2012 | Virginia Banking 11

By Bill Deligiannis

Director of Client Services,Thomas

Compliance Associates, Inc.

CornerCompliance

How to Manage HMDA’s ‘Reasonable Standards’Document Your Process, Have Multiple Approvals

www.vabankers.org12 Virginia Banking | November/December 2012

VBA Legislative Meetings

As part of the VBA’s grassroots advocacy efforts, the VBA hosted a number of meet-ings with members of the Virginia con-

gressional delegation and the Virginia General As-sembly across the commonwealth.

Meetings were held at the Hospitality House in Fredericksburg with Congressman Rob Wittman and area state legislators on Aug. 20; at The Martha Washington Inn with Congressman Morgan Griffith

and area state legislators on Aug. 22; at the Omni Hotel in Charlottesville with Congressman Rob-ert Hurt and area state legislators on Sept. 7; at the Capital One Headquarters in McLean with Con-gressman Frank Wolf, Congressman Jim Moran and area state legislators on Sept. 24; at the Downtown Richmond Marriott in Richmond with Congressman J. Randy Forbes and area state legislators on Sept. 28; and at the Hotel Roanoke with Congressman Bob Goodlatte and area state legislators on Oct. 22.

Another meeting will take place on Monday, Dec. 10, in Norfolk with Congressman Scott Rigell and area state legislators. This will be the seventh meet-ing of this kind.

Since the 2013 General Assembly session is quick-ly approaching, it is critical that bankers are actively engaged in the legislative process. These meetings provided a great opportunity for bankers to interact with elected officials at both levels of government. At the Richmond meeting, Sen. John Watkins said, “It’s been a tough go the last couple of years, but the horizon is out there. The banking industry is part of what is going to bring the economy back for the rest of the state.”

Legislators were also able to hear directly from bankers on issues. Peter Clements, president and CEO of The Bank of Southside Virginia, told of-ficials, “I’m proud of the labor and volunteerism bankers provide to our communities. I’m proud to be a banker and of all we do in the community.”

So far, 141 bankers have met with 48 elected offi-cials, seven of whom were Congressmen. Thanks to everyone who attended these meetings and please consider attending future meetings with legisla-tors. Please contact Matt Bruning, vice president of government relations, at mbruning@vabankers.org with questions.

Bankers gather in Abingdon.

Bankers in Fredericksburg meet with Congressman Rob Wittman.

Bankers Visit with Their Elected Officials

Senator A. Donald McEachinSenator Adam P. EbbinDelegate Alfonso LopezDelegate Anne B. Crockett-StarkSenator Barbara FavolaDelegate Barbara J. ComstockSenator Bryce E. ReevesDelegate Charles D. PoindexterDelegate Chris HeadDelegate Christopher K. PeaceDelegate David B. AlboDelegate David J. Toscano

Delegate Delores McQuinnDelegate Edward T. ScottDelegate Eileen Filler-CornDelegate G. Manoli LoupassiSenator George L. BarkerDelegate Gregory HabeebSenator Henry L. Marsh, IIIDelegate Israel O’QuinnDelegate Jackson H. MillerDelegate James P. Massie, IIISenator Jill Holtzman VogelSenator John C. Watkins

Delegate John M. O’Bannon, IIIDelegate Joseph R. YostDelegate Keith HodgesDelegate Kenneth R. PlumDelegate Margaret RansoneDelegate Mark D. SicklesDelegate Mark L. ColeDelegate Mark L. KeamDelegate Matt FarissDelegate Mike WatsonDelegate Nick RushDelegate Onzlee Ware

Senator Phillip P. PuckettDelegate Richard L. AndersonDelegate Rick MorrisDelegate Riley E. IngramDelegate Robert H. BrinkDelegate Robert Krupicka, JrDelegate Scott A. SurovellDelegate Scott GarrettDelegate Terry G. KilgoreSenator Thomas A. Garrett, Jr.Delegate Timothy D. Hugo

Thank you to the 48 state legislators who have attended our meetings so far!

By Chandler DeweyManager,

Communications & Government

Relations, VBA

www.vabankers.org November/December 2012 | Virginia Banking 13

Get Smart About Credit Day 2012Virginia Bankers Teach Students the Basics of Credit

In its effort to teach the community how to effectively use credit, banks across Virginia teamed up with the Virginia Bankers Associa-

tion Education Foundation and the American Bank-ers Association Education Foundation for the Get Smart About Credit program.

The program, now in its 10th year, is a national campaign of volun-teer bankers who help young people develop responsible credit hab-its. Virginia volunteer bankers utilized the pro-gram’s awareness day – Get Smart About Credit Day – which was held Thursday, Oct. 18, as an opportunity to leave the bank for the classroom. In 2011, an estimated 257 Virginia bankers from 24 banks reached 19,804 people through 394 pre-sentations. This year, bankers at 16 Virginia banks participated, and final numbers of stu-dents reached are still being collected.

Event highlights include:Bank of Lancaster: Ward Currin and Joe Biddle-

comb presented at Northumberland High School on Oct. 16, bringing the presentation to every senior. Cindy West visited Rappahannock High School in Warsaw on Nov. 6. Lastly, Bank of Lancaster team members will be visiting Lancaster High School in January.

Chesapeake Bank: Johanna Northstein and her team presented on Oct. 15 and again on Oct. 24 at Gloucester High School. There were nine presenta-tions altogether.

Sonabank: Kevin Persinger conducted two class-es at Jackson River Technical Center in Covington. The first class consisted of sophomores and juniors of JROTC and Alleghany High School and consisted

of about 30 students and one educator. The second class consisted of 20 seniors and two educators. Also from Sonabank, Dylan Butler was at Cedar Lee Middle School in Bealeton presenting to eighth graders.

TowneBank: Terry Parker (pictured below) went back to his alma mater, Ocean Lakes High School,

and helped educate Virginia’s youth on the impor-tance of good credit. Terry said, “It feels good to be able to give back the knowledge I have learned to the youth of today. The classes I spoke with were excellent. Thanks to Mrs. Beth Hubbard, for allow-ing me to spend time with her classes and instruct them on credit and the significance of good per-sonal finances.” From TowneBank, Eileen Ertel also participated at Green Run High School in Virginia Beach. Lastly, Marcia Hodsden taught three classes at Western Branch High School. Marcia reported that the students were very involved, animated and participated a lot.

For more information on the program, and how to get involved with the VBA’s financial lit-eracy efforts, please contact Chandler Dewey at cdewey@vabankers.org.

Bank of Botetourt

Bank of Lancaster

C&F Bank

Carter Bank & Trust

Chesapeake Bank

First Bank

HomeTown Bank

National Bank

Old Point National Bank

Pioneer Bank

Sonabank

StellarOne Bank

The Farmers Bank of Appomattox

TowneBank

TruPoint Bank

Union First Market Bank

Thank you to the 16 banks that participated in 2012!

By Chandler DeweyManager,

Communications & Government

Relations, Virginia Bankers

Association

MoveBankers on the

WilliamsGee Gambill Oliver White Lamm Edwards Giraldi

www.vabankers.org14 Virginia Banking | November/December 2012

Benchmark Community BankCheryl Gee, AVP/Branch Manager

Cardinal Bank Robert R. Giraldi, Senior Vice President and

Market ExecutiveDavid O. Williams, Vice President, Corporate

Real Estate Manager

Carter Bank & TrustRobin T. Gambill, Branch ManagerChristina W. Oliver, Branch ManagerKaren T. White, Branch Manager

Community Bankers’ BankJonathan C. Manson, Vice President/AuditorJ. Adam Wells, Staff Auditor

National BankPatrick Lamm, Senior Vice President of Credit

Administration

TD BankAutumn Celeste Edwards, Store ManagerFatima Rahyab, Vice President, Middle Market

Relationship Manager in the Middle Market Group

The Business BankAlan Drewer, Senior Vice President,

Commercial Lending and Business Development

Doug McAlpine, Senior Vice President, Commercial Lending and Business Development

Larry Shufelt, Senior Vice President, Commercial Lending

Union First Market BankJay DeVoe, Senior Vice President, Construction

Lending Department ManagerRobert B. Eastep, President of Union

Mortgage Group, Inc. Rachael R. Lape, Senior Vice President and

General CounselErnest “Bud” Yerly Jr., Senior Vice President,

Tri-Cities Market Executive

Virginia Commerce BankKimberly Bradford, Branch ManagerSteve Pattison, Assistant Vice President of

Virginia Commerce Wealth Management Services and Financial Advisor for Infinex Investments, Inc.

It’s only a sampling, but look what’s in the compliance services package TCA provides VBA member banks:

• Hands-on help, with scheduled on-site audits.• Timely, accurate information about compliance issues and trends.• Advice about how to meet federal compliance requirements.• An e-newsletter heads-up when the rules change.• Access to the TCA compliance professionals, the people who make TCA the

most respected source of compliance information and assistance in banking.

Whether your need is BSA/AML, IT vulnerability scans and web site security reviews, or training that keeps your staff — and directors — up-to-date, TCA is your Compliance Advantage.

Call us . . . today . . . to learn more. 1-800-934 -7347.

Thomas Compliance Associates, Inc.2846 N. Mildred Avenue, Suite 150Chicago, Illinois 606571-800-934-7347

www.tcaregs.com

Virginia Commonwealth Bank Joel Nieves, Branch Operations Manager

November/December 2012 | Virginia Banking 15

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