The Federal Home Loan Bank of Cincinnati (“FHLB Cincinnati” or “FHLB”) supports the expansion of fair and equitable home ownership opportunities in the Fifth District. In order to discourage predatory lending practices, which are inconsistent with such opportunities, the FHLB has established the following anti-predatory lending policy (“APL Policy”) with respect to residential mortgage loans purchased under the Mortgage Purchase Program (“MPP”) (hereafter referred to as “Residential Mortgage Loans”). This policy is not intended to supplement any industry regulator’s role of monitoring and regulating actual Member lending activity for compliance with applicable laws. It is intended to underscore the FHLB’s support of fair lending practices through clear communication of what will constitute qualified Residential Mortgage Loans for purchase under the MPP. 

APL Policy Statement

The FHLB requires that at a minimum, Residential Mortgage Loans comply with all 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 Laws”). For example, Anti-Predatory Lending 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, will not constitute qualified Residential Mortgage Loans for purchase under the MPP.
• Requiring mandatory arbitration clauses with respect to dispute resolution, to the extent that such requirements are prohibited or limited by the applicable APL Laws, will not constitute qualified Residential Mortgage Loans for purchase under the FHLB’s MPP;
• Charging prepayment penalties for early payoff beyond the first five years of the loan will not constitute qualified Residential Mortgage Loans for purchase under the MPP. However, if certain States have more restrictive provisions relating to the application of prepayment penalties and, as such, any loan presented for purchase by the FHLB must, at a minimum, comply with all applicable laws of the state within which the loan was originated;
• Originating high cost loans that, for example, exceed the annual percentage rate, fee, or points thresholds of the Home Ownership and Equity Protection Act of 1994 and its implementing regulations (Federal Reserve Board Regulation Z).

Also, the FHLB has established a firm policy regarding the following practices for mortgages purchased under the MPP:

A mortgage is not eligible for purchase if: (i) it is subject to the requirements of any federal, state or local laws that apply to loans identified as high cost, high risk or high rate loans or loans in other similar categories. The definition of “points and fees” provided by applicable federal, state or local law will be applied with regard given to the application of federal preemption rules, statements or other related announcements issued from time to time by banking regulators or other regulatory authorities, or (ii) it is not ratable by a rating agency as noted in the Guide.

Any residential mortgage loan that does not comply with all applicable APL Laws will not constitute qualified Residential Mortgage Loans for purchase by the FHLB.

All sellers into the MPP are responsible for avoiding all unlawful practices and terms prohibited by applicable APL Laws and Legislation, regardless of whether they originate or purchase the Residential Mortgage Loans being sold to the FHLB. Any Residential Mortgage Loans that do not comply with all APL Laws will be ineligible for sale to the MPP. FHLB will take those steps it deems reasonably necessary in order to confirm or monitor compliance with this Policy.

Compliance with APL Policy and FHLB Testing/Monitoring

In addition to the representations and warranties provided in the Participating Financial Institution (“PFI”) Agreement and in the MPP Guide, as incorporated by reference in the PFI Agreement, the PFI is required to represent and warrant that it will not sell any mortgage it originates or purchases that violates any provisions of this Policy. Each PFI must also certify, as part of their Annual Certification, that it is aware of the FHLB’s APL Policy and will comply with this Policy in the sale of all mortgages to the FHLB.

The FHLB 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, will monitor appropriate publications and examination reports for such activities. The FHLB will conduct due diligence reviews to verify compliance with this provision. The FHLB will take those steps it deems necessary in order to confirm or monitor the PFI’s compliance with this Policy including the periodic verification via specific loan review and/or due diligence and testing of processes. If abusive lending activities are identified, additional action will be taken to identify their extent. Any such ineligible loans must be repurchased as described below and as described in more detail in the Guide.

In addition, the FHLB reserves the right to require evidence reasonably satisfactory to the FHLB that Residential Mortgage Loans acquired through the MPP do not violate applicable APL Laws. With respect to Residential Mortgage Loans purchased by the PFI, the PFI is responsible for conducting the level of due diligence that it deems sufficient to support its representations and warranties as noted above.

If ineligible mortgages are sold by a PFI to the FHLB, the member will be required to repurchase the mortgage within five (5) business days after notice by the FHLB and the FHLB will accomplish the repurchase in accordance with published policies and procedures as outlined in the Guide. In addition, a member may be required to make the FHLB whole for any losses or costs incurred during the time the FHLB held the mortgage.