Volume 43 - Issue 21 - May 23, 2024
State of Kansas
Office of the State Bank Commissioner
Notice of Hearing on Proposed Administrative Regulations
A public hearing will be conducted at 9:00 a.m. Tuesday, July 23, 2024, in the Bank Commissioner’s Conference Room A, Jayhawk Tower Building, 700 SW Jackson, Fourth Floor, Topeka, KS 66603, to consider amending Kansas Administrative Regulations 17-11-18 and 17-11-21, administrative regulations promulgated by the Office of the State Bank Commissioner regarding loan documentation for state banks.
This 60-day notice of the public hearing shall constitute a public comment period to receive written public comments on the proposed amended regulations. All interested parties may submit written comments before the hearing by mailing them to the Office of the State Bank Commissioner, 700 SW Jackson, Suite 300, Topeka, KS 66603-3796, or by email to brock.roehler@osbckansas.org. All interested parties will be provided a reasonable opportunity to present their views orally or in writing regarding the amendments to K.A.R. 17-11-18 and 17-11-21 during the public hearing. It may be necessary to limit each participant’s oral presentation.
Copies of the current regulations, proposed amendments, and the economic impact statements may be obtained from the Office of the State Bank Commissioner by contacting Brock Roehler at 785-379-3892, brock.roehler@osbckansas.org, or the mailing address given above. TTY calls may be made by contacting the Kansas Relay Center at 1-800-766-3777.
Any individual with a disability may request accommodation in order to participate in the public hearing and may request the proposed amended regulations and economic impact statements in an accessible format. Requests for accommodation to participate in the hearing should be made at least five working days in advance of the hearing by contacting Brock Roehler at the Office of the State Bank Commissioner. The west entrance to the Jayhawk Tower Building is accessible and there is one accessible parking spot at 720 SW Jackson.
Copies of the proposed amended regulations and the economic impact statements can be viewed at the Office of the State Bank Commissioner’s website at http://www.osbckansas.org. A summary of the proposed amended regulations and economic impact follows.
Summary
K.A.R. 17-11-18 creates requirements for state banks to maintain certain loan documentation that aids the Office of the State Bank Commissioner in examining state banks and ensures sound and safe banking practices.
Amended K.A.R. 17-11-18 changes the requirements for state banks’ maintenance of loan documents. Subsection (b)(1)(C) would modify the minimum documentation requirement for a non-governmental guaranteed non-purchase money real estate loan of $250,000 or less. State banks would be permitted to document that they conducted a lien search on the property as the minimum documentation requirement. Under subsection (b)(1)(A), this amendment also clarifies that a state bank issuing a non-governmental guaranteed purchase-money real estate loan of $250,000 or less will be permitted to maintain a written title opinion or title insurance policy as a minimum documentation requirement.
K.A.R. 17-11-21 creates a requirement to maintain an appraisal or evaluation of real estate mortgages. Amended K.A.R. 17-11-21 changes the threshold where two officers or directors of a bank or a qualified individual who is independent of the transaction may conduct an evaluation of a real estate mortgage. These thresholds have not changed for at least 20 years. This regulation will now distinguish between a single one-to four-family residential property and a non-single one-to four-family residential property and will have a different threshold for each.
For a real estate loan secured by a single one-to four-family residential property, an evaluation may be conducted up to $400,000. For a real estate loan not secured by single one-to four-family residential property, an evaluation may be conducted up to $500,000. This amendment also addresses a loan with multiple properties and will allow an evaluation in instances where the estimated property value is less than the threshold that would permit an evaluation if there was a loan that only secured that property.
This amendment also defines the minimum standard for an appraisal and an evaluation. Through the regulation review process, it was brought to our attention that these terms are not defined, and it would be helpful to state the minimum requirement. We are adding that an appraisal shall comply with each state’s applicable minimum standards. Our office has issued guidance on the minimum evaluation standards, which mirror the new language. However, this guidance does not have the force of law, so we are adding it to the regulation. Our office has not had any instances in which a state bank did not conduct an evaluation that did not address all the items in our guidance since it is in the bank’s best interest to conduct a thorough evaluation. Finally, this regulation defines a business loan as this term was undefined.
The main impetus for these changes is to place state banks on a competitive playing field with national banks. The Office of the Comptroller of the Currency (“OCC”) regulates the safety and soundness of national banks and issued regulation changes under 83 FR 15019 and 84 FR 53579 to allow these higher thresholds. Through guidance, the OCC also allows national banks to conduct evaluations in instances where the estimated property value is less than the threshold that would permit an evaluation if there was a loan that only secured that property.
Economic Impact
K.A.R. 17-11-18 – The banking industry and the public would experience cost savings because the amended regulation will allow state-chartered banks to offer a less costly mortgage for non-purchase real estate loans. Banks may conduct a lien search to satisfy the documentation requirements for non-purchase-money real estate mortgage loans of $250,000 or less. Title insurance agencies, title opinion attorneys and mortgage priority insurance agencies may see a decline in business since lien searches will be permitted for non-purchase money real estate mortgage loans. Any loss to title insurance agencies and title opinion attorneys may be offset by an increase in business for purchase-money real estate mortgage loans of $250,000 or less if a state bank was unaware of our policy that we consider these options as a minimum documentation requirement. The Office of the State Bank Commissioner visited with both the Kansas Bankers Association and the Kansas Land Title Association, and both agreed that the demand for title insurance will go down, but they disagree to the extent, specifically whether state banks in rural areas will continue to use title insurance.
It should be noted that mortgages sold on the secondary market generally require title insurance; thus, any bank that sells its mortgages will still purchase title insurance. The number of state banks that would continue to purchase title insurance cannot be estimated. Title insurance prevents additional higher costs to the borrower and the bank. As is typical with any insurance, title insurance insures against unforeseen losses relating to the mortgage. Thus, the benefit of saving money for borrowers and banks is offset by increased risk for undiscovered liens and other impairments.
K.A.R. 17-11-21 – The banking industry and the public would experience cost savings with this regulation change. This regulation will allow bank officers and directors or an individual who is independent of the transaction to conduct an evaluation at a higher threshold. Evaluations are conducted by existing bank staff and will be cheaper than an appraisal. The borrowers would not be responsible for paying for an appraisal and would experience lower closing fees. The amount of savings would be difficult to determine. Per federal law, an appraisal is required under certain circumstances for higher priced mortgages. In addition, some banks and borrowers may choose to continue to acquire an appraisal even when it is optional.
David L. Herndon
State Bank Commissioner
Doc. No. 052152
