Affiliated Business Arrangement Disclosure……

We take quite a few questions from industry participants looking for a way to avoid disclosing an affiliated business arrangement. Usually, the reason given “not to disclose” is that the second business is owned by a spouse or child, not the mortgage broker or lender. But, is it?

The term “affiliated business arrangement” means an arrangement in which a person who is in a position to refer business (person can be a human or an entity) incident to or a part of a real estate settlement service (basically any business that participates in selling real estate, arranging loans for real estate, or closing either types of transactions) involving a federally related mortgage loan (and kind of QM/Agency/GSE loan or loan likely to be sold into a government pool) or an associate of such person, has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1 percent in a provider of settlement services; and either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider.

Seems clear, but what is an “associate of such person”? Here is a common definition.

1. a partner or colleague in business or at work: “he arranged for a close associate to take control of the business.”
2. a companion or friend: “his old friend and hearty associate” “his wife or her husband”.

There are two types of ownership measurements.

1. Legal means named on the formation documents or contract.
2. Equitable means married or familial relationship creates influence or benefit sharing.

Let’s explore equitable, because that is where the problems take place. Equitable ownership refers to the ownership of rights and obligations based on the principal of fairness, even if legal title is help by someone else.

There is one more issue to consider if you want to form and disclose an ABA with a relative or marital partner. If you operate a mortgage broker business, there is a three percent cap on QM compensation imposed by the CFPB. Your lenders may choose to add the processing fee you collect, to your three percent cap.

We have a model contract for Contract Processing Companies to use with their clients. If you want to see it, give us a shout at jg@lockelaw.us Let’s see if we can help you in ALL your compliance matters.

Respectfully,

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

www.lockelaw.us

Corporate Transparency Act is effective January 1st, 2024

This is about Beneficial Ownership Reporting of LLCs and Corporations.

Dec 7^th, 2023

Folks,

FinCEN will begin accepting beneficial ownership information reports on January 1, 2024. Beneficial ownership information reports will not be accepted before then.

If you are required to report your company’s beneficial ownership information to FinCEN, you will do so electronically through a secure filing system available via FinCEN’s website. This system is currently being developed and will be available before your report must be filed.

The form to report beneficial ownership information is not yet available. Once available, information about the form will be posted on FinCEN’s beneficial ownership information webpage.

Companies required to report are called reporting companies. There are two types of reporting companies:

• Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
• Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

There are exemptions for certain types of entities. These entities include publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies.

The following table summarizes the 23 exemptions:

Exemption No.	Exemption Short Title
1	Securities reporting issuer
2	Governmental authority
3	Bank
4	Credit union
5	Depository institution holding company
6	Money services business
7	Broker or dealer in securities
8	Securities exchange or clearing agency
9	Other Exchange Act registered entity
10	Investment company or investment adviser
11	Venture capital fund adviser
12	Insurance company
13	State-licensed insurance producer
14	Commodity Exchange Act registered entity
15	Accounting firm
16	Public utility
17	Financial market utility
18	Pooled investment vehicle
19	Tax-exempt entity
20	Entity assisting a tax-exempt entity
21	Large operating company
22	Subsidiary of certain exempt entities
23	Inactive entity

A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests.

This law becomes effective January 1^st, 2024, and any company that meets the REPORTING COMPANY definition (above) will need to access the fincen site and clarify ownership per the reporting form (that they have yet to develop).

This basically means all mortgage broker business and mortgage lenders per the above.

Respectfully,

Nelson A. Locke, Esq.

Office (800) 656-4584

www.lockelaw.us

CFPB comments on Mortgage Loans you broker out to another shop or lender. Must the compensation be the same as if you kept that loan in-house?

For background on this question See CFPB SUPERVISORY HIGHLIGHTS, ISSUE 30 – (SUMMER 2023)

Here is the issue. The CFPB said compensation cannot vary (from a MLO Comp Plan Exhibit) on a brokered loan versus an in-house loan where the broker offers a substantially similar product.

The CFPB wrote “Regulation Z generally prohibits compensating mortgage loan originators in an amount that is based on the terms of a transaction. It defines a term of a transaction as “any right or obligation of the parties to a credit transaction.” And it provides that a determination of whether compensation is “based on” a term of a transaction is made based on objective facts and circumstances indicating that compensation would have been different if a transaction term had been different. Accordingly, in the preamble to the CFPB’s 2013 Loan Originator Final Rule, the CFPB clarified that it is “not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms.” As part of their business model, institutions brokered-out certain mortgage products not offered in-house.

For example, the institutions used outside lenders for reverse mortgage originations, but had their own in-house cash-out refinance mortgage product. Examiners determined that the institutions used a compensation plan that allowed a loan originator who originated both brokered-out and in-house loans to receive a different level of compensation for the brokered out loans versus in-house loans. By compensating differently for loan product types that were not offered in-house, the entities violated Regulation Z by basing compensation on the terms of a transaction. In response to these findings, the entities have since revised their loan originator compensation plans to comply with Regulation Z.”

This means if you choose to broker out the loan you must stick to the same MLO comp plan exhibit you use for in-house individual MLO commission calculation. If you are a broker origination organization, this just means stick to the comp plan exhibit because 100% of your loans are brokered out.

If you don’t OFFER the type of loan you are brokering out, this gets grey and you should have a consistent formula you use to calculate what the MLO will earn on a loan not part of your usual bundle of products. The grey comes in where you note the CFPB used reverse mortgages as an example and stated they thought a reverse mortgage was essentially the same as a cash out refinance. I cannot even begin to explain that conclusion.

Take note of this. The CFPB said “By compensating differently for loan product types that were not offered in-house, the entities violated Regulation Z by basing compensation on the terms of a transaction.” This seems to endorse the bucket concept used by most of you out there.

Respectfully,

Nelson A. Locke, Esq

nl@lockelaw.us

https://www.lockelaw.us

(800) 656-4584

Please quit asking us this question. Our answer will not change.

If I have to explain one more time why your mortgage loan originators are employees, I am going to have to be committed. Sometimes I think no one is listening. The core answer is that you SPONSOR them, making you have ultimate control over everything they do for you. You cannot sponsor someone, and then take the position that they don’t work for you.

First, it does not matter if you call your mortgage loan originators outside loan officers, or independent staff, or contractors, or bankers, or whatever. The name means nothing to the Department of Labor and the IRS. (But the name means something to your state regulator, who will tell you that the proper title for them is the one on their MLO license.)

Second, just because ****** pays its MLO staff as 1099 contractors, does NOT mean it is a proper business practice.

Third, if ****** handles its MLO staff as W-2 employees but charges the MLO for the company’s share of FICA, MED, and UI, it is an improper practice and may be a crime. If it is determined to be a crime, all participants are subject to being charged by the Department of Justice. If the CFPB picks up on this practice, it will inform the IRS, the Department of Labor, and your state regulator.

Fourth, most of you raise this issue of W-2 versus 1099 because you claim to be unable to afford to pay the company share of the taxes. This is probably because your comp plans are too generous. That is worth a look.

Finally, if you read down this far, take another thirty seconds to open the attached Department of Labor Administrative Opinion. Just skip down to the bottom. Read the conclusion.

Department of Labor Administrative Opinion 2010-1

You can always make a business decision and decide to ignore this. However, if you get caught it will make it difficult to defend yourself, as I have made it clear that this ruling is still applicable.

Respectfully,

Nelson A. Locke, Esq

Compliance Services USA and Locke Law US

https://www.lockelaw.us

Avoiding Personal Guaranty Issues……..

This subject came up recently, because of the recent increases we are seeing in repurchase demands from several of the industry’s largest lenders. Most of you seem to think because you are “only a broker” you do not have risk of repurchase demand. Well, you do, but there are ways to mitigate the risk to you.

Always sign your broker and/or correspondent agreements like this. “John Smith, as President; not personally.”

Never sign as “Owner”. You may be the owner, but your entity is always going to be an LLC or a Corp. So sign using your LLC or Corp title. For example, “as President; not personally.” Or “as Managing Member; not personally.”

Always challenge a lender request for a secondary personal guarantee. If your net worth is sufficient, you may be able to avoid this. Even if not, you may still be able to avoid this if your history with the lender is clear.

NEVER send all your business to one lender. You never know when things can sour. Right now we are dealing with multiple issues involving Freddie Mac. They are pressing those issues with their clients, who will not doubt include your lender. You need to have a back up.

Finally, these recommendations are offered as your compliance consultant and not as any sort of legal advice or legal opinion.

Questions? Call or email us, we are here to serve.

Nelson A. Locke, Esq.

Compliance Services USA

https://www.lockelaw.us

(800) 656-4584

Don’t confuse your Customer Identification Program with the Patriot Act. You MUST properly identify your clients. And be able to prove it if challenged.

Recently we spoke to a client who was having trouble obtaining Patriot Act information from one of their lenders. This was because the Patriot Act is referenced on an audit checklist we provided. We are amending that checklist and removing that requirement, replacing it with a Customer Identification Program requirement.

Why? During the COVID Era, Congress never renewed the Patriot Act. Sounds amazing but true. The Patriot Act was principally aimed at restricting terrorist financial activities, whether foreign or domestic. Present day events around the world sure seem to indicate that terrorism is still an issue.

The CIP, on the other hand, has been in continuous force since 2010 and was amended in 2020. The requirement for proper verification of identity did not change. In order to be in “safe harbor”, a broker or lender must request and retain several sources of federally or state issued ID, with photo, that have names and addresses, do not show signs of alteration, and are not expired.

So from today forward, we will refer to the CIP. Now you know why.

Respectfully,

Nelson A. Locke, Esq.

https://www.lockelaw.us

(800) 656-4584

Using Third Party Tax Preparers CAUTION – RED FLAG

There has been an uptick in GSE challenges regarding false tax returns. These include alleging phony tax returns in general, alleging suspicious 1040X filings, alleging misrepresentations in tax preparer’s letters to clear underwriting stips, and a few more issues. Right now, we are aware of several tax preparers being investigated, especially in the Florida market. We are defending brokers being threatened with various LDP and exclusionary lists for the broker’s use of poorly vetted tax preparers.

Mortgage fraud evidences and gavel on a desk.

What can you do to protect yourself?

VET THE TAX PREPARER. How? Treat this matter seriously. Here are some suggestions.

Check the Internet for bad references or posts regarding the quality of their service.

Ask the tax preparer to provide CPA references.

If the tax preparer is a CPA, check with your state’s CPA oversight committee.

Always check the LDP and SAM lists for prohibited parties before using.

Make sure they have an actual office and if they work from home, ask why.

Annually, ask to see a valid license for the activity that the tax preparer is providing.

Finally, ask the tax preparer if they have ever been investigated by any type of government agency. If not, make them sign a sworn statement to that effect for your files and update that statement annually.

Will these steps protect the broker or lender? Maybe.

IF you have a policy of using more than one tax preparer, and randomly use them, yes.

IF you never engage in conversations guiding a tax preparer’s result, yes.

IF you rotate processors so there can be no collusion with a troubled tax preparer, yes.

If you get into trouble, call us right away. We will evaluate and assist to the level that we can, assuming you have been careful and are not involved in fraud or misrepresentation of any kind.

That’s it for now.

Nelson A. Locke, Esq.

Compliance Services USA

https://www.lockelaw.us

(800) 656-4584

A serious warning to HECM Servicers nationwide…….

This decision was announced yesterday. The Hawaii Supreme Court has set precedent and made it crystal clear that sloppy foreclosures will not be tolerated. Their arguments are flawless. This should be applicable to any type of servicing.

But I am especially pleased this decision will protect seniors with HECMs who hit bumps in the road and cannot react as fast as younger folks.

Read here.

How A Reverse Mortgage Lender Took A Hawaii Man’s Home Over A $500 Repair

Respectfully,

Nelson A. Locke, Esq

(800) 656-4584

Federal Matters and Compliance

Here are the tests for 1099 versus W-2

This first link is from the IRS web site. You will note that it covers just about every single situation you can think of. You will also note that on the independent contractor page it does not mention mortgage loan originators, while it does mention realtors. That is important. The difference between us is Dodd Frank and the Safe Act regulations. The meltdown of 2008-2009 caused us to become “special”.

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

The second link takes you to the Department of Labor and its classification of mortgage loan originators as employees. Lots of information here. Look at the third paragraph down. Not exempt, are employees.

https://www.dol.gov/agencies/whd/opinion-letters/administrator-interpretation/flsa/2010-1

Just to repeat – the minute you are sponsored by a Broker Business or a Lender, you are an employee. That was the one of the most important motivations for the passing of Dodd Frank. SUPERVISION.

The Department of Labor and the MBA fought this all the way to the Supreme Court. See second paragraph down. Mortgage Loan Originators lost. The Department of Labor won.

https://caselaw.findlaw.com/us-supreme-court/13-1041.html

The fourth ink will answer the question about owners. Such as – how can an owner pay themself, do they need to be W-2? Do they need to pay self-employment taxes? The answer is probably, but especially yes if they are taking commissions deal by deal and the CFPB requires them to have a comp plan exhibit because of that.

Distributions are the big myth here. Distributions are exempt ONLY if the distribution is a bona fide return of paid in capital. Otherwise, distributions are also taxable.

So here is the final link for you owners to consider. This is also from the IRS.

https://www.irs.gov/businesses/small-businesses-self-employed/paying-yourself

Finally, yes we know all about those NMLS entities that proudly proclaim you will be treated as a 1099. That is their business decision, it is based on their appetite for risk, and it is not a justification for a small broker or lender to fall in behind them and risk losing everything if caught in a tax avoidance scheme.

If you Broker Businesses and small Lenders are still thinking about paying NMLS MLOs as 1099s when per DF and the Safe Act you sponsor them as an NMLS MLO, please think again.

Thats it for now.

Nelson A. Locke, Esq.

www.lockelaw.us

(800) 656-4584

Conflict Disclosures and ML 1022-22

March 7th, 2023

Hello to all.

Recently in one of our AML sessions, we made reference to a Conflict of Interest and/or Dual Licensure Disclosure. I have created the disclosure for our clients. It should be added to your initial disclosure package in your Loan Origination System and should be signed by your borrowers up front.

This disclosure should keep you out of trouble related to a borrower who comes back later and says, “You didn’t tell me about your dual compensation” or “You didn’t tell me my realtor was married to you”. I’m sure you get the picture. Some of the worst issues in audits are caused by misrepresentation or non-disclosure. Get ahead of this by telling your clients about dual comp or conflict relationships up front.

And if you have dual ownership, be sure you also use the standard Affiliated Business Arrangement disclosure in Book One. The test is not legal but equitable. Meaning, even if your wife owns all the processing company for example, you have equitable ownership of half and should report it.

To obtain a copy of the PDF you must be a client of ours.

Send an email to Admin@Lockelaw.us and in the subject line, in CAPS, say CONFLICT DISCLOSURE.

Admin will send the PDF to you via return e-mail.

Respectfully,

Nelson A. Locke, Esq.

Compliance Attorney

https://www.lockelaw.us

HUD Mortgagee Letter 2022-22

December 19^th, 2022

RE:          HUD Mortgage Letter 2022-22

                Regarding Conflict of Interest and Dual Employment

Folks,

Here are my comments about this mortgagee letter. Bear in mind, I certainly don’t see it as clearly written and it leaves several issues open to potentially multiple interpretations. I do believe that with careful reading and application of common sense, we are all using our best good faith efforts to comply. That could be an important mitigating factor if a mortgagee errs while trying to apply this mortgagee letter.

I lifted this information directly from 2022-22. My thoughts are captioned as “Comment”. Remember, this is just my interpretation. It might be different from yours.

Employees (I.A.3.c.iv(B)(3))

(b) Standard [Text was deleted in this section.]

(i) Eligibility of Employees

HUD: The Mortgagee must not employ any individual who will participate in FHA transactions if the individual is suspended, debarred, under a Limited Denial of Participation (LDP), or otherwise excluded from participation in FHA programs (see Restricted Participation (V.A.2.b.i(B)))

Comment: This is nothing new. You need to be checking status once a year for all employees, with or without licenses.

(ii) Compensation

HUD: The Mortgagee must not compensate employees who perform underwriting or Quality Control (QC) activities on a commission basis.

Comment: This is nothing new. You can never incentivize an underwriter or QC person; it can compromise the quality of their decisions.

HUD: The Mortgagee must report all employee compensation in accordance with IRS requirements.  

Comment: IRS requirements means you apply the control test. To me this means employment tax returns. Thus, all staff should be W-2. This is federal guidance, trumps state guidance.  

(iv) Conflicts of Interest

HUD: The Mortgagee’s employees will be subject to FHA’s Conflict of Interest policy.

Comment: This will be addressed below, item f.

(v) Underwriters

HUD: The Mortgagee must ensure that its underwriters are not managed by and do not report to any individual who performs mortgage origination activities.  

Comment: This means no one who originates should supervise underwriters.  Senior executives supervise, so they are likely OK.

HUD: The Mortgagee must ensure that its underwriters:

• meet basic eligibility requirements (I.B.3.b); and
• perform the underwriting function in a manner consistent with FHA guidelines.

Comment: No changes here.

(vi) HECM Originators

HUD: The Mortgagee and any other party that participates in the origination of a HECM transaction must not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity, unless the Mortgagee demonstrates that it or any other party maintains firewalls and other safeguards designed to ensure that:

• individuals participating in the origination of the HECM must have no involvement with, or incentive to provide the Borrower with, any other financial or insurance product; and have firewalls in place to prevent this conduct.
• the Borrower must not be required, directly or indirectly, as a condition of obtaining a HECM, to purchase any other financial or insurance product. This is nothing new.

Comment: This is pretty clear. This is not a prohibition to dual licensing, but rather a prohibition to doing both the loan and an insurance sale simultaneously. I continue to believe a sufficient cooling off period would be evidence of a “firewall”. I define that as 90 days minimum, with the insurance sale NOT CONTEMPLATED when the mortgage loan is originated.

f. Conflicts of Interest

HUD: This policy applies to all FHA-insured transactions unless otherwise specified in program requirements.

Participants that have a direct impact on the mortgage approval decision are prohibited from having multiple roles or sources of compensation, either directly or indirectly, from a single FHA-insured transaction. These participants are:

• underwriters
• Appraisers
• inspectors
• engineers

Comment: This means participants who DO NOT HAVE a direct impact on the mortgage approval decision are NOT prohibited. This guidance uses the word “are”. It does not say “includes” or “might include” or is not limited to”. To me, this means this is an all-inclusive list of prohibited parties. It does not mention realtors. This may mean realtors can now have two roles. Then there is the issue of a senior executive? This means the executive CANNOT have direct impact on an approval decision, meaning no CEO etc. can over-rule an underwriter.   

HUD: Indirect compensation includes any compensation resulting from the same FHA-insured transaction, other than for services performed in a direct role. Examples include, but are not limited to:

• Compensation resulting from an ownership interest in any other business that is a party to the same FHA-insured transaction; or
• Compensation earned by a spouse, domestic partner, or other Family Member that has a direct role in the same FHA-insured transaction.

Comment: Here I think we must look to the use of the phrase “in a direct role”. This means not passive. If services are performed in a direct role, indirect comp would be allowed. Also, the prohibition is directed at the mortgage approval decision. That seems to open the door to a realtor with an MLO license.  

HUD: The Mortgagee must ensure that participants with a direct impact on the mortgage approval decision do not have multiple roles or sources of compensation from the same FHA-insured transaction.  

Comment: HUD specifies MORTGAGE APPROVAL DECISION.  

HUD: Participants that do not have a direct impact on the mortgage approval decision may have multiple roles and/or sources of compensation for services actually performed and permitted by HUD, provided that the FHA-insured transaction complies with all applicable federal, state, and local laws, rules, and requirements.  

Comment: Opens the door to the realtor issue.

If any of my comments seem questionable, please seek a second opinion from an attorney with proper mortgage industry experience. As I stated right up front, I certainly don’t see it as clearly written and 2022-22 leaves several issues open to potentially multiple interpretations. Use these comments at your own risk.

Respectfully,

Nelson A. Locke, Esq.

Office (800) 656-4584

www.lockelaw.us

Thinking about jumping ship?

Whatever you do, do NOT overreact to these rates.

It will pass. We will be OK.

If you give up your entrepreneurial freedom by joining someone out of fear, you will never be the same!

Usually, within 90 days or less, you will want to go back to being independent.

Nelson A. Locke, Esq.

https://www.lockelaw.us

If you did business with Carrington, you need to read this.

Carrington Mortgage Services, a non-prime lender and servicer, has been ordered to pay back $5.75 million to the homeowners it “cheated” out of their forbearance and repayment options during the COVID-19 health crisis.

An investigation by the Consumer Financial Protection Bureau (CFPB) found that Carrington repeatedly provided false information about pandemic housing protections, deceived consumers into paying late charges they did not owe, and botched homeowners’ credit reports.

“Carrington Mortgage unlawfully withheld legally mandated pandemic protections, wrongly imposed fees, and reported false information to credit reporting companies,” said CFPB director Rohit Chopra. “Homeowners were misled and denied key protections at a time when they were in most need of help.”

The CFPB said the nonbank mortgage company, which serviced nearly half a million GSE-backed loans as of September 2020, violated the Consumer Financial Protection Act when it misrepresented the requirements of the CARES Act and related federal agency guidelines.

“The company misrepresented to borrowers that they could not have 180 days of forbearance upon request and that certain borrowers could not have forbearance at all,” CFPB said in a statement. “Carrington also implied that homeowners had to make more detailed attestations than were actually required by law, and the company imposed late fees when they were not permitted.”

Just goes to show you, the CFPB is watching us .

If you have any questions or need assistance, contact me at (800) 656-4584.

On an important side note – Whatever you do, do NOT overreact to these rates. It will pass. We will be OK. And once you give up your freedom by joining someone out of fear, you will never be the same!

Nelson A. Locke Esq.

https://www.lockelaw.us

Look at this information on increases in Fraud.

25 Jul 2022

Three more co-conspirators have been taken into custody on charges related to a multi-layered mortgage fraud, credit repair and government loan fraud scheme, the US Attorney’s Office for the Southern District of Texas announced.   

Heather Ann Campos, David Lewis Best Jr. and Stephen Laverne Crabtree had evaded law enforcement for several months, officials said. Campos, 43, of Houston, was up for a detention hearing while Best, 56, of Spring, Texas, and Crabtree, 62, of Herriman, Utah, remained in custody pending further criminal proceedings.

All three are accused of sending numerous sovereign citizen letters to federal agencies and the federal court in Houston declaring themselves immune from prosecution and refusing to recognize the authority of the federal courts, justice officials said.

Campos and Best were indicted in January on numerous charges for participating in a conspiracy to defraud mortgage lending businesses, banks, the Small Business Administration, and the Federal Trade Commission, according to the complaint. They indicated they would self-surrender before allegedly fleeing from law enforcement. Since that date, several other co-conspirators were indicted, officials added, including Crabtree. He was released on bond and became a fugitive.

Read more: New York man pleads guilty in mortgage fraud scheme

Those indicted include Steven Tetsuya Morizono, 59, of Mission Viejo, Calif,; Albert Lugene Lim, 53, Laguna Niguel, Calif.; Melinda Moreno Munoz, 41, Elvina Buckley, 68, Leslie Edrington, 65, and ShyAnne Edrington, 29, all of Houston.

The charges allege Campos and Best recruited clients for credit repair using company names of KMD Credit, KMD Capital and Jeff Funding, among others. They allegedly “cleaned” their clients’ credit histories by filing false identity theft reports with the FTC, justice officials said.

“After fraudulently inflating client credit worthiness, the co-conspirators fraudulently obtained credit cards, disaster loans and mortgages for themselves and their clients, according to the charges,” justice officials said. “They were allegedly able to accomplish this through false statements and fake documents.”

Campos was a mortgage broker and Buckley a realtor, while operating as a notary was the responsibility of Munoz, according to the charges. After fraudulently inflating client credit worthiness, the individuals allegedly obtained rental properties to deceptively build a real estate portfolio worth millions of dollars in their clients’ names and profit from rental income. The charges allege Crabtree was a credit repair client and recruited others, including his family members, and conspired to commit wire fraud.

Read more: New Jersey man draws nine-year prison stint for mortgage fraud

They also allegedly obtained loans from banks and the SBA’s Economic Injury Disaster Loan Program and Paycheck Protection Program, justice officials said. They were created in the names of clients, friends and family members through false statements and fake or altered documents, officials added.

Using the alias Jeff, Morizono was the leader and namesake for the scheme purporting to do business as Jeff Funding, according to the charges.

If convicted, they each face up to 30 years in federal prison and a possible $1 million maximum fine.

The Federal Housing Finance Agency – Office of Inspector General (OIG), U.S. Postal Inspection Service and SBA – OIG conducted the investigation with the assistance of the FTC – OIG and IRS – Criminal Investigation.

Other agencies assisted with the arrests of Campos, Best and Crabtree, to include The Unified Police Department of Greater Salt Lake; police departments in South Jordan, Riverton, and Herriman, Utah; FBI Hostage Rescue Team; U.S. Postal Inspection Service – Pittsburgh and Salt Lake City Divisions; and the U.S. Marshals Violent Fugitive Apprehension Strike Force.

The news comes amid a spike in mortgage fraud. According to a CoreLogic report, mortgage fraud risk soared in the fourth quarter of 2021 due to a drop in overall loan application volume and the shift to a purchase market.

CoreLogic’s 2021 Mortgage Fraud Report showed a 37.2% year-over-year increase in fraud risk at the end of the second quarter of 2021. The large increase followed a drop seen in 2020 – a decrease driven mainly by the surge in traditionally low-risk refinances during the pandemic.

When business slows down, regulator activity goes up. This is when you need to be super diligent about your compliance efforts and record keeping.

Nelson A. Locke, Esq.

(800) 656-4584

www.lockelaw.us

I’m getting too many calls from Broker Shops paying their MLO staff based on FEE INCOME. This is a violation.

From the CFPB: Permissible methods of compensation. Compensation based on the following factors is not compensation based on a term of a transaction or a proxy for a term of a transaction:

A. The loan originator’s overall dollar volume (i.e., total dollar amount of credit extended – the Loan Amount – or total number of transactions originated), delivered to the creditor. See 1026.36 – Prohibited Acts or Practices – comment 36(d)(1)-9 discussing variations of compensation based on the amount of credit extended. Lender paid loans cannot be paid on splits of FEE INCOME. Basis points of funded loan amount only. Borrower paid can split commissions paid by borrower, but not include lender contributions from the back end. Comp can only come from one source or the other.

B. The long-term performance of the originator’s loans.

C. An hourly rate of pay to compensate the originator for the actual number of hours worked.

D. Whether the consumer is an existing customer of the creditor or a new customer.

E. A payment that is fixed in advance for every loan the originator arranges for the creditor (e.g., $600 for every credit transaction arranged for the creditor, or $1,000 for the first 1,000 credit transactions arranged and $500 for each additional credit transaction arranged).

F. The percentage of applications submitted by the loan originator to the creditor that results in consummated transactions.

G. The quality of the loan originator’s loan files (e.g., accuracy and completeness of the loan documentation) submitted to the creditor.

For those of you who did not live through the crash of 2009-2012, you should note that when production took a dive, audit activity and fines increased. Are you ready for an audit?

If not, call us.

Nelson A. Locke, Esq.

(800) 656-4584

www.lockelaw.us

CFPB updates examination manual to use UDAAP authority to target discriminatory practices.

The CFPB is directing its examiners to apply the Consumer Financial Protection Act’s unfairness standard to conduct considered to be discriminatory whether or not it is covered by the Equal Credit Opportunity Act (such as in connection with denying access to a checking account).  Under the CFPA, an act or practice is “unfair” if (1) it causes or is likely to cause substantial injury to consumers, (2) the injury is not reasonably avoidable by consumers, and (3) the injury is not outweighed by countervailing benefits to consumers or competition.  In its press release, the CFPB states:

The CFPB will examine for discrimination in all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits.  CFPB examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups.  CFPB examiners will look at how companies test and monitor their decision-making processes for unfair discrimination, as well as discrimination under ECOA.

• In determining through discussions with management and a review of available information whether an entity’s internal controls are adequate to prevent UDAAPs, the issues examiners are directed to consider are expanded to include whether:
  • The entity has established policies and procedures to mitigate potential UDAAP concerns arising from the use of its decision-making processes, including discrimination;
  • The entity’s policies, procedures, and practices do not target or exclude consumers from products or services, or offer different terms and conditions, in a discriminatory manner; and
  • The entity has appropriate training for customer service personnel to prevent discrimination.
• The process for identifying areas for potential transaction testing is expanded to direct examiners to determine whether:
  • The entity improperly gives inferior terms to one customer demographic as compared to other customer demographics;
  • The entity improperly offers or provides more products or services to one customer demographic as compared to other customer demographics;
  • Customer service representatives improperly treat customers of certain demographics worse or provide extra assistance or exceptions to customers of certain demographics;
  • The entity engages in targeted advertising or marketing in a discriminatory way;
  • The entity uses decision-making processes in its eligibility determinations, underwriting, pricing, servicing, or collections that result in discrimination; and
  • The entity fails to evaluate and make necessary adjustments and corrections to prevent discrimination.

This is a troubling development in that it does affect Brokers and Lenders who create special programs for unique niches. For example, a better rate for a doctor or medical professional, than a rate for a salesperson in a retail store. In this example, we are unaware of any specific enforcement, but that does not mean it isn’t being considered by the CFPB. Maybe it is time to look at your unique programs again and minimize regulatory risk by leveling your “playing field” a bit.

Ballard Spahr LLP published this important information on March 17th, 2022. We are grateful they have called it to our attention. Their information is largely derived directly from the government, and we pass it along to you as an educational post.

If you would like to discuss this, feel free to call me at (800) 656-4584.

Nelson A. Locke, Esq.

https://www.lockelaw.us

Your website link to HUD may be hijacked.

Looks like the hackers are at it again.

Please use the attached link for your HUD important disclosure on your websites. This was tested as of today and works correctly. You need to change this on your important disclosures website tab.

This is important, please do not ignore this request.

Here is the verified link. Subject to change at any time. Use at your own risk.

https://www.hud.gov/guidance

Any questions, call us at (800) 656-4584. Thanks.

Nelson A. Locke, Esq

Compliance Services USA

https://www.lockelaw.us

Special AML/RISK/CYBER Certification Course

This three-in-one course will be a two-hour session and is for the Compliance Officer and/or CEO/President.

It will cover three critical areas of Independent Certification. I will act as the Independent Certifier.

1. An annual Independent Certification of your adherence to the Anti Money Laundering Rules.

2. An Independent Risk Assessment Review, one is due every six months. I will provide a model for you to work with. Lenders and regulators are requesting this on an increasing basis.

3. An informative discussion about Cyber Security and the requirements for Brokerage Businesses and small Lenders. We will use New York’s Program as the model. We will discuss if you have any special reporting requirements, based on your state and company census.

The cost for this session is $750. If you are a client of our company, the price is $500.

It will include AML and Risk Certifications, and your entire management Team can attend. This is NOT for MLO staff.

This information is frequently required when applying to new Lenders or being audited by your Regulator.

To request a slot and get this scheduled send an email to me at nl@lockelaw.us

Thanks in advance.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

nl@lockelaw.us

CFPB reports on HECM Complaints

Locations of reverse mortgage complaints, company response rates

By far, the state with the highest number of reverse mortgage-related complaints submitted to the CFPB was California, totaling 110 complaints (or 17.8% of the total). This is not particularly surprising, since California is far and away the most active reverse mortgage state in the country. Nine of the top 10 reverse mortgage lenders in 2021 all feature California as their most active state.

Florida came in second, with 81 reverse mortgage-related complaints (or 13.1% of the total) submitted to the CFPB in the same period. This is followed by Texas (58); New York (29); and Arizona (19) rounding out the top 5, with similar correlations to general loan activity for the industry.

In terms of a company’s response to the complaining consumer, all 618 listed complaints are accounted for with the vast majority — 595 — being listed as “closed with explanation.” Six of the complaints remain in process as of February 16. Interestingly, only 133 of the complaints (21.5% of the total) have received a direct response to the consumer by the company, with the majority of those instances seeing the company elect not to make that response publicly available in a CFPB database.

You all need to have a login and password set up at the CFPB Lender Portal. Here is the link.

https://portal.consumerfinance.gov/company/s/login/

You should check contents at least every 90 days. If you have a complaint you ignore, it is a red flag and a sure express ticket to a visit from your regulator.

Any questions? Call me at (800) 656-4584

Nelson A. Locke, Esq.

https://www.lockelaw.us

OSHA “ETS” for Workplace Covid Compliance Effective January 10th, 2022

I took this from the OSHA Website. Read Closely.

“OSHA is gratified the U.S. Court of Appeals for the Sixth Circuit dissolved the Fifth Circuit’s stay of the Vaccination and Testing Emergency Temporary Standard. OSHA can now once again implement this vital workplace health standard, which will protect the health of workers by mitigating the spread of the unprecedented virus in the workplace.“

“To account for any uncertainty created by the stay, OSHA is exercising enforcement discretion with respect to the compliance dates of the ETS. To provide employers with sufficient time to come into compliance, OSHA will not issue citations for noncompliance with any requirements of the ETS before January 10 and will not issue citations for noncompliance with the standard’s testing requirements before February 9, so long as an employer is exercising reasonable, good faith efforts to come into compliance with the standard. OSHA will work closely with the regulated community to provide compliance assistance.“

Here is what this means for you. If you want to be in the best possible place regarding compliance adopt a policy which closely mirrors the OSHA requirements. I have drafted such a policy. Because this is a complicated issue, it is a 7 page version with procedures included to guide you to that safe place you want to find yourself in if this becomes an enforcement issue.

Exceptions do exist regarding employee count, those that work from home or outdoors; etc. It has become complicated.

Enforcement could be CFPB, OSHA, or our state regulators if delegated to them by the federal agencies.

Because of the development effort this policy requires a fee of $250. You may pay the fee at this link, and your policy will be emailed to you same day. I used “blue box” form fill protocol so it will be easy for you to complete.

CLICK HERE TO ORDER.

Any questions? Email me at nl@lockelaw.us and use the word OSHA in the subject line.

Nelson A. Locke, Esq.

(800) 656-4584

www.lockelaw.us

CFPB Audit Initiatives for 2022 – be advised!

Well, here we go. Take a really good look at the last one. I already have one client that has received notice of audit. I can tell you it is my opinion that there will be some “fishing” going on. The CFPB will be looking to find justification for all this bluster.

• Redlining.  Redlining has been a top priority since the Bureau’s inception in 2011 and both the Trump and Biden administrations, and that the CFPB intends to take “fresh approaches,” citing the DOJ’s anti-redlining initiative. 
• Appraisal bias.  Home valuations have traditionally been based on human judgment and discretion, and additional objective controls are needed.  The CFPB has already held meetings with industry representatives concerning the policies, procedures and controls currently in use to better understand valuation issues.  The Bureau is also partnering with the FHFA and prudential agencies on a long-standing rulemaking for QC standards for automated valuation methods stemming from a requirement in the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which is currently in the pre-rule stage. 
• Special purpose credit programs (“SPCPs”).   Also a top priority of Director Chopra, the CFPB seeks to promote usage of SPCPs to increase equitable access to credit. 
• Small business lending.  The CFPB issued a notice of proposed rulemaking that would implement Section 1071 of the Dodd-Frank Act in September 2021, and encouraged public comments, which are due on January 6, 2022. 
• Limited English Proficiency (“LEP”) consumers.  LEP individuals face unique challenges in learning about and accessing consumer financial products and services because disclosures are generally not available in non-English languages.  The CFPB’s LEP guidance issued in January 2021 sought to provide better guidance to the industry on serving LEP consumers, and in September 2021, the Bureau’s publication of a blog post on how mortgage lenders can better serve LEP borrowers.
• Focus on unfairness and discrimination in examinations and supervision.  Violations of law will not be tolerated, especially during the pandemic.  In the CFPB’s quest to advance racial and economic equity, the Bureau has now increased resources targeted toward small business lending.  The CFPB will also pursue “other illegal practices outside of ECOA and HMDA,” with the goal of using its authority to narrow the racial wealth gap and ensure markets are clear, transparent and competitive. (What????) 

Call me if you want to discuss. Our number is (800) 656-4584 and my email address is nl@lockelaw.us

Nelson A. Locke, Esq.

Our Office in Texas is moving!

A moving truck being driven by cartoon gator.

On Friday, October 29th, 2021, we are moving our office. We will be closed from noon to 6 PM.

We will be operational Monday, November 1st.

The new address is

COMPLIANCE SERVICES USA

Locke Law US, LLC

7800 PRESTON ROAD

SUITE 113 – MAILBOX 11

PLANO TX 75024

Our phone number remains the same. It is (800) 656-4584

Our Website remains the same. it is http://www.lockelaw.us

My email address remains the same. It is nl@lockelaw.us

Thanks to all!

Texas no longer requires brick and mortar.

October 12th, 2021

This is GREAT NEWS for any of you Brokers or Lenders out there who have held back from doing business in my great State of Texas!

Texas was still stuck in the dark ages, not allowing you to operate your mortgage business virtually or from your home state. Now, all you need to do is be licensed by the Texas Regulators. The information is contained in Texas Bill 3617 easily located on the web. No more brick and mortar.

However, you may have other reaons for wanting access to an office. If so, call us and we will get you set up.

That’s it for now!

Any questions? Email me at nl@lockelaw.us

Nelson A. Locke, Esq

(800) 656-4584

http://www.lockelaw.us

About the Covid Moratorium…..

As you take applications this month and next, be aware of this issue. Plus, be sure you use the Covid disclosure we provide in your initial application package.

“If you’re looking for help with rent and utilities, you’re not alone. The CDC issued a NEW eviction moratorium on August 3, 2021, temporarily halting evictions in counties where COVID-19 is spreading rapidly. 

If you gave your landlord a declaration by July 31, and it’s still true, you are still protected from eviction for unpaid rent until October 3rd, 2021. If you need help and have not submitted a declaration, this new CDC moratorium may help you avoid eviction, but you must take action. Learn more about this new order and the help available to you.” 

(From the Consumer Financial Protection Bureau)

If you have any questions about this, feel free to call us at (800) 656-4584

Nelson A. Locke, Esq.

http://www.lockelaw.us

From Mortgage Banker Magazine…..

E-Closings And Fraud     E-closings are here to stay and while they provide efficiencies in process and ease to the consumer, there is an increased risk of fraud. The makings of another high volume year combined with low interest rates may see an increase in fraud. Have you experienced fraud with your E-closings? Are you aware of the potential risk factors for which fraud may occur?   Let’s briefly explore those risk factors…   Synthetic Identity Fraud Perhaps a new term to understand, synthetic identity fraud is growing quickly and percent of loss to lenders is growing. This type of fraud involves the use of a social security number (a real one) with a counterfeit identity. With the pandemic came a shift in mortgage lending operations to E-closings or some type of hybrid and adjusting online verification of an applicant’s identity as well as authentication.   Occupancy Fraud Be wise to investors as we continue to operate in a rather low interest rate time. An increase in fraud has been occurring where investors may pose as the owner occupying the property being purchased.   Other Types of Fraud Other areas are experiencing forms of fraud: ·       Wire transfer fraud ·       Title fraud ·       Invalid representations by closing agents ·       Significant loan errors ·       Compliance issues   Overcoming the Obstacles We always face challenges. What preventative tactics can you be doing to help protect your institution? ·       Training – make sure staff is trained to identify red flags and how to address them immediately. ·       Make sure your system can handle address and occupancy verifications. ·       Keep your third-party oversight program strong. ·       Provide tools to educate your customers regarding mortgage fraud.   Any questions? Call us at (800) 656-4584. This article was reproduced from the web, no financial benefit involved. We recommend you take a look at Mortgage Banker Magazine.

Leaving messages this way got this company sued.

A lawsuit filed in California last week alleges that First California Financial Inc., violated the Telephone Consumer Protection Act (TCPA) when it contacted one Evelyn Ofiteru and others with a pre-recorded message without express written consent as  mandated by the TCPA.

Allegedly, First California Financial left a pre-recorded voice message with Ms. Ofiteru which said the following:

“Just wanted to give you a follow-up call on mortgage interest rates, currently we’re at 2.75% with 0 points, so if you’re interested give me a call back 714 606 8400 and I’ll be happy to go over the options with you. Have a great day.”

According to the lawsuit, the message both constitutes telemarketing, could be clearly identified as a pre-recorded message, and the plaintiff had not given her express written consent to be contacted by prerecorded message.

The plaintiff has brought the suit as a class action “on behalf of herself and all others similarly situated.” The lawsuit defined the class as, “All persons in the United States who, within four years prior to the filing of this action, (1) were sent a prerecorded message  by  or  on  behalf  of  Defendant,  (2)  regarding  Defendant’s goods,  products  or  services,  and  (4)  for  which  Defendant  failed  to secure the called party’s express written consent.”

Might also be a problem with a non-pub number. That is a Privacy Act violation.

Any Questions? Give us a call at (800) 656-4584.

Nelson A. Locke, Esq.

Compliance Services USA

https://www.lockelaw.us

CFPB charging Reverse Mortgage Lender with deceptive advertising practices (UDAP)

The Consumer Financial Protection Bureau (CFPB) on Tuesday announced that it has taken action against Mahwah, N.J.-based reverse mortgage lender Nationwide Equities for advertising practices it describes as “deceptive,” accusing the lender’s materials of violating the Mortgage Acts and Practices Advertising Rule (MAP Rule), the Truth in Lending Act (TILA), and the Consumer Financial Protection Act of 2010 (CFPA).

“[CFPB] today took action against Nationwide Equities Corporation for sending deceptive loan advertisements to hundreds of thousands of older borrowers,” the Bureau said in its announcement of the action. “The Bureau found that advertisements from Nationwide Equities misled consumers about how much money they could receive from a reverse mortgage, the fees and costs associated with the products, and the consequences of nonpayment.”

This marks the first major regulatory action of the CFPB against a reverse mortgage industry participant by the Joe Biden administration.

Our firm provides Advertising Audits and opinions before you publish. It is part of our practice and if you subscribe, you will receive this benefit allowing you to be in better compliance regarding advertising. Advertising is interpreted very broadly. It is an easy area to enforce, because most Brokers and Lenders seem to consistently forget they are subject to specific rules regarding the FTC, Dodd-Frank, and the Safe Act.

Give us a call.

Nelson A. Locke, Esq.

(800) 656-4584

https://www.lockelaw.us

False Claims Activity is heating up.

NASHVILLE, Tenn. – March 22, 2021 – Laziza Abdullaeva and Aziz Ashurov of Mt. Juliet, Tennessee, agreed to pay $200,000 to settle False Claims Act allegations involving misrepresentations in their purchases of certain properties from the U.S. Department of Housing & Urban Development (HUD), Mary Jane Stewart, Acting U.S. Attorney for the Middle District of Tennessee, announced today. 

On December 30, 2019, relators William Worrall and Jim Gregory filed a qui tam action against Ms. Abdullaeva, Mr. Ashurov and their investment company, Capital Invest, LLC, in the United States District Court for the Middle District of Tennessee. 

Relators alleged that Abdullaeva and Ashurov made false statements that they intended to occupy certain properties they purchased from HUD as a primary residence, but instead resold the properties for a profit and were presently renovating one such property purchased in East Nashville presumably for resale.

The loan originators were also investigated.

Don’t fall for this, the game has changed.

Nelson A. Locke, Esq.

(800) 656-4584

www.lockelaw.us

Washington DFI and Contract Loan Processors – here are the DFI rules in a snapshot…….

1. You will not have to be licensed with DFI under the following scenarios:
   1. You are a W2 employee Loan Processor for a licensed mortgage broker(s). Generally, you must work from a licensed location (main or branch office). See WAC 208-660-300(14)(link is external) for more information.
   2. You are a W2 employee Loan Processor for a loan processing company that has a mortgage broker license. Generally, you must work from a licensed location. See WAC 208-660-300(14)(link is external) for more information.
2. You must have a license with DFI under the following scenarios:
   1. You must have a loan originator license if you work as an independent contractor Loan Processor (receive a 1099) for a licensed mortgage broker. You must work from a licensed location under the mortgage broker license.
   2. You must have a loan originator license if you work as an independent contractor Loan Processor (receive a 1099) for a loan processing company. You must work from a licensed location under the loan processing company’s mortgage broker license.
   3. You must have a mortgage broker license if you own a processing company that independently contracts (receives a 1099) with licensed mortgage brokers to process loans. Your W2 employees and independent contractors (1099 paid workers) must work from a licensed location. Your independent contractors must be licensed as loan originators.

If you have any questions, give us a call at (800) 656-4584.

Nelson A.Locke, Esq

http://www.lockelaw.us

Regarding that “announcement” today….

Consider United States Antitrust Law

In the United States, antitrust law is a collection of federal and state government laws that regulate the conduct and organization of business corporations and are generally intended to promote competition for the benefit of consumers. The main statutes are the Sherman Act of 1890, the Clayton Act of 1914 and the Federal Trade Commission Act of 1914. These Acts serve three major functions. First, Section 1 of the Sherman Act prohibits price-fixing and the operation of cartels, and prohibits other collusive practices that unreasonably restrain trade. Second, Section 7 of the Clayton Act restricts the mergers and acquisitions of organizations that would likely substantially lessen competition. Third, Section 2 of the Sherman Act prohibits the abuse of monopoly power.

Now, think about Dodd-Frank and the CFPB. And “the rule of unintended consequences”.

Can there be such a thing as negative steering? There is such a thing as the negative commerce clause. If competitors are squeezed out, who gets the loans?

Maybe the most prudent thing for all of us to do, is sit back and watch for a few days.

Don’t act too fast. Rest and Digest.

Nelson A. Locke, Esq

(800) 656-4584

New 1003 now in effect!

Redesigned Form 1003 now required

Effective March 1, 2021, lenders and brokers must use the redesigned Form 1003 and DU MISMO v3.4 file for all new loan applications. Applications started prior to March 1 can remain in their original DU format and form version.

Some of you have commented that your loan origination system was not prepared. That could be an issue, but if the file was started prior to 3/1/21, your loan origination system should have a workaround for their oversight.

You might want to have some old fashioned manual “new” 1003s around until this settles itself down a bit. Otherwise, data fields won’t match.

Respectfully,

Nelson A. Locke, Esq.

Compliance Services

(800) 656-4584

An update on the “W-2 versus 1099” debate……..

On January 6, DOL announced a final rule clarifying the standard for employee versus independent contractor under the Fair Labor Standards Act (FLSA) which will go into effect on March 8, 2021. These new regulations redefine the tests to determine who is an independent contractor and streamline & clarify the tests to determine who is an employee versus an independent contractor. The overall objective of the new regulations is to simplify compliance when determining Independent Contractor Status.

The following issues were addressed in the new rule.

• The “economic reality test – used to determine if an individual is an independent contractor  who is in business for themselves or, is “economically dependent on the employer” for work (FLSA definition of an employee). If you sponsor an MLO, they are economically dependent on your company.
• The two “main” factor test – (1) Nature and degree of control over work and (2) Worker profit or loss, based on initiative and/or investment.
• The amount of skill required to do the work.
• The degree of permanence of the working relationship between the worker and the potential employer.
• Whether the work is “part of an integrated unit of production”. A sponsored MLO is integrated.
• The Biden Administration’s effect on enforcement as a tool to insure collection of payroll taxes.

When you sort through all the tests and commentary our conclusion is still the same. No matter what a state may say about this, a mortgage loan originator sponsored by your company, is an employee. A mortgage loan originator who is sponsored by his own company but does some business with other licensees, is an independent contractor.

If you need some help with converting to W-2, that is part of our overall compliance program. Just give us a call at (800) 656-4584 and we will not only get you in safe harbor compliance wise, we will be there for you all the time as things like this pop up. That way, you keep originating, we keep an eye on your state of compliance.

Sincerely,

Nelson A. Locke, Esq

Compliance Services, USA

http://www.lockelaw.us

More about using unlicensed originators.

CFPB slaps 1st Alliance Lending for illegal mortgage-origination practices

The Consumer Financial Protection Bureau (CFPB) has taken 1st Alliance Lending and three of its top executives to court for allegedly engaging in various illegal mortgage-lending practices.

Filed in the US District Court for the District of Connecticut, the lawsuit claims that the Hartford, Conn.-based home lender – with the participation, knowledge, and direction of its managing executives John Christopher DiIorio (CEO), Kevin Robert St. Lawrence, and Socrates Aramburu – violated the Truth in Lending Act (TILA), the Fair Credit Reporting Act (FCRA), the Equal Credit Opportunity Act (ECOA), the Mortgage Acts and Practices—Advertising Rule (MAP Rule), and the Consumer Financial Protection Act of 2010 (CFPA).

1st Alliance originated residential mortgages from 2004 to September 2019, halting its operations in November 2019 due to fraud allegations.

In the course of its mortgage lending business, 1st Alliance allegedly used unlicensed employees – rather than licensed loan officers – to engage in mortgage origination activities. The Bureau said that the activities were in violation of the TILA and Regulation Z, and were illegal under state law.

“1st Alliance’s use of unqualified sales employees to deprive consumers of critical, accurate, and timely loan information was unfair,” CFPB said in the court filing. “The Bureau also alleges that 1st Alliance violated Regulation Z by requiring consumers to submit documents verifying information relating to the consumer’s residential-mortgage-loan application before providing them a Loan Estimate.”

Moreover, CFPB alleges that 1st Alliance employees denied credit to consumers based on information in their consumer report during the same period. And when they did respond to the applications, the company failed to give consumers the “adverse action” notice required under FCRA and ECOA.

1st Alliance also repeatedly violated the MAP Rule and CFPA by misleading representations, omissions, or engaging in practices “concerning whether 1st Alliance’s employees were licensed mortgage-loan originators, whether the consumer had been preapproved or guaranteed for a particular program or term, and whether and on what terms the consumer was likely to obtain refinancing.”

OK, then. Need a great Compliance Company? Call us at (800) 656-4584.

Nelson A. Locke, Esq.

Compliance Services USA

Former Obama Appointee to lead CFPB.

Biden’s CFPB Nominee Signals Return to Bureau’s Original Posture

President-elect of the United States Joe Biden has nominated Federal Trade Commissioner Rohit Chopra to serve as the new director of the Consumer Financial Protection Bureau (CFPB), signaling that the incoming Biden administration aims to return the Bureau to its original enforcement posture.

If you want to protect yourself, call us. (800) 656-4584.

Nelson A. Locke, Esq.

Compliance Services USA

Attention California Clients – Get Ready for the “CPRA”

On November 4, 2020, California voters approved of the ballot initiative Proposition 24, more commonly known as the California Privacy Rights Act (the “CPRA”).  The CPRA goes into effect on January 1, 2023, and will expand several of the existing protections in the California Consumer Privacy Act (the “CCPA”).

CPRA creates some of the following new rights and requirements:

• Right to restrict use of “sensitive personal information”;
• Right to correct data;
• Storage limitation: right to prevent companies from storing information longer than necessary and right to know the length of time a business intends to retain each category of personal information;
• Data minimization: right to prevent companies from collecting more information than necessary;
• Right to opt out of advertisers using precise geolocation (< than 1/3 mile);
• Penalties if email address and email password are stolen due to negligence;
• Restrictions on onward transfers of personal information;
• Establishes California Privacy Protection Agency to protect consumers;
• Requires high risk data processors to perform regular cybersecurity audits and risk assessments; and
• Requires the appointment of a chief auditor with power to audit businesses’ data practices.

Taken from the CFPB Public Site

https://www.consumerfinancemonitor.com/2020/11/09/california-voters-approve-cpra/?utm_source=Ballard+Spahr+LLP+-+Consumer+Finance+Monitor&utm_campaign=11c0fbce31-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_6dc018fe4c-11c0fbce31-72570477

We are licensed in California and would love to hear from you, should you need help with your compliance program.

Nelson A. Locke, Esq

Compliance Services, USA

(800) 656-4584

www.lockelaw.us

A few words of advice to MLOs who are changing sponsors…..

If you are an MLO looking to change employers and are currently sponsored by a Mortgage Broker Business or Lender, pay attention to these issues.

1. You must give good notice, and that is usually in your employment agreement. If it is NOT, then reasonableness applies. Which to me means 30 days written notice to insure good customer service and some continuity of planning for both parties. Yes, its an “at will” deal usually, but a contract can change that.
2. Your pipeline and your work in progress belongs to your current sponsor, not you. If you sabotage your sponsor’s pipeline, it is theft.
3. Any leads you obtained while working for your sponsor, belong to your sponsor. So you can’t “take your electronic rolodex” with you unless you ask, and your current sponsor agrees.
4. Don’t have your assistant quit before you, go to work for a new sponsor, and work leads you steal from your prior sponsor. The regulators have seen this before and you are not fooling anyone or avoiding liability.
5. This is important. The person that hires you is equally liable if they know even a scintilla of the facts regarding where you got your leads, or if they allow you to bring purloined files over via the “assistant” ploy. Now, you have a Dodd Frank, conspiracy, and theft issue.
6. Many regulators will pursue not only the dishonest MLO but also the new sponsor that takes them in.
7. Notice I said dishonest? This is a moral turpitude/fraud issue. Means you will be calling me to try and help you save your license.

Just have a conscience, and if you change sponsors, do it with class and do it the way you would want to be treated. Or else. If any of you don’t believe me, I can send you an excerpt from a regulator Administrative Complaint.

Nelson A. Locke, Esq.

800-656-4584

www.lockelaw.us

Need some Continuing Ed? Here is a limited time offer for free CE classes.

My friend Jim Montrym operates the Mortgage Broker’s School.

His web site can be seen at http://www.brokerschool.com/

He has a new program that is 100% on line and for a limited time, you can access these classes and study at your own pace while earning the CE credits you need for your license renewal.

Give him or Andrea a call at 800-735-8565 – to get your access code for this limited time offer for free on-line CE classes.

This is better done sooner rather than later, folks.

Nelson A. Locke, Esq.

800-656-4584

To view our web site, click on www.lockelaw.us

Brokers – license yourself in Texas!

Giddyup!

TEXAS is a broker friendly state.

The regulators here are reasonable and fair.

If you are thinking about expanding your business, and maybe dropping some broker un-friendly states like (you know who you are), you can license yourself fairly quickly.

Compliance Services is now offering a registered agent and office space option to our clients.

Using us you can keep your startup costs low while building your Texas contacts and marketing. 

If you are interested in expanding into the great state of TEXAS, contact us today.  While we serve brokers and lenders nationwide, we are located in the Dallas Metroplex. 

Special invitation to our Florida and California clients. Come on down!

Respectfully,

Nelson A. Locke, Esq

(800) 656-4584

http://www.lockelaw.us

View original post

How do I calculate ATR?

ATR means Ability to Repay. I have been preaching about this for some time. I have seen a trend in the courts to require ATR regardless of what type of loan, or what type of borrower, or even, what type of lender.

Most lenders in the conventional or government arena require proof of ATR in order to confirm the mortgage is QM. And, they tell you how to calculate the number.

What about the weird loans we make where there is no guidance from anyone regarding the source of funds relied on to repay the loan? One thing is certain. The legal trend is that no matter what kind of loan to whatever type of person or entity, a formula for determining the ATR is necessary on almost all loans.

That’s when YOU have to rely on yourself. Because whether the lender wants to see it or not, you need to have it. Without ATR, you could find yourself defending a regulator assertion that you are a predatory lender.

Here’s my guidance, where guidance is lacking from your lender of choice.

In those cases where there is no set guidance for Ability to Repay, you must use your common sense and a formula that shows adequate assets and cash flow to support a total DTI of no higher than 50%. That maximum back end is defensible in the event of a lawsuit or a regulator challenge. If assets are the principal source of the ATR, then they MUST be highly liquid. You have to confirm that is the case.

Any questions? Give us a call. If you need a new compliance firm, we are presently offering a special package. Let us hear from you.

Respectfully,

Nelson A. Locke, Esq

(800) 656-4584

 

 

 

 

 

Here are some recent Auditor Comments.

August 13th, 2020

 

From a West Coast Auditor – but applicable to ALL states. Common violations found in last three months.

Mortgage Call Report – There continue to be late filers, and the numbers reported continue to show inaccuracies. Licensees should assign this reporting to someone who is detail oriented, and have a second person review the call report before filing.

Loan Officer Compensation Plans – Examiners are seeing compensation plans that pay the loan originator a percentage of the broker compensation, which is a term of the loan and not allowed by Regulation Z. Loan officers are allowed to be paid a percentage of the loan amount. Brokers may receive varying compensation levels with their respective wholesale lenders. Paying the loan originator a percentage of compensation provides an incentive to steer borrowers to the wholesale lender paying the most broker compensation. In many cases the lender paying the highest compensation will not be the most advantageous lender for the borrower. Mortgage Brokers have a fiduciary relationship with the borrower which means you must act in the best interests of the borrower.

One violation that is not common appeared during the second quarter – providing falsified borrower disclosures to the Department. Not providing a required disclosure is a violation but will not, in and of itself, lead to enforcement actions, unless there is a history of repeat violations.

Providing a falsified document is a serious violation that undermines the foundation of a licensees’ ability to conduct business (see RCW 19.146.005). This violation is always referred to enforcement. It may cause fines and penalties and even lead to license revocation.

Any questions? Call us at (800) 656-4584

Nelson A. Locke, Esq

Compliance Services USA

Interesting FRAUD case here. Just an FYI.

 

August 4th, 2020

Boulder Man Pleads Guilty To Nearly $32 Million Bank Fraud Scheme DENVER – United States Attorney Jason R. Dunn announced today that Michael Scott Leslie, age 57, of Boulder, Colorado, pleaded guilty to federal bank fraud and aggravated identity theft charges.  Leslie appeared remotely on a $50,000 unsecured bond, which was continued at the hearing’s conclusion.  The Denver office of the FBI, and the Offices of the Inspector General for both the Department of Housing and Urban Development (HUD) and the Federal Deposit Insurance Corporation (FDIC) joined in today’s announcement. According to the stipulated facts contained in Leslie’s plea agreement, Leslie owned, operated, or otherwise had an interest in several business entities, some of which were operated out of Colorado.  These entities were involved in or affiliated with financing or originating residential mortgage loans.  Through these business entities, Leslie sold residential mortgage loans to investors, including an FDIC-insured bank in Texas (“the victim bank”). Between October 2015 and October 2017, Leslie devised and executed a scheme to defraud the victim bank by selling it 144 fraudulent residential mortgage loans valued at $31,908,806.88.  These loans were purportedly originated by one of Leslie’s companies, Montage Mortgage, and “closed”  by Snowberry, which earned fees for the closing.  The loans were then presented and sold to the victim bank until Montage identified a final investor.  For these 144 fraudulent loans, that final investor was Mortgage Capital Management (MCM). Leslie never disclosed to the victim bank that he operated MCM and Snowberry, or the fact that sales to investor MCM, even if they had been real, were not arms-length transactions. The 144 residential mortgage loans sold to the victim bank were not, in fact, real loans.  The borrowers listed on these 144 fraudulent loans were real individuals, but they had no idea that their identities had been used as part of the sale of the fraudulent loans. The defendant had access to their personal identifying information in one of two primary ways:  (1) the borrowers had used Montage for legitimate residential real estate transactions which were properly executed and closed, or (2) the borrowers had been solicited by Montage about refinancing their existing loans.  In the case of refinance transactions, Montage secured permission from the borrowers to request credit scores and history from the major credit agencies.  After receipt of those credit scores, Montage often told these would-be refinance borrowers that they did not qualify for a refinance.  Leslie then recycled the borrowers’ information, obtained through prior legitimate transactions or attempted refinances, to create and sell nearly $32 million of fraudulent loan packages. To execute this scheme, Leslie forged signatures on closing documents and fabricated and altered credit reports as well as title documents, often by using the names of legitimate companies.  The fraudulent real estate transactions were never filed with the respective counties in which the properties were located, there were no closings, and no liens were ever recorded.  Through numerous bank accounts for the various business entities and his personal accounts, the defendant used money in a Ponzi-like fashion from prior fraudulent loans sold to the victim bank to fund future fraudulent loans.  This complex flow of money continued until the defendant’s fraud was detected.  When the fraud was discovered, the victim bank still had 12 fraudulent loans, valued at $3,887,505.93, on its books that it could not, given that the loans did not exist, sell to any other legitimate third-party investor. Chief U.S. District Court Judge Philip A. Brimmer presided over the change of plea hearing today, July 31, 2020.  Leslie was first charged by information on June 5, 2020.  This case was investigated by the Denver office of the FBI, and the Offices of the Inspector General for both the Housing and Urban Development and the Federal Deposit Insurance Corporation.  The defendant was prosecuted by Assistant U.S. Attorneys Hetal J. Doshi and Jeremy Sibert. A copy of this press release is located on the website of the U.S. Attorney’s Office for the District of Colorado.  Related court documents can be found on PACER by searching for Case Number 20-cr-171. The year 2020 marks the 150th anniversary of the Department of Justice.  Learn more about the history of our agency at www.Justice.gov/Celebrating150Years. USAO, District of Colorado

I have nothing to say here. Incredible.

Respectfully,

Nelson A. Locke, Esq.

(800)656-4584

 

COVID Return to Work Package

August 4th, 2020

Hello all.

With the help of a good friend we have assembled a “Return to Work” package that includes the following items.

1. A customer notification of the risks of COVID and its effect on business.
2. An employee assumption of risk and waiver of liability upon returning to the office.
3. A CDC handout on COVID symptoms.
4. A CDC handout on social distancing and the use of masks.
5. A CDC handout suitable for use as a door sign about masks required.
6. A CDC handout about how to prevent the spread of COVID.

This is available to all present clients at no charge.

If you are not a client, and want this or our COVID SPIKE Plan regarding working at home and precautions regarding non-public information, email us at nl@lockelaw.us and I will get back to you. The cost is reasonable.

Stay safe!

Nelson A. Locke, Esq.

(800) 656-4584

Compliance Services USA

How COVID really feels…

Yesterday I heard from a good friend and client who contracted Covid-19. I thought about it and decided that you might benefit from hearing first hand from someone who is just emerging from a rough two weeks. This person was careful. Caught it anyway.

As they used to say on Dragnet, “the names were changed to protect the innocent.”

“Today is the first day in 9 days that I don’t have a fever.  If I had more energy I would be dancing! Here are the symptoms:

Sore throat, splitting headache, extreme eye pain, fever, extreme fatigue, extreme body aches, couldn’t sleep until I remembered I had some sleeping meds (that was a big help for 3 days so I could rest at night, then I could rest without them).  It would come in waves, no fever, then 101.8 30 minutes later.  The only good news is no respiratory issues.

We had kept the office locked from the public for 3.5 months, but made a mistake by not requiring masks in the office for employees.  I thought we were being careful enough with sanitizer and daily cleaning, but that was not the case.  We don’t know who, but someone gave us the virus.

Needless to say, we now have a mask policy unless you are at your desk, alone, with your door closed.  I don’t like to make the same mistake twice!”

Stay safe!

 

Nelson A. Locke, Esq.

(800) 656-4584

Lockelaw.us

Regarding Broker and Lender Quality Control Efforts…….

The Department of Justice (“DOJ”) just fined Guaranteed Rate $15 million dollars for knowingly violating best quality control practices as related to FHA and VA loans in particular. Please note, Fannie, Freddie, Ginnie, and the USDA are all very similar to FHA and VA requirements.

The DOJ alleged that Guaranteed Rate knowingly failed to comply with program rules that require lenders to maintain quality control programs to prevent and correct any deficiencies in underwriting, self-report any materially deficient loans they identify, and ensure that there are no conflicts of interest in the underwriting process.

As part of the settlement, Guaranteed Rate admitted that it had not adhered to self-reporting requirements, that its FHA underwriters received commissions and gifts – a violation of program rules – and that its government underwriters were sometimes instructed not to review documents that were relevant to their underwriting decisions.

The lender also admitted that it certified loans that weren’t eligible for FHA mortgage insurance or VA guarantees, and that HUD and the VA would not have guaranteed or insured those loans otherwise.

We see this all the time. Lender tells underwriter to look away, then loan goes bad, lender tries to put it back to broker. We also see processors paid when loans fund, not for processing whether loans fund or not. To pay only when loans fund, is to create a conflict of interest such as referenced above.

If any of you have questions, reach out to me at nl@lockelaw.us

That’s it for now. Stay safe.

Nelson A. Locke, Esq.

(800) 656-4584

Pandemic/Natural Disaster Business Continuity Plan is important.

Yesterday alone, clients were asked for their plan by Washington, Indiana, North Carolina, and Michigan. Further, lenders are requesting it randomly.

We have been emailing about this since mid March.

If you want it ready BEFORE they ask you, CLICK HERE.

Turnaround time is about 36 hours.

Thanks, and stay safe.

Nelson A. Locke, Esq.

800-656-4584

 

 

BE AWARE OF THIS……

The Federal Housing Finance Agency (FHFA) this morning announced that it is approving the purchase of certain single-family mortgages in forbearance that meet specific eligibility criteria by government-sponsored enterprises Fannie Mae and Freddie Mac.

“We are focused on keeping the mortgage market working for current and future homeowners during these challenging times,” said Director Mark Calabria. “Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending.”

Due to the COVID-19 pandemic, some borrowers have sought payment forbearance shortly after closing on their single-family loan and before the lender could deliver the mortgage loan to the GSEs. Mortgage loans either in forbearance or delinquent are ineligible for delivery under GSE requirements. However, today’s action lifts that restriction for a limited period of time and only for mortgages meeting certain eligibility criteria.

As always, email us with questions.

nl@lockelaw.us

Nelson A. Locke, Esq.

800-656-4584

COVID-19 Readiness Plan now required

We have researched and drafted a readiness plan. It will meet or exceed the rigorous standard put forth by the states.

DO NOT begin work from home protocol before you comply with this plan.

I am recommending you order this important item from us.

The cost is $250 and we will guarantee it will meet your state’s requirements.  READINESS PLAN

That’s it for now.

Nelson A. Locke, Esq

Compliance Services USA

(800) 656-4584

http://www.lockelaw.us

 

You are considered an essential service.

CLICK BELOW for the Treasury Department Notice of March 22nd, 2020

Financial Services Sector Essential Critical Infrastructure Workers

Attached here is a memorandum from the Treasury Department. Keep a copy in your office in case someone tells you to shut down.

Thanks to Sean for the heads up. Teamwork guys.

Be safe, go get those loans from wherever you are!

Nelson A. Locke, Esq

Compliance Services USA

(800) 656-4584

http://www.lockelaw.us

 

COVID-19 Readiness Plan now required

We have researched and drafted a readiness plan. It will meet or exceed the rigorous standard put forth by the states.

DO NOT begin work from home protocol before you comply with this plan.

I am recommending you order this important item from us.

The cost is $250 and we will guarantee it will meet your state’s requirements.  READINESS PLAN

That’s it for now.

Nelson A. Locke, Esq

Compliance Services USA

(800) 656-4584

http://www.lockelaw.us

 

Brokers – license yourself in Texas!

TEXAS is a broker friendly state.

The regulators here are reasonable and fair.

If you are thinking about expanding your business, and maybe dropping some broker un-friendly states like (you know who you are), you can license yourself fairly quickly.

Compliance Services is now offering a registered agent and office space option to our clients.

Using us you can keep your startup costs low while building your Texas contacts and marketing. 

If you are interested in expanding into the great state of TEXAS, contact us today.  While we serve brokers and lenders nationwide, we are located in the Dallas Metroplex. 

Special invitation to our Florida and California clients. Come on down!

Respectfully,

Nelson A. Locke, Esq

(800) 656-4584

http://www.lockelaw.us

 

 

The LIBOR is being phased out.

Please be aware of this. Your lenders will be migrating loan programs away from the LIBOR and over to other, more “stable” indexes during 2020.

Some states, such as New York, have already asked for brokers and lenders to submit a plan to manage the transition. I have a template we can use if you receive such a request.

For most of you, the transition will be effortless as you do not keep the paper, thus no servicing issues regarding the LIBOR.

If you have any questions, here is a great link for information.

https://www.schwab.com/resource-center/insights/content/libor-phase-out-what-does-it-mean-you

That’s it for now.

Nelson A. Locke, Esq

(800) 656-4584

http://www.lockelaw.us

 

 

 

 

Have you received a Complaint from “Legal Justice Advocates” regarding allegations of disparate treatment of the visually impaired?

If so, please email me at once. While we believe this to be questionable,  you need to protect yourself and our  Team is ready to assist.

This link can help you to understand what is going on.

https://www.actionnewsjax.com/news/local/attorneys-in-trouble-over-ada-lawsuits-against-local-small-businesses/754005293/   

Forward what you recieved to nl@lockelaw.us and in the subject line put ADA ISSUE.

Thanks.

Nelson A. Locke, Esq.

(800) 656-4584

 

Clarification on Temporary Authority Post……..

This Temporary Authority (120 days) relates to Mortgage Loan Originators transitioning from federally insured institutions (“NMLSR”) to non-bank lenders (“NMLS”), as well as already licensed individuals holding valid personal and/or broker or lender licenses that are moving or expanding their mortgage licensing to other states.

Any questions? Give us a shout.

Nelson A. Locke, Esq.

(800) 656-4584

Important News about Temporary Authority to act as an MLO…..

Thanks to Max Lewis for providing this information.

“A little less than 2 weeks ago a new process went into effect in NMLS. It is called the “Temporary Authority to Operate.” You may or may not have heard of this. Basically, it allows a loan officer to be able to start originating loans the day their loan officer license application is submitted to the state.
Please note though that there are several conditions which must be met first:
• The company must already have a license to operate in the state in which you wish to license this loan officer.
• The loan officer must be a W-2 employee.
• The loan officer must have at least one year of experience with a bank (deposit taking) preceding the date of application submission or 30 days of experience (licensure) at a non-bank company preceding the date of application submission – this is determined by the NMLS system.
• All of the requirements needed for licensure (background check, credit report, and any disclosure explanations) must be met before the license application can be submitted. What can be completed afterward is any state specific documentation, national test (if necessary) and any state specific PE. These final three items can be met once the approval is given by NMLS to operate under this new temporary authority regime. Also please note that these final three items need to be completed as soon as possible after the temporary authority is given as the state has up to 120 days to make a decision on the loan officer’ application whether to accept or deny.
• The scenario above does not apply to loan officers who have had a previous license application denied, a previous license revoked or suspended, a cease and desist order or any type of misdemeanor or felony conviction.
This new ability has several benefits to you subject to the conditions listed above:
• You will be able to hire a high producing loan officer from a bank, and that loan officer can start originating pretty much right away as long as the conditions above are met.
• You will be able to hire a high producing loan officer from a competitor who can also start pretty much right away.
In each of the two situations above, the recruited person does not need to worry about being in a position of waiting anywhere from one to four months for an approval before starting to originate for the new employer. They can start right away.”

Please let us know if you have any questions.

 

Happy Holidays.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

 

 

Settlement Service Providers List is an important part of your Loan Estimate Package.

November 5th, 2019

Settlement Service provider List ( called the SPL) must be provided with your loan estimate. Here are the current requirements.

1. Must be given at time of application or within three days of application.
2.  Must identify AT LEAST ONE PROVIDER for each service disclosed in section c of your LE.
3.  You can bundle, but you must say what is included in the bundle.
4.  The provider you name must be local to the property and able to complete the service.
5.  If you have an ownership interest in a service provider, you must also provide the affiliated business arrangement disclosure.  “Sharing a financial benefit, etc.”
6.  The SPL must be separate from the LE.
7.  Has to include service provider name, estimate of costs (matching the LE) and name address and other contact information.

Confused? Just call us or email us for help. We are a compliance services firm run by former underwriters and originators, with attorney supervision. No guesses here.

Sincerely,

 

Nelson A. Locke, Esq

(800) 656-4584

www.lockelaw.us

 

 

Florida Mortgage Professionals Take Note

July 30th, 2019

Taken from an OFR Audit Letter dated last week.

“For the Examination Period, the Mortgage Brokerage Transaction and Lending Journal, Form OFR-494- 10 or HMDA-LAR; a listing of all applications by Loan Officer; and a listing of all Mortgage Loan Modification Applications.

SPECIFY IF ANY FUNDED/CLOSED LOANS IN THE MORTGAGE BROKERAGE
TRANSACTION & LENDING JOURNAL ARE FOR INVESTMENT/BUSINESS PROPERTIES.”

If you have fooled yourself into believing you could package what would otherwise be a QM or non-QM residential loan into a non-QM loan deeded to an LLC or Corp, be warned.

Nelson A. Locke, Esq.

Compliance Services, USA

800-656-4584

Are you a “MINI-CORRESPONDENT”?

The CFPB is concerned that some mortgage brokers may be shifting to the mini-correspondent model under the mistaken belief that identifying themselves as such would automatically exempt them from important consumer protection rules affecting broker compensation. The guidance sets out how the Bureau evaluates mortgage transactions involving mini-correspondent lenders. It confirms who must comply with the broker compensation rules, regardless of how they may describe their business structure.
“Before the financial crisis, consumers seeking mortgages were steered toward high-cost and risky loans that were not in the consumer’s interest,” said CFPB Director Richard Cordray. “The CFPB’s rules on mortgage broker compensation are intended to protect consumers from this type of abuse. Today we are putting companies on notice that they cannot avoid those rules by calling themselves by a different name.”
The policy guidance is available at: http://files.consumerfinance.gov/f/201407_cfpb_guidance_mini-correspondent-lenders.pdf
Mortgage brokers connect borrowers with lenders who underwrite and fund loans. In contrast, a correspondent lender, as generally understood in the mortgage industry, processes applications, provides legally required disclosures, frequently underwrites the loans, makes the final credit approval decision, funds the loans, and sells them to investors.
The CFPB is concerned that some mortgage brokers may be setting up arrangements with investors in which the broker claims to be a “mini-correspondent lender,” when in fact the broker is still essentially just facilitating a transaction between a borrower and a lender. While some brokers may be setting up such arrangements because they intend to grow into full correspondent lenders, the Bureau is concerned that other brokers may simply be attempting to evade consumer protection rules. Today’s guidance confirms that mortgage brokers who merely choose to describe themselves as mini-correspondent lenders are not automatically exempt from applicable consumer protection requirements.
The guidance sets out some of the questions the CFPB may consider in evaluating mortgage transactions involving mini-correspondent lenders in order to understand their true nature. This evaluation involves examining how the mini-correspondent lender is structured and operating, for example: whether it is continuing to broker loans; its sources of funding; whether it funds its loans through a bona fide warehouse line of credit; its relationship with its investors; and its involvement in mortgage origination activities such as loan processing, underwriting, and making the final credit approval decision.
Ya’ll better be careful out there! If you need to discuss this, just email us for an appointment to talk.

Nelson A. Locke, Esq.

Compliance Services, USA

7800 Preston Road – Suite 118

Plano, TX 75024

(800) 656-4584

https://www.lockelaw.us

 

Brokers who rely on their lender’s captive LOS system may be missing proof of disclosure and subject to adverse findings in an audit.

That pretty much says it all.

During April Audits we saw quite a few instances of Brokers relying on Lender disclosures.

These Brokers opted to quit using Point similar systems to save money.

When audited, their files were missing LEs or CDs and the Regulators cited the Broker for lack of attention to his/her client and the rules.

Brokers need to remember, the rules say that either the Broker or the Lender can prepare disclosures.

However, the Broker must be sure the client got them and the Broker must be sure the Broker has a copy for their post closing archives, in case of audit.

Do you?

Thanks,

Nelson A. Locke, Esq.

Compliance Services, USA.

(800) 656-4584

nl@lockelaw.us

 

 

 

 

LEHMAN BROTHERS RE-PURCHASE LETTERS.

 

Last week we heard from five Florida clients that they had received a FedEx package from LBHI, who is the Bankruptcy Court collection arm for what used to be Lehman Brothers Mortgage, and Aurora Loans of Colorado. The demand letters ranged from $120K to the millions.

THIS IS A REAL ISSUE.

DO NOT THINK IT IS A SCAM.

If you received one of these letters, please contact our office at (800) 656-4584 or email me directly at nl@lockelaw.us

Do NOT attempt to handle this yourself.

This is a real issue and could cost you thousands more than necessary.

Respectfully,

Nelson A. Locke, Esq.

Locke Law US, LLC.

(800) 656-4584

Business Purpose Loan Abuse is about to END

Florida Statute 494 has some changes effective July 1st, 2019 that tighten up the  use of the RESPA loophole for Business Purpose Loans.

Language has been added that makes it a clear violation of FS 494 to misrepresent a residential mortgage loan as a business purpose loan.

Sound familiar? Your client lives in a property either as is full time residence or his second/vacation home. Because of his credit circumstances he cannot qualify for a QM or non-QM loan. So someone suggests he create an LLC, and make it look like an investment. Less required disclosure, higher interest rates and costs to the client. Then when the loan closes the “façade” is stripped away – the borrower is the client not the LLC, he house is his residence, he uses the proceeds to pay off his credit cards, and any cash needed comes and goes between the client and lender, not the LLC.

So what do you need to do? You need to be sure a business purpose loan is exactly that. Most if not all of the proceeds must go into a true business venture. Further, if the business purpose loan involves a RESPA property (residential) then the MLO and his sponsor better have a license. Finally, if in doubt, disclose to a higher level.

These loans will become red flags for audits. Be prepared.

Confused? Ask your compliance team. If you don’t have one, call us at 800-656-4584 and let us tell you how we can help you stay out of trouble.

Nelson A. Locke, Esq.

Compliance Services, USA.

nl@lockelaw.us

 

 

 

 

 

 

 

If you think you can do without your Compliance Attorney, think again.

I think all of you should listen to this. It is a pretty good summary of what I am experiencing with regulators already. For example, a recent Consent Order revoking licenses, fining $50,000, and barring the Broker from the Industry for 10 years.

Why? Respa violations 101.

You need to pay attention to your compliance attorney, and you need to ask frequent questions especially where advertising is involved. 

https://thenationalrealestatepost.com/is-tougher-compliance-enforcement-coming-soon/

 

Thank you National Real Estate Post – a good topic that is timely and nuclear (if you ignore it).

Nelson A. Locke, Esq.

Compliance Services, USA

(800) 656-4584

www.lockelaw.us

 

 

 

Regulators will be requiring better responses to their audit findings.

I picked this up from the FTC who feeds FTC enforcement suggestions to the CFPB who feeds CFPB interpretation of the FTC suggestions to your state regulator. Its a daisy chain.

In an effort to curb inadequate compliance reporting, the FTC is introducing the following new model language that will be included in future FTC orders:

“Each compliance report shall contain sufficient information and documentation to enable the Commission to determine independently whether Respondents are in compliance with the Order. Conclusory statements that Respondents have complied with their obligations under the Order are insufficient. Respondents shall include in their reports, among other information or documentation that may be necessary to demonstrate compliance, a full description of the measures Respondents have implemented or plan to implement to ensure that they have complied or will comply with each paragraph of the Order; a description of all substantive contacts or negotiations for the divestitures and the identities of all parties contacted, and such supporting materials shall be retained and produced later if needed.”

The FTC explains that it intends this new language to clarify, not change, the requirements for compliance reporting. The CFPB, HUD, FNMA, USDA, FHLMC will all adopt this standard.

We will assist you when you have a finding requiring an action plan.

Thanks for reading.

Nelson A. Locke, Esq.

(800) 656-4584

FYI. Democrats introduce bill to re-instate HMDA low threshold for reporting.

Last year, Congress voted to roll back several measures passed under Dodd-Frank, a law that many in the mortgage industry said created overly burdensome regulations. This relates to HMDA.

Among the changes was a law raising the loan-quality criteria reporting requirement exemption from 25 to 500 mortgages per year and from 100 to 500 home equity loans per year.  So many of you smaller brokers and lenders were exempt.

According to the bills sponsor, Democrat Cortez Masto, the rollback effectively exempted 85% of all banks and credit unions from reporting loan characteristics vital to ensuring lending fairness.

Cortez Masto’s bill would reinstate the Dodd-Frank requirement that any bank making more than 25 mortgage loans or 100 home equity lines of credit per year report detailed characteristics, including interest rates, points and fees and loan terms, as well as borrower characteristics such as credit score and ethnicity.

The bill would also require each loan to receive a unique identifier so it can be tracked if it is sold to an investor.

Just be aware, we will keep you posted. For now, your triggers are still 25 and 100.

Email if any questions.

 

Nelson A. Locke, Esq

Compliance Services, USA

(800) 656-4584

AML And BSA Annual Risk Assessment Compliance

NEXT SESSION SET UP FOR FEBRUARY 11TH AT 3:30 EASTERN. SPACES AVAILABLE. EMAIL US AT NL@LOCKELAW.US FOR RESERVATION. COST IS $250. MANAGEMENT ONLY, NO MLO STAFF.

Here we are in late November, and there are some of you out there who need to have an independent party perform a Risk Assessment to satisfy state regulators regarding your compliance with Money Laundering Law and the Bank Secrecy Act.

We can do this for you, it will take about an hour and involves a small fee. The session will result in a complete Risk Assessment Report that will satisfy any requests for at least the next six months. This is an emerging trend. 

If you are a small Broker shop, don’t be concerned. However, if you have multiple state licenses or more than 10 MLO staff, you may want to consider this extra step to stay in the safe zone.

If you would like to schedule this, shoot me an email at nl@lockelaw.us  and let us know.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

View original post

California has another new rule.

December 27th, 2018

All Department of Business Oversight (DBO) licensees are required by law to establish and maintain an email address for receiving communications and documents from the DBO beginning January 1, 2019.

The email address:
1. Must not be an email of any individual employee.
2. Must be able to receive attachments.

To register a designated email address, licensees must go to DBO’s website here. Instructions to create a designated email are available here.

Licensees are required by law to notify the DBO before changing the designated email and provide the DBO with the new designated email.

If licensees fail to comply with the designated email requirements, the licensee may be subject to a fine of up to fifty dollars ($50) per day, not to exceed one thousand dollars ($1,000) in the aggregate.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

AML And BSA Annual Risk Assessment Compliance

Here we are in late November, and there are some of you out there who need to have an independent party perform a Risk Assessment to satisfy state regulators regarding your compliance with Money Laundering Law and the Bank Secrecy Act.

We can do this for you, it will take about an hour and involves a small fee. $250 for survey and interview. The session will result in a complete Risk Assessment Report that will satisfy any requests for at least the next six months. This is an emerging trend. 

If you would like to schedule this, shoot me an email at nl@lockelaw.us  and let us know.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

Have you completed your 2018 your continuing education yet? You are running out of time.

We recommend Jim Montrym and Andrea Worthington of the Mortgage Broker School.

You can reach them at (800) 735-8565, or use their web site which is :

http://www.brokerschool.com/ :category/industry-partners-processing-compliance/ 

I have used their services personally for the last 15 years. Always good, never bad. Don’t wait until the last minute, space is limited.

If you use them for your CE please tell us because it could be a helpful bit of information in the event you are audited.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

States where current Audit Activity is high.

 

Hello folks, here comes December!

Is your required annual training for AML and GLB done and certified? If not, give us a call.

In the past six weeks we have assisted in responding to at least 15 state or CFPB Audits.

We have successfully negotiated the lifting of three suspensions and successfully negotiated reduced fines for violations an average of 50%.

 

If you need that kind of Compliance Expertise in your corner,

email us at nl@lockelaw.us

Current Active Audit States

• Florida

• Texas

• Washington

• Oregon

• North Carolina

• Michigan

• Virginia

• New York

For more information, contact us at (800) 656-4584.

Nelson A. Locke, Esq

Compliance Services, USA

 

AML And BSA Annual Risk Assessment Compliance

Here we are in late November, and there are some of you out there who need to have an independent party perform a Risk Assessment to satisfy state regulators regarding your compliance with Money Laundering Law and the Bank Secrecy Act.

We can do this for you, it will take about an hour and involves a small fee. The session will result in a complete Risk Assessment Report that will satisfy any requests for at least the next six months. This is an emerging trend. 

If you are a small Broker shop, don’t be concerned. However, if you have multiple state licenses or more than 10 MLO staff, you may want to consider this extra step to stay in the safe zone.

If you would like to schedule this, shoot me an email at nl@lockelaw.us  and let us know.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

Sexual Harassment Training Requirement

 

October 4th, 2018

If you are a Broker or Lender operating in the New York State – NY  passed a sweeping new law requiring you to provide annual training on Sexual Harassment Prevention. The training must be interactive, must allow your employees a chance to offer feedback, and must be completed for all staff by October 9th.

We prepared a Training Package for you. If you are a New York client email us at nl@lockelaw.us and we will get it out to you. If you are not a New York client, the program was written to be usable in any state. If you would like it please let us know.

Thanks in advance.

Nelson A. Locke, Esq.

Compliance Services USA (800) 656-4584

 

 

What to do if a Lender asks you to repay commissions………..

This is a disturbing practice that is surfacing more and more.

You work hard for your borrower and help them obtain the mortgage loan they need. It is either a purchase or a refinance, and the borrower never says anything to you about intending to pay off their loan within a year. You probably signed your broker-lender agreement without asking us to review it for trap doors like this so………the contract has a clause in it allowing your lender to claw back your hard-earned fees no matter where they came from (borrower OR lender paid) and no matter why the client paid off early.

Constructively, this is a broker prepayment penalty. The regulations never considered this. The regulations protect the consumer, and then the lender shifts the penalty to you.  You probably did not know this penalty was in your contract because it likely was not explained to you when you signed your contract. Did they ask you to initial each page?

When you work hard to originate a mortgage loan you deliver something of value. You deserve to be compensated. If your borrower decides without any warning to prepay the loan, they got the benefit of your hard work for what amounts to nothing. Work without pay is called unjust enrichment. Under quasi-contract the borrower owes you for the claw back the lender assessed you with. You earned your fee.

What can you do? I don’t see a problem with a broker-borrower contractual agreement that requires the borrower to indemnify you in the event the borrower decides to pay off early. It is an advanced informed agreement. If you are our client we can provide this to you at no cost. If you are not our client but would like to learn more, contact us at (800) 656-4584. Or email us at nl@lockelaw.us 

This is just one example of the pro-broker things we do to help our clients make and retain their earnings.

That’s all for now.

Nelson A. Locke, Esq.

Compliance Services USA

http://www.expertlenderservices.com

 

Florida OFR Audit Alert

August 12th, 2018

This is a special alert for my clients.

In the last ten days five clients have received audit letters from the OFR. All five clients had NOT been audited in 8 to 10 years. One had not been audited in 20 years.

It appears to me as if the OFR is on a “catch up” campaign. This means we know of three confirmed danger areas for an OFR audit.

1. If you are a new company with a new NMLS number, you will be audited in the first 18-24 months. Perhaps, sooner. 

2. If it has been at least 7 years since your last audit, get ready. Use the checklist in Compliance Book Three to see how prepared you feel. Then let me know.

3. If you have had a consumer complaint that you failed to respond to, you can expect a visit. 

But the big shocker is you old timers. Many of you may have been feeling complacent. That is not good.

Let’s pull out the checklist and be sure you feel aware and prepared. 

We are now offering a two session “MOCK AUDIT” for companies who want to go the extra mile to be sure they are prepared. If you have interest, email me and let me know so we can get you scheduled.

There is a cost of $1,000 for this service. It will save you many times that much in potential fines. We have proof. 

That’s it for now.

Nelson A. Locke, Esq

Compliance Services USA

(800) 656-4584

ZILLOW Co-Marketing Program Survives

CFPB ends investigation of Zillow
By Richard J. Andreano, Jr. on June 28, 2018
Posted in CFPB Enforcement, CFPB Monitor, Mortgages
In a SEC filing dated June 22, 2018, Zillow Group announced that it is no longer under investigation by the CFPB for RESPA and UDAAP compliance with regard to its co-marketing program. Zillow Group had disclosed the existence of the investigation in May 2017.
According to the SEC filing, Zillow Group received a letter from the CFPB on June 22 stating that the CFPB “had completed its investigation, that it did not intend to take enforcement action, and that the Company was relieved from the document-retention obligations required by the Bureau’s investigation.”
The completion of the investigation leaves unanswered what concerns the CFPB may have had with Zillow Group’s co-marketing program, and whether the investigation was terminated because the concerns were addressed to the CFPB’s satisfaction or for other factors.

BE CAREFUL. JUST BECAUSE THE CFPB RELEASED ITS HOLD ON ZILLOW, IS NOT A TICKET FOR YOU TO INTO THE “GREY AREA”.

IF YOU ENTER INTO ANY KIND OF MSA, IT WOULD BE WISE TO ASK OUR ADVICE FIRST.

NELSON A. LOCKE, Esq,

(800) 656-4584

Dodd Frank Reform Act

Highlights, and Low Lights.

From live webinar June 26th, 2018.

Nelson A. Locke, Esq.

(800) 656-4584

 

 

DODD FRANK REFORM BILL WEBINAR

Hi there.

The title says it all.

I will review the Dodd Frank Reform Bill as it affects Mortgage Brokers and Correspondent Lenders.

The webinar is free to subscribers, and will start promptly at 3:30 eastern time on Tuesday, June 26th.

To attend, go to https://global.gotomeeting.com/join/223553717

You can also dial in using your phone.
United States: +1 (646) 749-3122
Access Code: 223-553-717

I might have some attachments for you if time allows, but in any case we can have a good discussion about how the DF Reforms might (or might not) affect you and your business.

See you there.

 

Nelson A. Locke, Esq

Compliance Services USA

(800) 656-4584

http://www.expertlenderservices.com

 

 

 

Check your “Facebook” profiles today.

I was reviewing a client’s social media, to insure compliance with the Safe Act and Dodd Frank.

On his Facebook profile a new little link had appeared. It said “Mortgage Brokers”. He did not authorize this. And when we clicked on it, it contained a list of all his competitors.

OUCH.

Contact Facebook and demand that the link be removed. Keep a copy of your email to them and file it in your CFPB Advertising Log Book.

It really pays to check your social media every few weeks.

Sincerely,

Nelson A. Locke, Esq.

(800-656-4584

 

 

 

 

DODD FRANK REFORM BILL WEBINAR

Hi there.

The title says it all.

I will review the Dodd Frank Reform Bill as it affects Mortgage Brokers and Correspondent Lenders.

The webinar is free to subscribers, and will start promptly at 3:30 eastern time on Tuesday, June 26th.

To attend, go to https://global.gotomeeting.com/join/223553717

You can also dial in using your phone.
United States: +1 (646) 749-3122
Access Code: 223-553-717

I might have some attachments for you if time allows, but in any case we can have a good discussion about how the DF Reforms might (or might not) affect you and your business.

See you there.

 

Nelson A. Locke, Esq

Compliance Services USA

(800) 656-4584

http://www.expertlenderservices.com

 

 

 

Rule Change regarding use of a CD to reset tolerances.

Under the TRID rule, a Loan Estimate is the disclosure primarily used to reset tolerances. Because the final revised Loan Estimate must be received by the consumer no later than four business days before consummation, the Commentary to the TRID rule includes a provision under which a creditor may use a Closing Disclosure to reset tolerances if “there are less than four business days between the time” a revised Loan Estimate would need to be provided and consummation. Because of the four-business-day timing element, in various cases when a creditor learns of a change, the creditor is not able to use a Closing Disclosure to reset tolerances. This situation is what the industry termed the “black hole.” The industry repeatedly asked the CFPB to address the black hole issue.

In the final rule the CFPB removes the four business day timing element, and makes clear that either an initial or a revised Closing Disclosure can be used to reset tolerances.

Consistent with the requirements for the Loan Estimate, when the TRID rule permits a creditor to use a Closing Disclosure to revise expenses, the creditor must provide the Closing Disclosure within three business days of receiving information sufficient to establish that a changed circumstance or other event triggering a change has occurred.

We are happy to answer any questions, just email us at nl@lockelaw.us

Nelson A. Locke, Esq.

Compliance Services USA 

(800) 656-4584

 

Keller Williams Matter

Folks, please advise me via email if you fit into one of these two boxes.

1. Are you an affiliated business with KW?
2. If NOT, are you being adversely affected by the current KW project regarding the “disclosure”?
3. Have you seen the “disclosure”?

My first take on the situation is of concern. Thus I need to hear from you.

Here is the link. nl@lockelaw.us

Thank you in advance.

Nelson A. Locke, Esq.

(800) 656-4584

Compliance Services USA.

Template for Occupancy Fraud Affidavit

Recently I have encountered several situations where borrowers just flat out lied about their intent to occupy the subject property as their principal residence. The brokers were caught without sufficient evidence in their files that they properly verified the intent to the best of their ability. Thus, this affidavit was born. It covers both those who state their intention as owner occupied, and those who state their intention as non-owner occupied. If you put this on your letterhead and have it executed at closing it would be hard for a fraudulent minded borrower to point the finger back at you.

If this has happened to you and you need my help, contact me at nl@lockelaw.us

That’s it for now.

Here is the form. It is designed as a crystal clear WARNING.

“Do you intend to occupy this property as your principal residence?” or “Do you intend for this property to be non-owner occupied?”

These questions, indicated by check boxes on most mortgage loan applications, might seem straightforward. But if you misrepresent your intention, it is a crime known in real estate lingo as “occupancy fraud.”

Occupancy fraud occurs when a borrower says he or she plans to live in a home, all the while knowing the property will be rented out.  The key here is to note “all the while”. People can change their minds, but they will need to show compelling evidence that at the time they applied, closed, and funded the deal they absolutely intended for the property to be either their residence or a non-owner occupied investment property. 

Sometimes people change their mind after the fact.  That’s less serious than someone intentionally deceiving the lender by providing information indicating they are either going to occupy or not when they truly have the opposite  intention.

But it still maybe seen as an unintentional misrepresentation and give rise to a claim for damages by the lender that relied on the borrower’s statement about occupancy or investment use.

Most lenders’ loan documents define owner occupancy as a period of at least one year, but mortgage lenders have flexibility in their guidelines. If you intend to occupy a home, but move out within less than 12 months, you should notify the lender in writing and keep a copy of your letter.

Lenders perceive an owner-occupied transaction to be a safer credit risk than non owner occupied.

ONE LIE on a loan application may trigger a full-blown fraud investigation, and  you’ll be facing HUGE negative consequences if you get caught. IT IS A FELONY. But it gets worse. Lying on a mortgage loan application is so serious it can also be considered Money Laundering. ANOTHER FELONY. And then, there is the usual conspiracy charge. THREE FELONIES.

Technically, the mortgage lender could call your loan due and payable, raise your interest rate and payment, or foreclose on your loan.  Whatever does or doesn’t happen will be solely at the lender’s discretion.

The lender could file a Suspicious Activity Report (SAR) into the federal government’s Financial Crimes Enforcement Network (FinCEN), a centralized database that financial institutions use to report possible instances of fraud to law enforcement authorities. SARs could become a problem if you make a misrepresentation or outright false statement on a loan application and later want to move to another home or refinance your mortgage.

Understood, this _________ day of ________, 2018;

 

____________________________________            ___________________________________

Borrower                                                         Co-Borrower

 

___________________________________

Witness

 

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

Business Purpose Loans – Update

Yesterday the Governor of Florida signed House Bill 935 and this affects Mortgage Loan Originators, especially those operating without licenses under the theory that the loans they produce are all business purpose loans.

The bill revises ch. 494, F.S., governing non-depository loan originators, mortgage brokers, and mortgage lender businesses subject to regulation by the Office of Financial Regulation to provide greater consumer protections. The bill provides that it is unlawful for any person to misrepresent a residential mortgage loan as a business purpose loan, and defines the term, “business purpose loan.” Further, the bill provides a definition of the term “hold himself or herself out to the public as being in the mortgage lending business,” as that term currently exists under two licensing exemption provisions. These current exemptions permit an individual investor to make or acquire a mortgage loan with his or her own funds, or to sell such mortgage loan, without being licensed as a mortgage lender, so long as the individual does not “hold himself or herself out to the public as being in the mortgage lending business.”
The bill was in response to alleged unlicensed mortgage lending activity in South Florida. According to these reports, some lending entities were providing residential loans with usurious interest rates and high fees made under the guise of business purpose loans in order to avoid licensure and disclosure requirements under ch. 494, F.S., as a mortgage lender.

These groups also claim that some of these unscrupulous lenders would not make the “residential loan” unless the borrower formed a limited liability company.
These provisions take effect July 1, 2019.

 

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

http://www.lockelaw.us

 

Private Lending and Licensing – Round Two.

The Florida legislature kicked off its legislative session by introducing Florida Senate Bill 894 and House Bill 935, legislation that could cover private mortgage lenders. The bills, introduced by Sen. Rene Garcia (R-Miami) and Rep. Jeanette Nunes (R-Miami), would eliminate a longstanding business purpose exemption for loans secured by a Dwelling.

 

On January 18, the bill passed the House Insurance and Banking Subcommittee with a 13-1 vote in favor. On January 24, the House Commerce Committee passed the bill on a unanimous vote. The Senate similarly passed the bill on a unanimous vote in the Senate Banking and Insurance committee on January 23. The bills are expected to move through the Florida legislature and have strong bipartisan support.

 

An almost identical bill previously passed through the legislature in May 2017, but was ultimately vetoed by Governor Scott in June. 

 

Florida has been one of the more interesting states from a mortgage licensing perspective. For example, a mortgage lender license is already necessary to make a business purpose loan secured by commercial real estate and 5-or-more unit multifamily residential property if the borrower or guarantor is an individual, or if the lender is considered a non-institutional investor.

 

If the bills become law, they would empower the state Office of Financial Regulation to regulate mortgage loans made for business purposes, require brokers of these loans to be licensed, and allow examination of firms offering or making private loans.

If this is signed into law, it means more audit activity and means that if you are a private lender making business purpose loans, you better call us and let us get you into shape before the regulators start enforcement activity. We will keep you posted. 

Nelson A. Locke, Esq.

Compliance Services USA and Locke Law US

http://www.lockelaw.us

(800) 656-4584

 

What you need to know about the Dodd-Frank rewrite that is currently underway.

Not much. The rewrite does some good things for the Banking Industry but……not too much for you and I.

The bill doesn’t go nearly as far as some Republicans would like to go in gutting the 2010 law. For example, it doesn’t make big changes to the Consumer Financial Protection Bureau. When it refers to smaller lenders, it looks like it is making reference to FDIC participants.

The CFPB has also made it clear it is engaging the state regulators more now than ever.

Don’t drop your guard or relax your focus on compliance. We have come so far. Let’s not go backwards.

Nelson A. Locke, Esq.

(800) 656-4584

http://www.expertlenderservices.com

Warning about UDAAP

Today, the CFPB again advised State Attorneys General (which means State Agencies as well) that the CFPB is monitoring how the states decide to undertake or not undertake enforcement action. Read this narrative taken from their site.

“Mr. Mulvaney stated that a significant, although not determinative, factor in the CFPB’s decision to initiate an enforcement action in a particular case will be whether state AGs or regulators are also considering whether to take enforcement action. He stated that if state AGs “are not bringing an action we are looking at, I’m going to want to know why.” More specifically, he would want to know whether the state’s reason is lack of resources or other factors unrelated to the merits of an action or whether it is that the state AG or regulator thinks the conduct in question is not illegal.”

In addition to various federal consumer protection statutes that give direct enforcement authority to state AGs or regulators, Section 1042 of the Consumer Financial Protection Act authorizes state AGs and regulators to bring civil actions to enforce the provisions of the CFPA, most notably its prohibition of unfair, deceptive or abusive acts or practices.

That’s the part that deserves your attention. The UDAAP provisions are broad by design and can be used to commence enforcement action for almost any reason.

Deceptive Acts or Practices
A representation, omission, actor practice is deceptive when
(1) The representation, omission, act, or practice misleads or is likely to mislead the consumer;
(2) The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and
(3) The misleading representation, omission, act, or practice is material.

And some real or imagined consumer harm occurs as the result of the deceptive act or practice.

If a regulator sees or hears something that triggers their radar, they will examine your website and social media. Then your customer complaint log. Then the complete nature of your record keeping. Then they will interview you and measure your response.

Just be aware, folks – knowledge and training can reduce this risk greatly.

Nelson A. Locke, Esq. (800) 656-4584

 

 

 

Rapid Rescores and Extra Cost

This morning we spent about an hour investigating an article recently published discussing rapid rescore where the consumer is disputing accuracy, and the issue of passing the fee along to the client. 

There has been much discussion on this issue. Some feel that if the initial Loan estimate included an amount in anticipation of a rapid rescore, it might be acceptable to pass the cost on to the consumer. Others feel that 15 USC 1681i(a)(1)(A) is to be interpreted exactly as written which says clearly “free of charge” and then does not recite an exception. So it means – “free of charge” to the consumer. That leaves the credit bureau and your CRA open to charge your mortgage company. It can’t go to the consumer. Here is the exact language. Which seems to apply specifically to where a consumer is disputing accuracy.

§1681i. Procedure in case of disputed accuracy
(a) Reinvestigations of disputed information
(1) Reinvestigation required
(A) In general
Subject to subsection (f), if the completeness or accuracy of any item of information contained in a consumer’s file at a consumer reporting agency is disputed by the consumer and the consumer notifies the agency directly, or indirectly through a reseller, of such dispute, the agency shall, free of charge, conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate and record the current status of the disputed information, or delete the item from the file in accordance with paragraph (5), before the end of the 30-day period beginning on the date on which the agency receives the notice of the dispute from the consumer or reseller.

So here is your best business practice. You cannot charge the consumer for rapid rescore and must absorb the cost yourself. Also, because of the CFPB comp rules we don’t see how you can ding the MLO for this cost.

The current regulatory trend is not to add new regulations. Thus existing regulations  like the FCRA are being enforced more regularly.  If your practice was to charge the consumer for a rapid rescore involving disputed accuracy by the consumer, and even if you brokered the loan and the lender allowed the fee on the Closing Disclosure – you could have problems during an audit or if a consumer complains. Govern yourself accordingly.

Nelson A. Locke, Esq.

Compliance Services USA

http://www.expertlenderservices.com

(800) 656-4584

 

 

 

Updated HMDA Guidance

The FFIEC, the Agency primarily responsible for informing us about the new changes to Regulation C – the “Home Mortgage Disclosure Act of 1975”, has issued a new manual to assist us in understanding what our reporting responsibilities are.

Unfortunately, this simple bit of guidance is over 300 pages long. You can save a copy by clicking on this link – 2018guide.

I am curious, would you all like me to set up a webinar to discuss this in more detail? If so, please reply here. There might be a small fee, depends on the number of responses.

DELETE MY NAME AND EMAIL ADDRESS BELOW AND INSERT YOUR OWN. THEN PRESS SUBMIT.

 

Name(required)

Email(required)

Website

HMDA WEBINAR - YES(required)

Submit

Δ

Good luck with the reading assignment.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

http://www.lockelaw.us

 

Confidentiality – a word of advice to you owners, officers, and directors.

When you communicate with your entity’s attorney, if the communication has to do with legal action or regulator issues – do all you can to protect the confidentiality of the conversation the two of you are having.

If you “cc” an MLO, a processor, or for that matter any other third party other than an attorney, you may unwittingly place confidentiality at risk. You may find that emails which you intended to be private – become the subject of discovery.

All too often I see compromising situations where in the event of litigation or regulator action – your attorney client privilege might be vulnerable.

That’s it for now.

Compliance Services USA

http://www.expertlenderservices.com

(800) 656-4584

 

Audit Notices are FLYING OUT

Yes it is true. Here we are about 10 days into the new year. As of yesterday, six clients in Florida, Texas, and North Carolina had received audit notices. That’s about 3% of our client base meaning that we could see a very high audit rate this year – perhaps as high as 30%. The agencies are getting really aggressive.

All of the audit notices were accompanied with a checklist that incorporated the items on our CFPB Audit Preparation Checklist which is page four of compliance book three. If you don’t know what that is, email us at nl@lockelaw.us we will send you a copy. We have been telling you since 2015 that the audit notice process is standardizing, so it is easier for you to be able to know in advance what a regulator is looking for.

The CFPB Audit Checklist is the best roadmap you could have. Have you ever read it? Book Three page four. Or email us.

Here’s to a Happy New Year! Thanks for engaging us as your Compliance Expert.

 

Nelson A. Locke, Esq

Jon Gordon, Director

Compliance Services, USA

(800) 656-4584

 

 

AML GLB Client Site

Anti Money Laundering OFAC FinCen ITPP Presentation

Financial Services Modernization Act of 1999

Don’t be foolish about the status of the CFPB.

Hi folks.

There are a couple of eccentric mortgage folks out there who publish video blogs that announced today (with great glee) that RESPA is dead. Looked like a comedy skit.

Please do not believe this sensationalism. What is going on right now at the CFPB is a leadership issue, and I think it is resolving itself in the favor of the White House. That means we will likely see a more conservative approach to adding new and aggressive tactics to the present CFPB platform. It does NOT mean the CFPB is without teeth. It does NOT mean everything the CFPB has put in place is going to be dismantled. It does NOT mean RESPA is “dead”.

Do NOT make that mistake.

Video blogs that celebrate the end of regulation are irresponsible and demonstrate why we found ourselves in this regulation situation  in the first place.

If you have questions, just email me. And please folks, stay classy.

 

“She rated us a 2. Said 1 is the highest.”

We just got this from one of our clients. Our clients can go home early and celebrate! The regulators appreciated the robust nature of our client’s concern for doing things right and protecting the consumer in the process.

Thank you to our client – you know who you are. You guys are the greatest!

If the rest of you are nervous I only have two things to say.

1. If you are our client and have been doing as we ask, these are the types of results you will see. So you need not be fearful. Especially if we are doing your post closing QC as part of the package.
2. If you are not our client, you probably need to be fearful. Call us at (800) 656-4584 and let’s see what we can do to get you into that safe place.
3. Finally, audits are in fact increasing.

Nelson A. Locke, Esq

Compliance Services, LLC.

 

 

WARNING – Audit Activity Increasing

Florida, Texas, and Washington are all showing an increased level of mortgage broker and lender audit activity.

The recurring themes are:

1. Advertising issues
2. MCR issues
3. Unlicensed Originators

Most of the business being tagged are in their first two or three years of existence.

Some are older, established businesses.

You need to be aware.

If you have received one of these audit letters, please contact us for assistance.

Respectfully,

 

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

 

CFPB revises HMDA changes on October 17th…………

Things have changed again with HMDA, good for brokers and smaller lenders.

On Oct. 16, 2017, the CFPB published a new chart, the Reportable HMDA Data: A regulatory and reporting overview reference chart  (“Reporting Reference Chart”). The changes relate to raising the reporting threshold volume numbers on open ended credit to where most brokers and small lenders may find themselves exempt.

HMDA 010118 Flow Chart

I need to clarify a HMDA comment I made in an earlier blog. A broker does not have to report to HMDA a credit decision made regarding a pre-qual. But the broker does have to comply with ECOA and send the consumer an adverse action notice. Some pre-quals never get to a lender – thus the duty falls on the broker who decides not to pursue the loan. “Six items or not.” You can never go wrong sending an Adverse Action Notice. Its a best business practice.

Let us hear from you.

Nelson A. Locke, Esq.

Compliance Services USA

http://www.expertlenderservices.com

(800) 656-4584

 

 

What is the Uniform Closing Dataset and do I have to file this effective September 25th, 2017?

https://www.fanniemae.com/singlefamily/uniform-closing-dataset

The Uniform Closing Dataset Protocol (UCD) is a component of the Uniform Mortgage Data Program® (UMDP®), an ongoing effort by Fannie Mae and Freddie Mac at the direction of our regulator, the Federal Housing Finance Agency, to provide a common industry dataset to support the Consumer Financial Protection Bureau’s (CFPB) Closing Disclosure.

You as the Broker may be required to file this information. Some Lenders are asking for evidence you filed it as a pre-closing condition while others are doing it for you. You need to be aware of what it is and how to do it, in case you become responsible for the actual submission.

I suggest you contact the lenders that you broker Fannie and Freddie loans with and see what they choose to do. Further, this may affect VA and USDA. I’m not clear on that yet.

Here is a Industry Cheat Sheet for your use. This may help you. https://www.fanniemae.com/content/fact_sheet/ucd-fact-sheet.pdf

As always, contact us via email with any questions, but not until AFTER you have read these links please. The answer may be there.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

 

 

 

 

To advise your clients of the recent Equifax NPI mega-breach……

Here is a letter format you can use as either an email or a printed letter. It might be a good idea to include a copy of this with new loan applications for the next 180 days or so. It might even be a good idea to link your website to the below press release, you could do this on your IMPORTANT DISCLOSURE page.

EQUIFAX CYBERSECURITY INCIDENT

Dear Client,

Equifax announced recently that they had experienced a “cybersecurity incident potentially impacting approximately 143 million US customers.” Because your recent mortgage transaction with us may have involved a credit pull from Equifax, we felt you should read the attached Equifax press release.

https://investor.equifax.com/news-and-events/news/2017/09-07-2017-213000628

Equifax states it has established a dedicated website which can be accessed at this link www.equifaxsecurity2017.com to help consumers determine if their information has been potentially impacted and to sign up for credit file monitoring and identity theft protection.

Sincerely,

Your Name, NMLS Number, Address, and Phone.

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

Thanks for reading.

Nelson A. Locke, Esq.

http://www.expertlenderservices.com

 

 

Quit guessing when you make a job offer or hire a new MLO.

nl@lockelaw.us

Hi folks,

I get a lot of requests from clients who are hiring new MLO or other staff and are unsure of what they need to do to have a good solid hiring package.

So I created one for you. It is about 50 pages long and includes everything from an offer letter all the way to a copy of the generic HR manual. All you should do is pick the pages you need and put them to use.

If you would like this,please click below and send a request. It is FREE to current clients and $250 to non-clients.

Our Compliance Program includes all your Manuals, Annual Training, electronic media audits, Safe Act and DF Certification, and our exclusive Audit Protection Plan. Our annual fee works out to about 150 bucks a month. All inclusive. We accept credit cards. When the regulator sends the audit letter – you are NOT alone.

To send a contact request for this package, click here. nl@lockelaw.us

If you received a file named MLO Hiring Package already, it had two missing pages. I have already re-sent MLO Hiring Packaged FIXED to you. If you have the old one, just destroy it.

CLICK HERE to view our Web Site.

Compliance Services USA
(800) 656-4584

Discussion of the October 2017 RESPA TILA changes …….

Comments on changes to the 2017 RESPA TILA Rule HERE. 201707_cfpb_Executive-summary-of-2017-TILA-RESPA-rule1

This is a poorly named Rule Change. Compliance is optional from October 2017 to October 2018. Compliance will become mandatory for applications received on or after October 1st 2018. Many are under the impression these changes must be implemented this October. Not so. You can implement changes according to any plan you create before October 2018, but you must have all changes in place October 2018.

Here are the key points and please remember, these are mandatory in October 2018.
1. Choice to use a CD versus an LE when checking tolerances and good faith. This is the creditors choice, not the broker.
2. Servicers will be required to provide consumer disclosures regarding partial payment policy and notice of the closing of an escrow account that was subject to RESPA.
3. You must treat cooperatives as if they were real property and provide the required RESPA TILA disclosures, regardless of how your state classifies cooperatives. Some presently call them personal property and claim they are exempt from these disclosures.
4. Now, Loans to Trusts are subject to all disclosures. Trusts will be treated as if the credit extended to natural (not artificial) persons. This is curious and should be sending a message to those of you who bundle 1 to 4 family units into new LLCs and claim exemption from RESPA-TILA. Small commercial is on the radar for RESPA TILA.
5. There are clarifications regarding construction loans. If there are going to be two phases, you must provide two GFE within three days of receiving the application for the particular phase. If only one transaction, then only one disclosure. There are many clarifications regarding how to allocate costs – see page 5 of the report attached above.
6. Simultaneous closings of a purchase money first and second – allows you to disclose the loans combined. I always recommended this. The law says your client has to understand the big picture. Have you ever seen a client try to add together two sets of GFE or LE or CD?
7. Tolerances now say if overstated, still ok. If understated more than $100, not OK.
8. If you fail to allow a consumer to shop for settlement services, there is ZERO tolerance.
9. Loan Estimate guidance is on pages 7 and 8.
10. Written list of Providers – see page 10 bottom. If you don’t use the special layout for the disclosure, you might lose the safe harbor.
11. SHARING DISCLOSURES – you can do it. Just be sure to correct so that what you send to the seller, for example, is what applies to the seller and NOT the buyer. And vice versa. You can leave the information you want to protect – off the form by providing it as blanks.

Respectfully,

Nelson A. Locke, Esq.
Mortgage Industry Compliance Expert
Attorney and Expert Witness
7800 Preston Road – Suite 118
Plano, TX 75024
Office (800) 656-4584
Cell (305) 951-2785
http://www.lockelaw.us
http://expertlenderservices.com

HMDA, ECOA, Adverse Action Notices, and Broker Shops.

Hi Folks, the two subjects captioned above have been driving us nuts so we dug deeper to determine what the best advice might be. Many of our clients, especially the Brokers, feel they are exempt from both subjects. Turns out, maybe not. If I do the “lawyer thing” and sound a bit vague it’s because it is hard to interpret these masterfully written regulations. We do our best to understand them for you. We look to see where the evidence tips the scale before deciding which approach to recommend. We always take the approach that should keep you out of trouble. Sometime that means more work for you. But it’s far better than an “administrative action” for failure to comply.

Plus, it might make you a better lender or broker because you will have more of your OWN data to evaluate for opportunities or trends.

First, let’s look at HMDA…

View original post 219 more words

2018 HMDA Reporting and Accuracy Testing by the Regulators

The CFPB has released information about accuracy requirements for HMDA reporting starting in 2018.

There is controversy as to whether Brokers must file. See my earlier post regarding the language of the regulation. More than likely, you will have to report.

Under the new guidelines, there are revised thresholds for requiring resubmission, and for assessing if a full review of the sample will be performed based on errors in the initial smaller set of loans.  Assessment of the data will be conducted on an individual data field basis.  The new testing sample sizes and thresholds are available at this blog from Ballard Spahr

The “LAR” is the HMDA Loan Application Register. This is where you will enter your HMDA data. For institutions with fewer than 30 LAR entries, the resubmission threshold is still 3, so the effective resubmission threshold percentage is higher than 10%.  As is the case currently, even if the thresholds are not met an institution can be required to correct one or more data fields and resubmit one or more data fields in its HMDA LAR if examiners have a reasonable basis to believe that errors in the field or fields will likely make analysis of the HMDA data unreliable.

The HMDA LAR and your MCR will eventually be compared for consistency. I have suggested to some clients, that keeping two logs might be a good idea. One for QM/TRID/RESPA residential loans, and one for pure commercial transactions. It may make the job easier for you down the road.

Any Questions? You can reach us at (800) 656-4584. Thanks.

List of top five violations that result in fines, suspensions, or revocations.

Paying unlicensed mortgage loan originators or their proxies

1. Assistants who are acting as licensed MLOs.
2. Licensed MLOs you sponsor who have you pay their personal, unlicensed LLC or corp.
3. Licensed MLOs you sponsor who have you pay a third party entity in their name.
4. Lead Generators who are unlicensed but gather the type of information necessary to originate a loan – beyond mere contact information or public records.
5. Both the Broker and the MLO are not licensed because they think that as commercial lenders, they are exempt. The problem is the loans they call commercial, are NOT.

Advertising Issues

1. Ignoring SAFE ACT requirements for proper use of NMLS information.
2. Ignoring HUD, VA, and USDA  requirements for government disclaimers.
3. No formal Advertising Book with a log and copies of all advertising
4. The Broker or Lender thinks his business cards and web sites are not advertising so he never audits them for compliance.
5. Not supervising your MLOs. You have rogue MLO with their own web sites and social media. You sponsor him, and you are responsible for everything he does. He can cost you your license. You think its not your duty, and it is.
6. Making NMLS information too hard for a consumer to locate. For example, burying it in the footer, or using 6 point type.
7. CFPB requirement for the use of the word LOAN after the words REVERSE MORTGAGE (UDAAP).

Mortgage Call Reports that are inaccurate.

1. The MCA does not match the Broker’s Loan Journal.
2. The MCA is late or incomplete.

Lack of Evidence of continuity in your Compliance Efforts

1. Failure to update.
2. Failure to miss required annual training.
3. Loan File Audits revealing substantial number of missing documents – no evidence of a complete file.

Making loans on 1-4 family residences without proper disclosures.

1. The loan is masquerading as a commercial loan. The “LLC” scam.
2. The package is missing minimal GFE and Closing Statement Requirements.
3. The Broker fails to do any type of qualifying.

A SPECIAL NOTE about Advertising and Maintenance of Advertising Records: We continue to see small brokers and lenders making mistakes resulting in large fines, suspensions, or revocation. If this happens to you, it can be outside of a regular audit. The different agencies, both state and federal, have staff assigned to watch what happens in print and electronic media form.

You could run an ad, post a flyer, set up a Facebook page, add your name to Linked In ……….. and if you failed to follow DF or the Safe Act requirements, BOOM.

So the first thing I wanted to say is our staff is trained to review client advertising in all forms before it goes live. Just send it via email and wait for our response.

The second thing is to insure you have a proper Advertising Log Book with samples and a dated log.  Do you?

All of this is part of our Compliance Program. It is built into our fee so you are encouraged to take advantage of us.

Any Questions? Call us at (800) 656-4584.

Nelson A. Locke, Esq.

Compliance Services USA

http://www.expertlenderservices.com

 

 

 

Electronic File Storage – things to consider.

I got a call today from a great client of mine who asked about the things to think about when moving to electronic file storage.

Electronic file storage trips about four switches in my mind. I thought this was a really good question, so here is what I recommend.

 

1. Be aware that anytime you convert to file storage that is “off site”, most state regulators require you to advise them in writing of where you are sending the files, and what security precautions you are taking to insure we don’t expose our clients to identity theft or other financial crimes. This means write your regulator BEFORE you move to the cloud. Give them the internet service provider you are using and what security practices the provider has in place, such as firewalls, secure transmission protocols; etc. Then if you are a client of ours, file that letter in Book One behind your records retention policy. Easy to find when the regulator comes knocking.
2. Unless you own the cloud, have your cloud provider return an NDA and Confidentiality Agreement to your company per the guidelines of Gramm Leach Bliley.  You can find a blank NDA in Book One. Keep it in your cloud provider records folder to show you took your records “safeguarding” seriously.
3. If you use a service that offers to pick up your files, scan for you, and then shred, I have two thoughts.  FIRST – Have the file split into two sections, Section A for internal processing notes and comments that might be irrelevant (or harmful) to an audit – and Section B for the actual loan documents stacked top down from closing all the way to inception. SECOND – Have the service provide you with a certificate of safe handling when you allow them to shred your files after they scan them.

Helpful? Give us a call about anything regulatory. We always have time for new clients. Tons of references. Hope to hear from you soon.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

http:/www.expertlenderservices.com

 

 

I’m not changing my mind on this one. An NMLS sponsored MLO is an employee. Period.

This just keeps showing up on audits – merits a second read.

October 18^th, 2016

The debate rages on. Unfortunately, most of those who have challenged our position that an MLO must be a W-2 – are either asking the wrong people for advice, or are not asking the question in an open and honest way.

If you have found an attorney who is telling you your 1099 practice is just fine, ask him for his written legal opinion. You will need that to show to the regulator that makes this an issue. While it won’t guarantee you won’t have a finding or fine, it is a defense of sort. Except I warned you, didn’t I. And the attorney won’t pay your fine for you.

The only reasonable conclusion is that a sponsored MLO is an employee.

We include the attachment titled 22-mlo-w2-discussion-021015 to our clients at the front of our MLO Policy Manual – Book Two. You should read this first. Let’s set…

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Read about these changes to the Social Security Death Index.

“The Social Security Death Index is the commercial name for what the government refers to as the Death Master File (DMF). The Death Master File is available to the public; however obtaining full access is difficult. On December 26, 2013 President Obama signed the Bipartisan Budget Act of 2013 which among other things limited access to the Death Master File in order to curb identity theft. In order to access the DMF one must now be certified by the Secretary of Commerce to have a “legitimate fraud prevention interest or a legitimate business purpose pursuant to law, rule, regulation or fiduciary duty.”

In addition to being certified, there is a substantial fee. At the time of writing this, a yearly subscription costs nearly $1,400.00 per year.

Banks, financial institutions, investigators, people finding services and genealogy searching sites are among those who are certified to access the DMF. Some of these sites make the information available to the public in the form of Social Security Death Index search tools (these search tools are required by law to pay for updates to the DMF in order to keep their records up-to-date).

The Social Security Death Index contains nearly 90 million records. There are records for people born as early as the 1800’s however there are very few. These death records were originally stored in paper form in filing cabinets in Social Security Administration buildings across the county. In the late 20th century, Optical Character Recognition (OCR) software was used to digitize the records.

Because of the difficulty of keeping physical records and the tediousness of digitizing them, there are numerous errors throughout the data set – omissions, misspellings, missing data, different date formats, and typos are common. Bigger mistakes such as mixing up first and last name are not unheard of. If a name or Social Security Number is not found in the database it does not mean the person is still alive. Corrections can be made to the Social Security Death Index by submitting corrections to your local Social Security Office.” 

I read the highlights of the bill and confirmed that the government did indeed institute this “fee based access”. 

https://en.wikipedia.org/wiki/Bipartisan_Budget_Act_of_2013 

Thus we are taking the death list out of future manuals. If you choose to  pay for the service or use a free service if you can find one, that is fine.

Nelson A. Locke

Compliance Services, USA

(800) 656-4584

http://www.expertlenderservices.com

The CHOICE Act – affects CFPB structure and rule making. NOT the need for strong compliance.

By a vote of 233-188, the House of Representatives passed H.R. 10, the Financial CHOICE Act yesterday.  The bill, often referred to as the Dodd-Frank Act replacement bill, includes an overhaul of the CFPB’s structure and authority and makes significant changes to the rulemaking process followed by the CFPB and federal banking agencies.

As passed by the full House, the bill includes several amendments to the version of the bill passed by the House Financial Services Committee on May 4.  One such amendment is the amendment introduced by House Financial Services Committee Chairman, Jeb Hensarling, to strike the provision which purported to repeal the Durbin Amendment.  Based on reports we have seen, it does not appear any of the amendments impact the bill’s provisions dealing with the CFPB.

The bill’s fate in the Senate is very uncertain, with most pundits predicting it will not pass the Senate in its current form.

Scary Reading for Compliance Officers

Folks,

Please take a few minutes and read the article quoted below.

This article uses MoneyGram as an example, but there is a message in here that all of you should heed. Until the time that the President has acted on abuse of power at federal agencies, we are all at risk to some level.

If you document efforts to do your job, and you actually seek out advice and try to the level of best efforts to follow the advice, you can defend yourself. But remember, the buck will stop somewhere.

Here is the article, a compliance recruiting company put this information into the public domain with what I see as their intent to educate and inform. I did not write this but it sure makes sense to me. They did a good job. Nothing more to say.

++++++++++++++++++++++++++++++++++++++++++++++++++++

“When the US government wanted to punish someone at MoneyGram for the company’s role in a $100m wire fraud, law enforcement did not go after the chief executive.

Instead, Preet Bharara, then the top US prosecutor in Manhattan, (who the President just fired) filed a civil lawsuit against Thomas Haider, MoneyGram’s chief compliance officer, seeking to collect a $1m Treasury Department penalty and to ban him from the industry. The 2014 litigation, which was settled earlier this month, was the US government’s first courtroom bid to hold a compliance officer personally responsible for not preventing financial wrongdoing. “Compliance officers find this case very troubling,” said Todd Cipperman, an industry consultant in Wayne, Pennsylvania. “To hold him accountable and not hold other senior executives accountable seems strange and unfair.” Compliance officers — among the corporate world’s least glamorous players — fear they are being sacrificed to the government’s desire to punish individuals for financial industry misdeeds. Earlier this month, Mr Haider agreed to pay a reduced fine of $250,000 — roughly equal to such executives’ typical annual salary — and to accept a three-year employment ban. His case comes as other regulators target the professionals who are responsible for ensuring that their employers remain on the right side of legal and regulatory lines. The UK securities watchdog handed out its first fine to a compliance officer in 2008 and British enforcers stepped up activities in this area in 2015. The Financial Conduct Authority and its predecessor have brought a series of cases where the officer either failed to make sure his or her company was complying with regulations or failed to adequately detect or question potential market abuse. Among them was a high profile £130,000 fine of the former compliance officer of Greenlight Capital, a US hedge fund.

In the US, Finra, the industry regulator in 2014 fined Brown Brothers Harriman’s chief compliance officer $25,000 and suspended him for one month for compliance failures. The Securities and Exchange Commission, which also has acted in several cases, says it will not pursue compliance professionals unless they are involved in wrongdoing, mislead investigators, or are negligent. This has failed to calm industry nerves. “These compliance officers are doing the best they can,” said Jonathan Lopez of Orrick, Herrington & Sutcliffe and a former federal prosecutor in money laundering cases. “It’s a pretty harrowing field to be operating in.” Still, even some who are skeptical of the government’s crackdown say Mr Haider’s failures were notable. His punishment grew out of an investigation by the Treasury Department’s Financial Crimes Enforcement Network, which concluded that MoneyGram had turned a blind eye to consumer fraud on its network of money-moving outlets. For five years beginning in 2004, scam artists defrauded “tens of thousands” of often-elderly customers by posing as relatives in need of emergency aid or by promising large lottery prizes or attractive job offers in return for cash wired via MoneyGram, according to the US Department of Justice. The fraudsters’ co-conspirators included an expatriate Nigerian tribal chief, who owned several MoneyGram outlets. The company signed a deferred prosecution agreement with the DoJ in 2012, conceding that it had criminally aided and abetted wire fraud and failed to maintain an effective anti-money laundering program as required by the Bank Secrecy Act. MoneyGram agreed to the appointment of a court-ordered monitor and surrendered $100m to repay its victims.

The DoJ said the company was guilty of a “systematic, pervasive and wilful failure” to meet its anti-money laundering obligations. Even as annual fraud reports ballooned to 19,614 in 2008 from 1,575 in 2004, MoneyGram failed to close suspect outlets, federal prosecutors said. As compliance chief, Mr Haider was directly responsible for managing MoneyGram’s anti-fraud programs. But on his watch, MoneyGram admitted filing erroneous “suspicious activity reports” with the Treasury Department that identified fraud victims as the fraudster, according to court documents. Since Mr Haider left the company in 2008, its “management, organizational structure, and compliance programs have changed significantly”, MoneyGram said, adding that it “has invested hundreds of millions of dollars in our technology and compliance infrastructure to protect our consumers”. Mr Haider, who did not respond to a request for comment, also failed to close outlets that his subordinates had identified as suspect, according to the settlement filed in US District Court in Minnesota. Among them were four outlets that had received a total of 150 complaints in a six-month period. Mr Haider had been warned about their owner, James Ugoh, a Nigerian tribal chief who had emigrated to Toronto. “Toronto PD also called me — they think this agent is dirty,” read an email Mr Haider received from an internal watchdog.  In 2014, Mr Ugoh was sentenced to more than 12 years in prison after pleading guilty to conspiracy to commit mail fraud, wire fraud and money laundering.”

Respectfully,

Nelson A. Locke, Esq.

Mortgage Industry Compliance Expert

Attorney and Expert Witness

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

 

Update on violations where we are seeing consistent, large fines.

Hi folks, it has been a while since we have shared what we are seeing on Audit Findings and Violation Notices, so here we go with an update.

Before you quickly say, “Well, that’s not us, we don’t this and we don’t that”……..please make sure you understand what the “this and that” actually is. For example, just because you think you don’t advertise does not mean you are not acting in a way that requires keeping an Advertising Log. Business Cards? Social Media? Just a few examples.

Here are the areas that keep popping up. They are in no particular order of importance.

• Hiring a new MLO and asking him to bring his pipeline with him.
• Allowing your MLOs to keep actual loan files (full of NPI) in unsecure places.
• Compensating an MLO you sponsor by paying his/her “company” directly
• Failure to compensate a former MLO employer for expenses related to a file he/she transferred to you lawfully
• When an MLO leaves, marking the entire pipeline as withdrawn, and then re-assigning it to one of your other employees without concern for the MLO that left you and their rights to commissions
• Evading a lawful requirement to with hold payroll taxes
• Comp plans that can encourage steering
• Failure to make a real, good faith effort, to keep your MCR as accurate as possible
• Having a loan journal that does not match what you file on your MCR
• Allowing non-compliant pirate web sites and social media to exist just because “they are not yours”
• Keeping your archived loans off premises without advising your regulator first, and insuring the off site facility is GLB compliant

If your head is spinning, hire us. Let us sort this out for you. ALL OF THIS IS COVERED IN OUR PROGRAM. We have hundreds of clients, our clients get great results when audited, our fee is super reasonable, so give us a chance to take these pressures off your mind.

Respectfully,

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

http://www.expertlenderservices.com

 

 

 

 

HMDA, ECOA, Adverse Action Notices, and Broker Shops. Revised 10/16/17.

Hi Folks, the two subjects captioned above have been driving us nuts so we dug deeper to determine what the best advice might be. Many of our clients, especially the Brokers, feel they are exempt from both subjects. Turns out, maybe not. If I do the “lawyer thing” and sound a bit vague it’s because it is hard to interpret these masterfully written regulations. We do our best to understand them for you. We look to see where the evidence tips the scale before deciding which approach to recommend. We always take the approach that should keep you out of trouble. Sometime that means more work for you. But it’s far better than an “administrative action” for failure to comply.

Plus, it might make you a better lender or broker because you will have more of your OWN data to evaluate for opportunities or trends.

First, let’s look at HMDA. This language has changed. It now includes reference to taking applications (the six item threshold) which all brokers and most lenders do. It also establishes unit thresholds that are low enough to now include many smaller broker shops. For more on HMDA reporting: NondepCriteria04

Now let’s look at pre-quals. Pre-quals don’t affect HMDA at all, but they do affect your compliance with ECOA. Please don’t be quick to say you don’t make credit decisions. You probably are making them and just don’t realize it; for example, the client you decline after reviewing the pre-qual because you KNOW they can’t meet your lender’s guidelines. It would be foolish to take a full app when you know it can’t be successful and it would waste the client’s time and money. Your decision is based on your Lender’s guidelines. Most of you do this.  Here you need to decide how you internally want to classify your pre-quals assuming they NEVER reach the six-item threshold that turns them into an indisputable application. After our research, we prepared the attached to guide you regarding pre-quals. It’s not “all or none”. Look HERE.  When do you need to issue an Adverse Action Notice

Hope this is helpful.

Respectfully,

Nelson A. Locke, Esq.

Mortgage Industry Compliance Expert

Attorney and Expert Witness

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

 

Mortgage Brokers – add Commercial Loans to your revenue stream.

50% OFF our Commercial Mortgage Brokerage Program – For Residential Lenders and Brokers who want to add another source of revenue.

With interest rates rising in the residential sector all of us should develop additional sources of revenue that do not rely on traditional residential lending.

State and Federal Regulators are tightly focused on residential mortgage lending. They are largely unfocused on small commercial lending.

Commercial loans are largely exempt from Dodd-Frank. This means less paperwork, easier compliance, and an earning potential that falls outside of the CFPB Originator Compensation Rule.

We have developed a program for small Lenders and Brokers that will allow them to originate commercial mortgages with confidence.

• It includes the necessary documentation to ORIGINATE and PRESENT  your commercial proposal professionally.
• It includes all the federal policies and procedures that commercial lending requires.
• Our firm is attorney owned with clients in 13 states and because of this – we have funding source recommendations for you.

We are offering this package at $750. Limited time offer. Regular price will be $1500.

To learn more, CLICK HERE and send us an email. Or if you prefer, call us at (800) 656-4584. Be sure to mention the word COMMERCIAL.

Respectfully,
Nelson A. Locke, Esq.
Compliance Services, USA
7800 Preston Road – Suite 118
Plano, TX 75024

http://www.lockelaw.us

Commercial Mortgage Broker Program

Commercial Mortgage Brokerage Program   

For Residential Lenders and Brokers who want to add another source of revenue

 

With interest rates rising in the residential sector all of us should develop additional sources of revenue that do not rely on traditional residential lending.

 

State and Federal Regulators are tightly focused on residential mortgage lending. They are largely unfocused on small commercial lending.

 

Commercial loans are largely exempt from Dodd-Frank. This means less paperwork, easier compliance, and an earning potential that falls outside of the CFPB Originator Compensation Rule.

 

We have developed a program for small Lenders and Brokers that will allow them to originate commercial mortgages with confidence. It includes the necessary documentation to present your deal professionally. It includes the federal policies and procedures that commercial lending requires. Our firm is attorney owned with clients in 13 states and because of this – we have funding sources for you.

 

We are offering this package at $750. Limited time offer.

 

To learn more, send us an email at nl@lockelaw.us

If you prefer, call us at (800) 656-4584.

Mention the word COMMERCIAL.

 

Respectfully,

Nelson A. Locke, Esq.

Compliance Services, USA

7800 Preston Road – Suite 118

Plano, TX 75024

 

http://www.lockelaw.us

 

 

 

New York Mortgage Lenders (and other States as well) pay attention. New Regulation – Cybersecurity Policy!

Recently we received a letter from the Superintendent of Financial Services, State of New York, advising that Financial Services Providers must create an implement a comprehensive Cybersecurity Program by March 1st. So we investigated and discovered that many states are in the process of implementing the same type of requirement.

We have created such a policy. We structured it to satisfy New York’s requirements and be easily adaptable to any other state. It consists of 13 pages of guidance and two affidavits regarding Notice and Exemption – because your entity may be small enough to request an exemption once your Program is in place. However, if you don’t qualify for an exemption you must not only implement this program but have your compliance certified.

Because the Cybersecurity Program makes frequent reference to Risk Assessment, we are  including a 13 page comprehensive Risk Assessment Program. New York requires this as well. Other states are trending in this direction.

If you need this, reply at the link below and I will provide it quickly. The cost is $250 for the bundle. I will invoice via PayPal.

Don’t get caught by surprise on this one.

This offer is limited to mortgage lenders and brokers that are NMLS licensees and not part of a large national bank. Credit Unions are allowed.

To request these policies, email me at nl@lockelaw.us and write CYBER in the subject line.

Nelson A. Locke

(800) 656-4584

http://www.lockelaw.us

 

An update on potential CFPB changes……

Hi folks, please be sure to read all the way to the bottom to see my comment.

Hot off the CFPB presses:

Dovetailing with President Trump’s recent Executive Order requiring a reduction in regulatory burden, on March 21, 2017, a CFPB official remarked at the American Bankers Association Government Relations Summit that the CFPB was planning to start its review of significant mortgage regulations, including the ability to repay/qualified mortgage rule.

The Dodd-Frank Act requires the CFPB to use available evidence and data to assess all of its rules five years after they go into effect to ensure they are meeting the purposes and objectives of Dodd-Frank, and the specific goals of the subject rule.  January 2018 will mark five years since the ability to repay/ qualified mortgage rule was finalized, as well as other key mortgage regulations, in January 2013.

Citing this requirement and “common sense,” Chris D’Angelo, Associate Director of the CFPB’s Division of Supervision, Enforcement and Fair Lending, said that the CFPB is “embarking upon now the beginning of an assessment process for our major mortgage rules.” D’Angelo said that the CFPB would assess these rules’ “real-world effects” on the market, as well as “whether it had the effect which was intended, what the costs were, .”

D’Angelo noted that the CFPB was still receiving complaints related to the mortgage servicing industry despite the existence of these rules, and that most of the problems were due to “the third-party service providers and the folks who develop your technology solutions.”  He also stated that incentive compensation practices would be considered but noted that “We know that you need those in order to manage larger organizations and how you drive your employees.”

Given Presidential pressure to reduce regulatory burdens and the fact that the CFPB’s mortgage rules have been criticized by financial industry participants and consumer advocates alike, the CFPB review of the key mortgage rules warrants close attention.

So what does this say? My interpretation is that they are planning on waiting until at least next year, probably after January, to issue a report supporting what they have done to us since 2013. It is in their best interest to write a persuasive report and show the best possible results. Many of you out there think this agency will disappear or be weakened by the Administration. I am asking you to be concerned about the exact opposite. Now, more than ever you better keep your compliance guard up. After we enter 2018 and actually read their findings I could make a better prediction. No matter what you hear, there is no crystal ball you can use to predict how this will go.

We recently changed our program a bit to provide free web and social media audits and free Safe Act certifications. Further, we have expanded our “repurchase defense” practice and it is working very well. Let us hear from you, and see how we can be of service.

(800) 656-4584

Nelson A. Locke, Esq.

Compliance Services USA

CLICK HERE to view Web Site

CLICK HERE to send email and request more information

Mortgage Brokers and Realtors Indicted

Seventeen Mortgage Brokers and Settlement Service Providers have been charged in a 17-count indictment with conspiracy to commit bank fraud and various substantive bank fraud offenses, in violation of Title 18, United States Code, Sections 1349 and 1344.

 

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, Timothy Mowery, Special Agent in Charge, Federal Housing Finance Agent, Office of Inspector General (FHFA-OIG), Southeast Region, George L. Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Division, and Juan J. Perez, Director, Miami-Dade Police Department (MDPD), made the announcement.

 

During 2007 and 2008, the defendants conspired to perpetrate a complex mortgage fraud scheme against various FDIC-insured lenders.

 

The defendants conspired to fraudulently obtain mortgage loans for unqualified buyers of units in two condominium projects on the west coast of Florida: Portofino at Largo, also known as Indian Palms, in Largo, Florida; and Bayshore Landing, in Tampa, Florida.

 

The defendants submitted fraudulent loan applications to induce the lenders to make mortgage loans to the unqualified buyers. The submitted loan applications contained false and fraudulent statements relating to: the borrower’s occupation of, or intent to occupy, the mortgaged property as a residence; the borrower’s employment, income, and assets; the borrower’s liabilities; the borrower’s payment of an earnest money deposit and cash-to-close; the sellers’ payment of kick-backs to the borrowers; and other information that was material to the borrower’s qualifications to borrow money from the lenders and the values of the mortgage properties.

 

The indictment states that the co-conspirators would require certain parties to use some of the proceeds from certain of the fraudulently obtained mortgage loans to pay a fictitious “marketing fee” to one of the “marketing companies” set up by the conspirators.

 

If convicted, the defendants face a statutory maximum term of 30 years’ imprisonment, a $1 million fine, and mandatory restitution, on each count in the indictment.

 

Mr. Ferrer commends the investigative efforts of the FHFA-OIG, FBI and MDPD. The case is being prosecuted by Assistant United States Attorney Dwayne E. Williams.

 

An indictment is a formal charging documents notifying the defendant of the charges. All persons charged by indictment are presumed innocent until proven guilty in a court of law.

If you are concerned that you might have inadvertently done something like this, and you want us to review your situation, call us at (800) 656-4584. Sooner is better.

So you only do “commercial loans” and that means you are exempt?

Florida Senate to re-open 494 with special attention to Commercial Lending and Unlicensed Loan Originators

 We told you so. There has been so much abuse regarding the re-branding of residential property into commercial or investment classifications that it now looks like the state is going to close the loop hole.  The OFR is tightening up what residential means, tracking it to what RESPA and TILA consider residential. Next, they are looking at those of you who tell us all the time you don’t “hold yourself out” to the public, yet you clearly do. Finally, with these new interpretations, where is your license?

 If this news is making you nervous you probably need our services. You can reach us at (800) 656-4584 x103.

 We have experience evaluating and advising “commercial lenders” who are in the danger zone.

 If you ignore this regulatory and enforcement trend you will find yourself on the wrong end of an audit very soon.

sb-1298-mortgage-brokers

 Again, call (800) 656-4584 x103. Let us help you get out of the grey zone and into the safe zone.

 Respectfully,

 Nelson A. Locke, Esq.

Mortgage Industry Compliance Expert

Attorney and Expert Witness

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

 

Private Lenders, Licenses, and Servicing a Portfolio in Florida

Is this an issue? YES. Florida looks at servicing like this.

FLORIDA MORTGAGE LENDER SERVICER LICENSE  Who is required to have this license? This licensing endorsement is required for any mortgage lender licensee who services a loan. 

“Servicing a mortgage loan” means to receive, cause to be received, or transferred for another, installment payments of principal, interest, or other payments pursuant to a mortgage loan. A “servicing endorsement” means authorizing a mortgage lender to service a loan for more than 4 months.

Who does NOT need this license?

1. A person acting in a fiduciary capacity conferred by the authority of a court. Probably NOT you.

2. A person who, as a seller of his or her own real property, receives one or more mortgages in a purchase money transaction. So this refers to PERSONAL not held out as a business.

3. A person who acts solely under contract and as an agent for federal, state, or municipal agencies for the purpose of servicing mortgage loans. Probably NOT you.

4. A person who makes only non-residential mortgage loans and sells loans only to institutional investors. Here is the key – the legal definition of non-residential.

5. An individual making or acquiring a mortgage loan using his or her own funds for his or her own investment, and who does not hold himself or herself out to the public as being in the mortgage lending business.  If you have a business card, and make more than two or three of these a year, this might be YOU.

6. An individual selling a mortgage that was made or purchased with that individual’s funds for his or her own investment, and who does not hold himself or herself out to the public as being in the mortgage lending business.  Selling “notes”.  

So now, ask this – What is a non-residential loan?

• Legally acceptable definition – A loan that is used to purchase nonresidential property such as an office building or a factory.

Now – what is a commercial property?

• Legally acceptable definition – Property used for retail or trade and not zoned residential.

  

CONCLUSION – Just because you “call” a 1-4 family a commercial investment, and have affidavits signed regarding NOO and not second or vacation home – that may not be legally sufficient. The RESPA definition and the definitions used above will apply.

So, be warned. On the radar for enforcement this year. If in doubt about your situation, let us hear from you. 

(800) 656-4584 Ext 103.

 

Site visits – “Mock Audits”

Compliance Services intends to add this service on a limited basis.

If you have interest in our coming to your facility and “auditing” your entity to see how you would do when the state or the feds come calling, send me an email at nl@lockelaw.us.

These visits clearly show us what Brokers and Lenders thought they knew but didn’t.

These visits can save thousands in potential fines.

Nelson A. Locke, Esq.

(800) 656-4584

H.R. 2121 – Hiring Bank Originators

Hello all, Happy Friday.

Back in April 2015 – HR 2121 was introduced in the House of Representatives, and the author asked for fast track. Well, it has made its way to the Senate but is stil in committee.

For those of you who were unaware, this bill would have authorized a conditional 90 day license to allow Brokers and non-bank Lenders to hire bank originators on a 90 day “honeymoon” during which the originator had to apply for an obtain a standard non-bank approval from the NMLS and their state regulator.

This was a good plan for a situation previously not considered by the CFPB or the Safe Act.

Because several of you seem to think this is in force, I wanted to advise you, it is NOT. While it passed in the House, it never passed in the Senate, thus it has died.

So don’t hire any bank originators unless they have already started the licensing process, and understand they cannot originate for you until the license is issued.

Respectfully,

 

Nelson A. Locke, Esq.

(800) 656-4584

Why you need to take your QC Program seriously. Your AUDITOR will ask for it.

Here at Complaince Services we offer a pretty robust Compliance Program. Part of it we call “Book Four” – a fully compliant Quality Control Manual with five different audit checklists for QM and Government Loans….including the HECM.

Many of you function as Brokers and believe that QC is something the LENDER should do; that you don’t have a duty to participate. You are wrong. You have no credibility without QC.

Those of you that function as Lenders frequently make the mistake of having a production person or an MLO involved in what you call your post-closing QC. That’s just not acceptable. It is not arms length and can encourage fraud which is what the QC rules strive to prevent. Some Lenders we speak with don’t do QC at all. Wow is all I can say. That is a really good way to end up on an annual audit list or be fined right out of existence when the regulators find the errors you could have caught.

Here are my recommendations. I have been through plenty of audits, I speak from experience.

1. Start taking this requirement seriously. If you are a Broker, set your goal at 5% including declined and withdrawn files. Learn and improve. And if you are a Lender, especially one approved by FHA, VA, or the USDA – this is NOT an option. Set your goal at 10% and make sure your QC is done by a properly “firewalled” person or party.
2. The NUMBER ONE problem we see in the post-closing QC we perform is a lack of a fully executed, signed, complete closing package. Your closing agents will give this to you if you demand it. You have a right to it. You need it. You are allowed to have it under RESPA and other regulations – because you need it to prove what closed was correct and complete. HOW are we going to protect you if your company is audited and you have no closing files?
3. The NUMBER TWO problem we see is inconsistent management review of our reports. You must take the QC report, review it, and put your plan to comply or correct in writing. You distribute the management response to the employees involved. You attach the management response to the QC report we provide. What good are these reports if management does not use them? If you see something you disagree with, just say so in your response – but respond you must.

Finally, this has nothing to do with President Trump potentially revising Dodd-Frank. QC is here to stay. Pay attention to it.

If you would like us to give you a quote for QC services, CLICK HERE.

Thanks for reading.

Nelson A. Locke, Esq.

(800) 656-4584

 

 

 

Recent State Audit Request (January 2017) included everything in our program.

We have a client being audited by a Midwest state. The Audit list was exhaustive. The good news is that every single thing on the list is included in Books One, Two, Four, Five, and Six. IF YOU ARE OUR CLIENT.

The regulators requested tons of advertising support and the policies. They asked for copies of Web sites, Facebook, Linked In, Instagram. The regulator asked for proof of customer complaint policies and resolution. (the “Logs”). Can you hear me now?

Here is where most Brokers and Mini-Cs fall short. The regulator asked for a very exhaustive list of file documents for audit. It could best be described as the initial file plus a final, fully executed and complete closing package. When we provide QC audit services to our clients we look for this. And in over 50% of the files we review, the records are incomplete.

Maybe you should let us audit one or two of your closed loans, before you get a five-part audit request like the one I just referred to.

One final note. Frequent use of the word “Employee”. Not the word “Contractor”. I have beaten this to death with my readers. Employee is a term of art, it means W-2. This regulator asked for all W-2 payroll records and copies of the MLO Agreements and Hiring Procedures. Again, it is all in our program.

What’s on your compliance shelf? If you are not our client, call us today to learn more. (800) 656-4584 extension 103.

Nelson A. Locke, Esq.

CLICK HERE to view our Web Site.

 

 

 

Realtor relationships with Brokers under fire…….better pay attention.

The Consumer Financial Protection Bureau (where “BATMAN” works) today ordered Prospect Mortgage, a major mortgage lender, to pay a $3.5 million fine for improper mortgage referrals in what the regulator calls an alleged “kickback” scheme.

The lender paid illegal kickbacks for mortgage business referrals. Prospect Mortgage isn’t the only one being fined. The CFPB also dealt out penalties to real estate brokers and a mortgage servicer who took kickbacks from Prospect. These three will pay a combined total of $495,000 in consumer relief, repayment of ill-gotten gains and penalties.

“Today’s action sends a clear message that it is illegal to make or accept payments for mortgage referrals,” CFPB Director Richard Cordray (“BATMAN”) said. “We will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.”

Here are three reasons the CFPB said it is fining Prospect Mortgage:

Paid for referrals through agreements:

Prospect maintained various agreements with over 100 real estate brokers, including ReMax Gold Coast and Keller Williams Mid-Willamette, which served primarily as vehicles to deliver payments for referrals of mortgage business. Prospect tracked the number of referrals made by each broker and adjusted the amounts paid accordingly. Prospect also had other, more informal, co-marketing arrangements that operated as vehicles to make payments for referrals.

Paid brokers to require consumers – even those who had already prequalified with another lender – to prequalify again with Prospect:

One particular method Prospect used to obtain referrals under their lead agreements was to have brokers engage in a practice of “writing in” Prospect into their real estate listings. “Writing in” meant that brokers and their agents required anyone seeking to purchase a listed property to obtain prequalification with Prospect, even consumers who had prequalified for a mortgage with another lender.

Just yesterday a client of ours asked about a realtor who was pushing an over-market leasing arrangement for a desk that was to be exclusive but had no security as required by GLB. Further, the individual realtors who worked there openly solicited fees from the broker.

If you have a lease arrangement presently with a realtor, maybe I should take a look?

Respectfully,

Nelson A. Locke, Esq.

Compliance Services

Click Here to view our Web Site

 

 

The CFPB is filing Lawsuits and Enforcement Actions and you might be next. Are you protected?

The Consumer Financial Protection Bureau is ramping up enforcement actions ahead of a possible political showdown between President Donald J. Trump and the agency’s director, Richard Cordray. They appear to be targeting different areas of financial services and without regard for the size of the entity.

As an example of this, note that the CFPB filed two separate consent orders Monday against CitiFinancial Servicing and CitiMortgage (Mortgage Lending) over claims the servicers failed to help borrowers with foreclosure relief. That came just days after the bureau filed lawsuits against TCF National Bank (Mortgage Lending) and student loan servicer Navient (Student Loans) after both companies said they refused to be pressured into settling allegations of wrongdoing before the Trump administration took office. Our office has taken calls from Brokers in Florida, California, and Texas asking us for help with regulatory inquiries.

Though the business community had hoped a new administration would rapidly put a halt to the CFPB’s aggressive approach, so far the change in political power instead appears to be emboldening the CFPB to act.

“The CFPB is going to be more aggressive in the short term because their future is uncertain,” said Ashley Taylor, a partner at the law firm Troutman Sanders. “Agencies in transition often become more aggressive if the people who work there think their power will be curtailed.”

On Friday, the White House issued an executive order calling for a freeze of all pending or new regulations. However, the order applies only to executive agencies and not the CFPB, though non-executive agencies are generally expected to follow suit.

The CFPB has not so far issued any new regulations—which might be overturned via the Congressional Review Act of 1996—and has focused its efforts on enforcement activity.

And that, folks, is why you need us more than ever. To find out more about our Audit Protection Plan and how we stand with you in the event of an audit or enforcement action, call us at (800) 656-4584.

You can visit our website and learn more about us and our program.  CLICK HERE

 

 

Some good Q&A for you Mortgage Brokers to read…….

Q: Can an Alta Settlement Statement REPLACE the use of a HUD-1 or a Closing Disclosure?

A: ALTA has developed standardized ALTA Settlement Statements for title insurance and settlement companies to use to itemize all the fees and charges that both the homebuyer and seller must pay during the settlement process of a housing transaction. Settlement statements are currently used in the marketplace in conjunction with the federal HUD-1. The ALTA Settlement Statement is not meant to replace the Consumer Financial Protection Bureau’s Closing Disclosure, which went into effect on Oct. 3, 2015. Four versions of the ALTA Settlement Statement are available.

Q: Do we need to use a Closing Disclosure for non-agency loans?

A: The final rule applies to most closed-end consumer mortgages.  It does not apply to home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (in other words, land).  The final rule also does not apply to loans made by a creditor who makes five or fewer mortgages in a year.

Q: Who has to prepare the CD?

A: Under the final rule, the creditor is responsible for delivering the Closing Disclosure form to the consumer, but creditors may use settlement agents to provide the Closing

Disclosure, provided that they comply with the final rule’s requirements for the Closing Disclosure.20  The final rule acknowledges settlement agents’ longstanding involvement in the closing of real estate and mortgage loan transactions, as well as their preparation and delivery of the HUD-1.  The final rule avoids creating uncertainty regarding the role of settlement agents and also leaves sufficient flexibility for creditors and settlement agents to arrive at the most efficient means of preparation and delivery of the Closing Disclosure to consumers.

Q: What about a HECM? Is it a LE or a GFE?

A: Reverse mortgage transactions subject to RESPA.  (1)(i) Time of disclosures.  In a reverse mortgage transaction subject to both § 1026.33 and the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) that is secured by the consumer’s dwelling, the creditor shall provide the consumer with good faith estimates of the disclosures required by § 1026.18 and shall deliver or place them in the mail not later than the third business day after the creditor receives the consumer’s written application.

Q: I’m a Mortgage Broker Business. Can I do my own disclosures?

A:  If a mortgage broker receives a consumer’s application, either the creditor or the mortgage broker shall provide a consumer with the disclosures required under paragraph (e)(1)(i) of this section in accordance with paragraph (e)(1)(iii) of this section.  If the mortgage broker provides the required disclosures, the mortgage broker shall comply with all relevant requirements of this paragraph (e).  The creditor shall ensure that such disclosures are provided in accordance with all requirements of this paragraph (e).  Disclosures provided by a mortgage broker in accordance with the requirements of this paragraph (e) satisfy the creditor’s obligation under this paragraph (e). If provided by the creditor, copies of the creditor disclosures MUST be kept in the mortgage broker’s files to show an auditor that the rule was complied with.

Q: I only do foreign national loans, am I exempt from TRID?

A: Not if the property is a 1-4 family dwelling and not if the buyer is a human person. There could be some crossover here to commercial lending, but most of what I have seen is probably TRID lending. I have seen a lot of issues here, sham entities.

Q: I only make ten or fewer loans a year with my own money. Do I need a Lender’s License?

A: Probably – YES. And if all you do is create entity after entity to act as your lender, and you own each entity, that is a probable sham and is probably avoiding the licensing rules of Dodd-Frank and your state regulator. Folks, the regulators are smart enough to see though this kind of conduct. If you hold yourself out to lend money, even in as small way as a business card, or using an agent ( a lawyer, a mortgage broker) who brings you borrowers, YOU ARE ACTING AS A LENDER.

I am also attaching an ALTA Training Webinar to the blog. The blog can be found at nltrainingsite. You guys should look at this ALTA Webinar. Very good information.

trid-webinar-82715

Happy Holidays to all! We will be working right up to Friday afternoon, so feel free to call. And we are here next week. Regulators never sleep so we won’t either.

Respectfully,

Nelson A. Locke, Esq.

Mortgage Industry Compliance Expert

Attorney and Expert Witness

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

 

This is why you can’t rely on the in-house compliance persons at the big lenders.

By Barbara S. Mishkin on December 8th, 2016

The CFPB announced that it entered into consent orders with three reverse mortgage companies to settle the CFPB’s allegations that the companies engaged in deceptive advertising in violation of the Mortgage Acts and Practices-Advertising Rule (Regulation N) and the Consumer Financial Protection Act.  Each of the consent orders requires payment of a civil money penalty to the CFPB.

According to the CFPB’s consent order with American Advisors Group (AAG) (described in the consent order as the “largest reverse mortgage lender in the United States”), AAG’s advertisements (consisting of television advertisements and information kits that included a DVD and several brochures) misrepresented that a consumer with a reverse mortgage could not lose the home and could stay in the home for the rest of the consumer’s life.  The advertisements also allegedly misrepresented that a consumer with a reverse mortgage would have no monthly payments and the mortgage would eliminate all of the consumer’s debts.  The CFPB claimed that these statements were misrepresentations because (1) a consumer with a reverse mortgage still has payments and can default and lose the  home by failing to comply with the loan terms such as requirements to pay property taxes or make homeowner’s insurance payments, and (2) a reverse mortgage is a debt and therefore cannot be used to eliminate all of a consumer’s debt.

In addition to prohibiting AAG  from making similar misrepresentations in future advertising and requiring AAG to implement a compliance plan that includes an advertising compliance policy, the consent order requires AAG to pay a civil money penalty of $400,000.

According to the CFPB’s consent order with Reverse Mortgage Solutions (RMS), a reverse mortgage lender, RMS’s advertisements (which included television, radio, print, direct mail, and online advertisements) similarly misrepresented that a consumer with a reverse mortgage could not lose the home and could stay in the home for the rest of the consumer’s life, would have no monthly payments, and the mortgage would eliminate all of the consumer’s debts.  The CFPB claimed that these statements were misrepresentations for the same reasons asserted in the AAG consent order.

The CFPB also alleged that the company misrepresented that a consumer’s heirs would inherit the home and that a consumer’s ability to obtain a reverse mortgage was time limited.  The CFPB claimed that these statements were misrepresentations because, respectively, heirs can only retain ownership of the home after the consumer’s death by either repaying the reverse mortgage or paying 95 percent of the home’s assessed value, and there was in fact no relevant time limit on a consumer’s ability to obtain a reverse mortgage.

In addition to prohibiting RMS  from making similar misrepresentations in future advertising and requiring RMS to implement a compliance plan that includes an advertising compliance policy, the consent order requires AAG to pay a civil money penalty of $325,000.

According to the CFPB’s consent order with Aegean Financial (AF), a reverse mortgage broker, AF’s advertisements (which included print, direct mail, radio, and online advertisements) similarly misrepresented that a consumer with a reverse mortgage could not lose the home and could stay in the home for the rest of the consumer’s life, and would have no monthly payments.  The CFPB claimed that these statements were misrepresentations for the same reasons asserted in the AAG consent order.

The CFPB also alleged that AF misrepresented that a consumer who refinanced a reverse mortgage would not be subject to costs.  According to the CFPB, this statement was a misrepresentation because a consumer who refinanced a reverse mortgage would incur costs such as credit report fees, flood certification fees, title insurance costs, appraisal costs, and other closing costs.  The CFPB also claimed that the statement in AF’s Spanish-language advertisements that “if you are 62 years old or older and you own a house, we have good news for you; you qualify for a reverse mortgage from the United States Housing Department” was misleading.  According to the CFPB, the statement was misleading because, while HUD provides insurance for the most popular type of reverse mortgage, a reverse mortgage is not a government benefit or  loan from the government and the product is not  endorsed or sponsored by the government.  The CFPB also alleged that AF failed to keep records of its advertisements as required by Regulation N.

In addition to prohibiting AF from making similar misrepresentations or misleading statements in future advertising and requiring RMS to implement a compliance plan that includes an advertising compliance policy, the consent order requires AAG to pay a civil money penalty of $65,000.

Please remember, Compliance Services reviews your advertising at no charge. Send it to us BEFORE you get into trouble.

 Respectfully,

 Nelson A. Locke, Esq.

Mortgage Industry Compliance Expert

Attorney and Expert Witness

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

 

Remember the CFPB rule that prohibited you from discussing your audit with your peers?

The CFPB’s proposed amendments to its rule on the disclosure of records and information is now the subject of a blog post written by Compliance Attorneys Ballard Spahr.

Entitled “CFPB Proposal Unconstitutionally Imposes Prior Restraint on Regulated Entities’ Speech,” the blog post focuses on a provision in the CFPB’s proposed rule published in the Federal Register on August 24, 2016.  I previously advised you all about this. The provision would prohibit the recipient of a civil investigative demand (CID) or letter from the CFPB providing notice and opportunity to respond and advise (NORA) from disclosing the CID or NORA to third parties without prior consent of a high ranking CFPB official.  The blog post explains why the proposal is not only ill-advised as a matter of public policy but is also unconstitutional both as a prior restraint on speech and a content-based restriction.

The CFPB’s proposal also includes a provision that would expand its discretion to share confidential supervisory information with state attorneys general and other agencies that do not have supervisory authority over companies.

I have previously blogged that I felt this was one of the most stupid, ill-advised rules I had ever seen. If mortgage industry participants cannot share their audit experiences they lose the opportunity to benefit from a peer’s audit and thus improve their operations based on someone else’s experience. Benefitting the consumer, of course. At other time in any other universe, working together would have been encouraged.

So let’s see how this ends up. I would bet Mr. Trump would have a field day with this rule.

Call me if you need assistance with your Compliance Program. A nationwide service, we have hundreds of satisfied Brokers and Mini-C’s and we can assist you as well. Ask about our Audit Protection Plan. Nothing like it, anywhere.

(800) 656-4584 Extension 103

CLICK HERE  to view our web site.

 

 

 

Have a laugh on me. Read below.

I just received a marketing email that came from a think tank in DC. It made reference to something called the Data Transparency Coalition, and was presenting training on financial transparency to be presented by a representative of the  US Treasury.

So, at the bottom it also said this:

“Workshop Available to Federal, State and Local Government Employees Only. Press is NOT Invited to Attend to Permit Candid Discussion at this Educational Workshop”

Would you find this as amusing as I do? What are they discussing that they need to exclude some outside attendance? I swear its true.

Also a quick comment on those of you who feel like Dodd Frank will be abolished. Just my opinion, no it won’t. It will be modified and refined and probably made smaller. But it is here to stay. The great recession will guarantee that we will never be allowed to operate without stricter compliance parameters. Don’t delude yourself.

It is the end of the year and many of you must re-certify for NMLS and State purposes – making important statements about your compliance in your financial reports.

If you are stretching the truth or maybe not ready for an audit at all, please call us at (800) 656-4584 x103. We can help and if we hear from you this week we can certify you for year end. We work pretty quickly this time of year to insure you can be truthful when you re-certify.

With respect,

Nelson A. Locke, Esq.

Compliance Services and Locke Law US, LLC

(800) 656-4584

Audit Rating System Finalized.

The Federal Financial Institutions Examination Council (FFIEC), whose members include the CFPB, has finalized guidance setting forth a revised uniform interagency consumer compliance rating system (CCRS).  The revisions reflect changes in consumer compliance supervision since the current rating system was adopted in 1980.  The other FFIEC members are the Fed, FDIC, NCUA, OCC, and State Liaison Committee.

The FFIEC members plan to implement the revised rating system for consumer compliance examinations that begin on or after March 31, 2017.

The CCRS includes three categories of assessment factors: board and management oversight, compliance program, and violations of law and consumer harm.  The assessment factors in the three categories consist of the following:

• To assess an institution’s board and management oversight, examiners will consider: oversight and commitment to the institution’s CMS; effectiveness of the institution’s change management process; comprehension, identification and management of risks arising from the institution’s products, services, and activities; and any corrective action undertaken as consumer compliance issues are identified.
• To assess an institution’s compliance program, examiners will consider: whether the institution’s policies and procedures are appropriate to the risk in the institution’s products, services, and activities; the degree to which compliance training is current and tailored to risk and staff responsibilities; the sufficiency of monitoring, and if applicable, auditing, to encompass compliance risks; and the responsiveness and effectiveness of the consumer complaint resolution process.
• To assess an institution’s violations of law and consumer harm, examiners will consider: the root causes of any violations identified during examinations; the severity of any consumer harm resulting from the violations; the duration of time over which the violations occurred; and the pervasiveness of the violations.  The CCRS includes incentives for self-identification and prompt correction of violations.

The revised rating system uses a scale of 1 through 5, with 1 representing the highest rating and lowest degree of supervisory concern and 5 representing the lowest rating and most critically deficient level of performance and thus the highest degree of supervisory concern.  An institution’s overall rating under the CCRS is intended to reflect a comprehensive evaluation of the institution’s performance under the rating system by considering the categories and assessment factors in the context of the institution’s size, complexity, and risk profile.

The CCRS does not assign specific numeric ratings to any of the above assessment factors and an institution’s rating is not be based on a numeric average or any other quantitative calculation.  As a result, an institution does not have to receive a satisfactory rating in all categories to receive an overall satisfactory rating.  Conversely, even if some assessments are rated as satisfactory, an institution can still receive an overall less than satisfactory rating.

The important note is YES this does apply to small Brokers and Lenders and has already been rolled out in a few states. In recent audits, it has been used thoughtfully and seemed fair. Frankly the people having the worst audit experience are those who think they are somehow “above” the process. Be warned.

Nelson A. Locke, Esq.

(800) 656-4584

http://www.lockelaw.us

 

On December 1st, the FLSA “Overtime Rule” is being updated. Who does this affect?

Back in May 2016 the Department of Labor (“DOL”) announced that effective December 1^st, 2016 employers would have to raise the salary level of exempt employees to $47,476 per year for the employee to still be considered exempt. That is about $900 a week.

Now I am getting panic calls and emails asking me if this means you should increase your mortgage loan originator hourly wages to keep the exemption. So here comes the shocker.  

Folks, your mortgage loan originators are NOT exempt. This December 1^st rule applies to true administrative employees and managers. Based on last years DOL ruling, this new ruling does NOT apply to mortgage loan originators. MLOs have not been exempt since May of 2015. The MB had sued the DOL to make them exempt, but SCOTUS agreed with the DOL regarding the DOL ruling that MLOs were not exempt because MLOs were involved in sales.

Let’s start out with the history behind the rule.

Under the old administrative exemption of the FLSA, employees who are paid on a salary basis of at least $455 per week (pre-December 1st 2016) may be exempt from overtime compensation if the employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and their primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. Employees in the financial services industry generally meet the duties requirements for this exemption if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments, or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing, or promoting the employer’s financial products; provided, however, that their primary duty is not selling financial products.

There’s the rub: provided their primary duty is NOT selling financial products.

So, pretty much, any MLO who is originating cannot be considered exempt any longer. So December 1^st does not affect them. It affects non-selling managers and administrative staff. The new level of over $900 a week is real. That is what you should review.  

Back to your MLOs. What can you do to protect yourself from being sued for overtime by a disgruntled or opportunistic former MLO?

• Don’t fight the rule but rather have a policy in writing that prohibits any non-exempt employee (which is what the DOL calls your MLO staff) work beyond 35 hours a week unless approved in writing.
• If you enforce this strongly I think this creates a rebuttable presumption for the DOL that you may have used your best reasonable efforts to comply.
• You may experience an MLO who stepped outside his job description if he worked more hours than 35 hours a week without written approval. If you kept an eye on him or her and then they raise this issue, you can counter with an “ultra vires” or “frolic and detour” argument. The key to this is to enforce your policy and keep an eye on your non-exempt employees.
• You would need a procedure in place that creates and monitors regular non-exempt employee time sheets and has your non-exempt employee sign a certification about hours worked under penalty of perjury every pay period, whether they have commission due or not. And you would need to demonstrate you enforce your rule and send people home when appropriate.

SUMMARY: Mortgage Loan Originators are non-exempt employees. As such they are subject to the protections of the overtime rule of the FLSA. If you don’t monitor and manage their hours worked, you can end up in a very bad place. Don’t prohibit overtime; rather require they obtain your pre-approval in writing. Next, monitor every pay period with non-exempt employee certification regarding hours reported. Keep these records carefully. When you find a violator, be able to show you enforce your own rules.

ONE FINAL COMMENT. We are still engaging with plenty of loan originators who think they can be paid as a 1099 contractor. The DOL decision applies the common law definition of employee.

Here you go, compliments of Black’s Law Dictionary. “Black Letter Law”.

“An employee is a person who works in the service of an employer under an express or implied contract of hire, under which the employer has the right to control the details of the work performed.”  

So you have a license that requires a sponsor who is paid instead of you, who provides you with documents, compliance overview, and training, and maybe even leads. And you must originate and process your loans under his or her direction. And then, your employer has to pay you from what he is paid, because you cannot be paid directly under the current rules.

If you still think you are independent, you are just not listening.  You are an employee.

 Respectfully,

 Nelson A. Locke, Esq.

Mortgage Industry Compliance Expert

Attorney and Expert Witness

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

HMDA Reporting is changing and it looks like it affects Brokers now.

I got a call from a client about changes to HMDA, specifically if these changes affected him as a Broker only. Usually Brokers left this function up to their lenders because the lenders made the credit decision.

There are some new rules going into effect. The new rule eliminated the asset test for lenders. Whereas in the past some lenders may have been excluded from having to file because their assets were smaller, that’s no longer the case. There are some other major changes coming in 2017.

The language I saw said if Lenders made the lending decision on at least 25 loans that closed in the last year then they had to file. This is a significantly lower threshold than the current 2016 level  of 100 closed loans. But then the CFPB chimed in.

The CFPB published a warning sent to 44 “Brokers and Lenders“. The CFPB uses the word “Brokers”. Why did they say “Brokers”?

So here is what I found, the rule the CFPB pointed to does not talk about the lending decision. It specifically mentions originating home purchase loans. This is taken from the CFPB letter.

Annually, a for-profit mortgage-lending institution other than a bank, savings association, or credit union, must collect, record, and report data identified in HMDA and Regulation C to the appropriate Federal agency when: (i) in the preceding calendar year, it either: (A) originated home purchase loans, including refinancings of home purchase loans, that equaled at least 10 percent of its loan-origination volume, measured in dollars; or (B) originated home purchase loans, including refinancings of home purchase loans, that equaled at least $25 million; and (ii) on the preceding December 31, it had a home or branch office in a Metropolitan Statistical Area (MSA); and (iii) it either: (A) on the preceding December 31, had total assets of more than $10 million, counting the assets of any parent corporation; or (B) in the preceding calendar year, originated at least 100 home purchase loans, including refinancings of home purchase loans.  12 C.F.R. §§ 1003.2, 1003.4, 1003.5.

Guys, I think you better crank up your HMDA data collection effective January. You could always argue with the CFPB that all you did was take an application, but the attached agency chart quickly makes that a mute point. 2016-hmda-reporting-criteria-102716

Notice how it says “receive applications, originate, or purchase”? Broad.

I will dig into this a little deeper, but for now, prepare as if you will have to report.

Nelson A. Locke, Esq.

(800) 656-4584

 

 

 

 

 

 

I’m not changing my mind on this one. An NMLS sponsored MLO is an employee. Period.

October 18^th, 2016

The debate rages on. Unfortunately, most of those who have challenged our position that an MLO must be a W-2 – are either asking the wrong people for advice, or are not asking the question in an open and honest way.

If you have found an attorney who is telling you your 1099 practice is just fine, ask him for his written legal opinion. You will need that to show to the regulator that makes this an issue. While it won’t guarantee you won’t have a finding or fine, it is a defense of sort. Except I warned you, didn’t I. And the attorney won’t pay your fine for you.

The only reasonable conclusion is that a sponsored MLO is an employee.

We include the attachment titled 22-mlo-w2-discussion-021015 to our clients at the front of our MLO Policy Manual – Book Two. You should read this first. Let’s set the stage.  

Now, if you are saying your state regulator is ignoring this issue their misfeasance does not mean you are not at personal risk for violating Safe Act, CFPB, IRS, and DOJ rules. The facts are clear – the CFPB has asked the states to look for violations of federal regs when auditing. When the CFPB issued its updated exam guidance, it again asked the states to assist.

Now see attached pdf extractions, highlighted sections. The cfpb-exam-manual-irs-references-and-employee-definition-101816 is a 924 page “guide”. I saved you some time and copied the three pages that matter for you. Next, look at originatorcompensation-and-thefedrule_q-a. This is a transcript from an Industry Legal Webinar held in 2011.

Note the reference to the common law test – the common law definition of employee. Not YOUR definition, but what the IRS test uses to determine if a MLO is independent, or not. Let me give it to you here.

Directly from the IRS:

Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

NOW about the Fair Labor Standards Act:

In an attempt to interpret provisions of the Fair Labor Standards Act and discern between employee and independent contractor status, courts and federal agencies have come up with the “economic realities test.” It looks at the dependence of the worker on the business for which he or she works. If a person gains a large portion of their salary or commission from that business, chances are that person qualifies as an employee.

These courts also use the “right to control” test. When the hiring party controls the way work is carried out and a product is delivered, the relationship between the parties is employer/employee. If you are sponsored and your Broker has to answer for your work, you are an employee.

If an employer does not have any authority over how a party accomplishes his or her work the relationship between the parties is that of independent contractor. But that can’t be: you are sponsored, right? And can only “work” at one place at a time, right?

We are always looking for new clients. If you need to tighten up your compliance efforts, call us at (800) 656-4584.

More about your Corporate Governance Book….

Man, this is a mess out there. As part of our Compliance Program we started reviewing the condition of corporate records. We never realized how many people have no idea WHAT should be in their corporate records.  We do think everybody knows WHY you need to do this (shields you from personal liability)  but we have been reviewing different Secretary of State Filings and the typical mortgage broker is all over the place. No one passed with flying colors.

So let’s make a list. Because this is important.

If you are a Corporation, either a C corp (for profit and pays its own taxes ) or an S corp (pass-through to you where you pay the taxes on your return):

• Articles of INCORPORATION
• By-Laws
• Annual Reports to your Secretary of State
• Annual Meeting Minutes – the report to your Shareholders
• Anything in-between where the Corporation took action that should be properly recorded and approved in your Book.
• This is the same list whether one shareholder or 1000 shareholders.

If you are a Limited Liability Company it is a bit different.

• Articles of ORGANIZATION
• Operating Agreement
• Annual Reports to your Secretary of State
• Member’s Minutes from meetings with your members
• And, anything in-between where the LLC took action that should be properly recorded and approved in your Book
• If you are a “single member LLC” the rules are a little looser but those of you who know me, know I think that more is better. Have meetings with yourself. Keep records with yourself. You get the picture.

Hope this helps. If you are unsure of your “condition”, email me at nl@lockelaw.us

Thanks.

Nelson A. Locke, Esq.

Compliance Services

(800) 656-4584

 

Don’t get excited, not gonna happen.

By a vote of 30-26 earlier this week, the House Financial Services Committee approved the “The Financial CHOICE Act of 2016” (H.R. 5983), the bill released in July 2016 by Committee Chairman Jeb Hensarling to replace the Dodd-Frank Act.  All Democrats on the Committee voted against the bill as did one Republican member.  No amendments were offered by Democratic members.

The sections of the bill dealing with the CFPB are found in Title III, entitled “Empowering Americans to Achieve Financial Independence.”  Subtitles A and B entitled, respectively, “Separation of Powers and Liberty Enhancements” and “Administrative Enhancements,” contain provisions that would change the CFPB’s structure, funding, and operation. For example, such provisions would change the CFPB’s name to the “Consumer Financial Opportunity Commission,” replace the current single director with a bipartisan, five-member commission, fund the commission through the appropriations process, require the commission to verify consumer complaint information before making it publicly available, and require the commission to establish a procedure for issuing written advisory opinions.

Subtitle C, entitled “Policy Enhancements,” contains provisions directed at the CFPB’s regulatory authority.  For example, such provisions would repeal the CFPB’s authority to prohibit consumer financial services or products it deems “abusive” and to prohibit the use of arbitration agreements, repeal the CFPB’s indirect auto lending guidance and require use of the notice and comment process for any new proposed guidance, and authorize the commission to grant a 5-year waiver from a payday lending rule to any state or federally-recognized Indian tribe that requests such a waiver.

While the bill is not expected to be passed by Congress this year, depending on the outcome of the Presidential election, it could serve as a roadmap for future legislative change.

Thank you, CFPB. Nice job writing this press release. Written without bias, I am sure.

Give us a call to learn more about how we can serve you with an outstanding and affordable Compliance Program. (800) 656-4584

Compliance Services Web Site

Corporate and LLC Formalities

For the past two years, when I sign up a new client company for our services, I always inquire about the state of your corporate minutes book, or your member meeting book for an LLC. In an astonishing 30-40% of the cases, most clients don’t keep a current book and some have no idea why I am asking.

Here is why I am asking.

Business entities must follow certain legal formalities in order to remain in effect. Courts, while not eager to invalidate a corporation status or an LLC, will do so when it becomes apparent to them that the entity is nothing more than an alter-ego for the organizer. That means, a sort of “shell” that keeps no records, takes no actions, and is only in existence as an extra layer of personal liability protection.

Most good attorneys will look at corporate status right away, if they represent a client who is suing an entity. Piercing the corporate veil (that s what this practice is commonly called) creates great fear in the mind of the defendant and moves them to settlement faster than they might have otherwise had their entity been robust in its creation and its maintenance.

Here is how to how to create and keep a robust liability shield in place.

A corporation’s Articles of Incorporation is a formal legal document that contains important information about the corporation, such as the corporate name, address of the main office, and—in some states—the names of the directors and the name and address of one person who will be a contact for the public. In some states these incorporation articles are known as a “Charter” or “Certificate of Incorporation.”

Your corporation’s bylaws are an internal document that outlines how the corporation will govern itself and manage its day-to-day activities. In your bylaws, you can address the frequency of board of directors’ meetings, the number and name of corporate officers (i.e. President, Secretary, etc.), personnel policies, etc. Though not usually submitted to the state, bylaws are important in proving the legitimacy of the corporation.

The board of directors typically make important decisions at the initial board of directors meeting. Some of the decisions and actions that usually take place at the initial board of directors meeting include: Selection of officers, Adoption of bylaws, Stock authorization and issuance, and Adoption of the official stock form and seal.

The board of directors is the decision-making body of a corporation. Directors make the financial decisions and determine major corporate policies and procedures. They’re the ones who choose the officers, approve the issuance of stock, and set the salaries. The owner(s) of the corporation can appoint themselves or other people to the board of directors. Most states require at least one director on the board no matter how many owners there are.

After completing all the necessary steps to structure your business as a corporate entity, you’ll comply with the other requirements of running a business in your state and locality. You’ll need to obtain a business license and an employment identification number (EIN), which is your federal tax number, before doing any business. You will also need an EIN to open a business bank account. There may also be other permits or licenses that may be required could include a seller’s permit or a zoning permit depending on your type of business. Check the federal, state, and local requirements to find out what your business will need. I suggest including copies of your NMLS Licenses in your corporate records.

Corporate Minutes: Keeping corporate minutes doesn’t mean recording every meeting, but rather recording meetings that involve key decisions or key company activities. Here are examples. Annual director and shareholder meetings, Employee hires and compensation plan changes, new company bank accounts, loans, company credit cards, etc. The CFPB wants to see evidence that the entity required and approved a formal compliance program. The minutes can be simple – keep the language straightforward and professional. And it is best to use the same type of format each time you convene a meeting.

AT A MINIMUM, THIS IS WHAT SHOULD PRESENTLY BE IN YOUR CORPORATE RECORDS BOOK. LLC Member Minutes are similar.

1. Articles of Incorporation
2. By-Laws
3. Organizational meeting minutes where Officers and Directors were elected
4. Copies of Annual Meeting reports with your state.
5. Copies of your Annual Shareholder Meetings where you ratify in reverse the prior actions of your Board.
6. Copies of any Special Minutes necessary for those “special situations” that occur. Such as approving a formal Compliance Program.

If you follow these guidelines your corporation or LLC should survive any challenge, and you will usually not be subjected to personal liability as if you had no corporate veil.

We provide this service as part of our program. Call us at (800) 656-4584 if you want us to assemble your records for you.

Nelson A. Locke, Esq.

Compliance Services

(800) 656-4584

www.expertlenderservices.com

www.lockelaw.us

 

 

 

If in doubt, get a license.

I am being barraged by questions regarding commercial lending and the need or not to be licensed. The area is not as grey as you may think. The problem is many commercial lenders disguise what would otherwise be a RESPA loan on a 1-4 family – by using LLCs. These lenders and brokers are completely ignoring the legal doctrine of beneficial ownership. And many times these lenders and brokers actually believe that no auditor or regulator has ever seen this scheme before. Really?

I believe that the best business practice for any person originating any kind of mortgage residential or commercial – is to obtain the proper license first.

RESPA is applicable to all “federally related mortgage loans,” except as provided under 1024.5(b). “Federally related mortgage loans” are defined as:  1.A loan secured with a first or subordinate lien on residential property  2.Where a one to four family unit…

View original post 497 more words

If in doubt, get a license.

I am being barraged by questions regarding commercial lending and the need or not to be licensed. The area is not as grey as you may think. The problem is many commercial lenders disguise what would otherwise be a RESPA loan on a 1-4 family – by using LLCs. These lenders and brokers are completely ignoring the legal doctrine of beneficial ownership. And many times these lenders and brokers actually believe that no auditor or regulator has ever seen this scheme before. Really?

I believe that the best business practice for any person originating any kind of mortgage residential or commercial – is to obtain the proper license first.

RESPA is applicable to all “federally related mortgage loans,” except as provided under 1024.5(b). “Federally related mortgage loans” are defined as:  1.A loan secured with a first or subordinate lien on residential property  2.Where a one to four family unit is located  3.Where a properly qualified manufactured home is located or to be constructed 4. Where the loan is made by a proper creditor, lender, or dealer 5. If the loans are insured by an agency of the federal government 6. If the loan is intended to be sold to HUD, FNMA, FHLMC, USDA, or the VA 7. If the loan is a home equity conversion mortgage or reverse mortgage subject to federal regulations.

A true commercial loan is a mortgage loan made on a property that is NOT residential (a 1-4 family unit) and where there is NO possibility the true owner or beneficial owner might occupy the property either as a primary or as a secondary. That goes for citizens or legal aliens or consumers of any kind – if the property is a RESPA property that is going to be used by them it will not matter who you call the borrower or how you try to hide the true ownership. A 1-4 family might fall into an exception but the overwhelming position will be that if it is a 1-4, it is a RESPA loan requiring licensing.

To provide a resource for you that will put all this information on one blog entry, I am providing the following list of state requirements.

The following states may require licensing to originate commercial mortgage real estate loans.

One more time – commercial mortgage loans means a loan secured by real estate that is not a residential 1 to 4 family dwelling.

These states require licensing. Arizona California Illinois North Dakota Nebraska Nevada (Company and LO) South Dakota (Company and LO)

These states show that a license may be required. That means get a license. District of Columbia North Carolina

These states require a license to broker these types of loans. Michigan (Real Estate Broker) – Brokering Only Minnesota (Limited Real Estate Broker) – Brokering Only New York (Real Estate Broker)- Brokering Only New Jersey (Real Estate Broker)- Brokering Only

Regarding FLORIDA – “Most” commercial companies are exempt in Florida providing the property is not a 1-4 family unit or the entity is not a sham LLC. The word “most” is the issue. This is a regulator grey area.

Business Purpose Residential Mortgage Loans – The famous Reg Z exemption 226.3: Brokers and Lenders often refer to non-owner occupied business purpose residential mortgage loans as commercial loans. The following states may require licensing: Alabama, Arizona, California, Colorado, Florida, Idaho, Illinois, Louisiana, Michigan, Minnesota, Nevada, New Jersey, North Dakota, Oregon, Rhode Island, South Dakota, Texas, Utah, and Vermont.

Here’s my take. Get a license. It increases your credibility and avoids you being pulled into a situation where the regulator believes you needed a license to originate or make the loan. If the regulator believes it, you will lose the argument. Of course, this is just my opinion.

Respectfully,

Nelson A. Locke, Esq.

Mortgage Industry Compliance Expert

Office (800) 656-4584

http://www.lockelaw.us

http://expertlenderservices.com

 

 

 

The CFPB, the CD, and the Realtors…….

Before you go any further, the key word is PROPOSED.

1.   The CFPB has issued a proposed rule with request for public comment containing both substantive amendments and technical corrections (collectively, Proposed Amendments) to the final TILA-RESPA Integrated Disclosure (TRID) rule that became effective on October 3, 2015.  In a press release the CFPB advised that the Proposed Amendments are “intended to formalize guidance in the rule, and provide greater clarity and certainty.”  Comments are due on or before October 18, 2016.  The CFPB is proposing that the final rule based on the proposal would be effective 120 days after publication in the Federal Register, but is expressly requesting comment on the timeframe to implement the Proposed Amendments. THIS MEANS MOST LIKELY EARLY IN 2017.

2.   Four of the Proposed Amendments that are highlighted by the CFPB in the press release would (1) create a tolerance for the total of payment calculation; (2) exclude recording fees and transfer taxes from the one percent fee limit that applies to the TRID rule exemption for down payment assistance and similar subordinate lien loans often made by housing finance agencies, non-profits, and similar entities; (3) amend the scope of the TRID rule to cover units in a cooperative, whether or not they are considered real property; (4) clarify how a creditor may provide separate Closing Disclosures to the consumer and the seller through the removal of information that raises privacy concerns.THE REALTORS HAVE BEEN COMPLAINING ABOUT NOT RECEIVING THE CD – IF YOU HAVE BEEN GIVING IT TO THE REALTOR YOU MAY HAVE BEEN VIOLATING THE CURRENT PRIVACY RULES – AND IF THIS NEW PROPOSAL IS APPROVED THIS CHANGE WILL HAPPEN AFTER JANUARY, SO DON’T START PASSING OUT CDs LIKE CANDY UNTIL IT IS OK TO DO SO. 

3.   In addition to the CD/Realtor item, the CFPB proposal would make numerous other changes including a change that addresses the so-called “black hole” by providing creditors with greater flexibility to use the Closing Disclosure to reset tolerances.  Currently, only the Loan Estimate may be used to reset tolerances, subject to an exception that permits a creditor to use a Closing Disclosure to reset tolerances in a limited situation.  Essentially, the exception applies when the creditor would not have sufficient time after learning of a change to be able to issue a new Loan Estimate and also satisfy the pre-consummation waiting period requirements under the TRID rule.  The exception has proven to be too narrow in many cases resulting in creditors having to absorb increases in fees or require that the consumer reapply for a loan.  OR CHARGE THE BROKER A CURE FEE. To address these unintended consequences, the CFPB proposes to expand the exception to include both (1) the current situation that is based on the timeframe between when a creditor learns of a change requiring revised disclosures and the consummation of the loan, and (2) any situation in which a Closing Disclosure has already been issued.

4.   Other topics addressed by the Proposed Amendments include affiliate charges, the calculating cash to close table, construction loans, decimal places and rounding, escrow account disclosures, escrow cancellation notices, the treatment of gift funds, the written list of service providers (no surprise there), the distinction between model forms and sample forms, principal reductions, the summaries of transactions table, the total interest percentage calculation, and informational updates to the Loan Estimate.

5.  Now about us. We are attorney owned and our attorney has 24 years experience as a Mortgage Banker. That should speak for itself. Most of our competition does not have that combination of experience. They sell you “policies” and walk away. The CFPB recently identified this type of off the shelf no relationship compliance program as a red flag for examiners. We don’t do that. We offer annual engagements at one price and are with you all year for training, updates, and all your Q&A.

Request our Engagement Package today and we can have your Compliance Program  in really good shape within three weeks.

And you will feel much better about not having to face the regulators alone. But if you try to engage us after you have received your Audit Letter, the price will go up.

 (800) 656-4584

Read my Report on updated EXAM PROCEDURES

This may be the most important update you will ever read about the CFPB and their current Exam strategy.

Recently we obtained specific information about the CFPB’s current Exam Procedures. The information is credible and shows with great clarity what the CFPB expects to accomplish in an exam. It also confirms the CFPB has asked the states to incorporate CFPB and FFIEC procedures into state audits.

The CFPB has also created an Exam Rating System and asked the states to adopt it.  We have been seeing this rating system in use for six months in certain states. It is probably coming to your neighborhood soon.

Read my report and trust me this is worth your time.

CFPB Exam Objectives and Procedures 052616

Call us if you have any questions.

Nelson A. Locke, Esq.

(800) 656-4584

Expert Lender Services Web Site

 

CFPB annotates LE and CD – why?

This information came to me directly from the CFPB.

“In emails sent to CFPB email subscription holders, the CFPB announced the publication of new annotated versions of the Loan Estimate and Closing Disclosure that include citations to sections in Chapter 2 of the Truth in Lending Act (TILA). The CFPB sent an original email on May 12, and then an updated email on May 13 that includes a direct link to the annotated forms. The emails provide that the citations are to TILA sections referenced in the Integrated Mortgage Disclosure final rule.

The use of the Loan Estimate and Closing Disclosure are required by the TILA/RESPA Integrated Disclosure (TRID) rule which became effective October 3, 2016. The rule incorporates both RESPA and TILA disclosure requirements, and the requirements are set forth in Regulation Z under TILA. Based on the varying nature of liability under RESPA and TILA, the CFPB addressed in the preamble to the TRID rule the sections of TILA, RESPA and/or the Dodd-Frank Act that it used as legal authority for the various TRID rule sections.

In a December 29, 2015 letter to the MBA, Director Cordray addressed TRID rule liability concerns. The Director noted that “As a general matter, consistent with existing [TILA] principles, liability for statutory and class action damages would be assessed with reference to the final closing disclosure issued, not to the loan estimate, meaning that a corrected closing disclosure could, in many cases, forestall any such private liability.” The industry took this to mean that in many cases errors in the Loan Estimate could be cured through a correct Closing Disclosure. However, by issuing a Loan Estimate with citations to TILA sections the CFPB appears to have raised the issue of whether there is TILA liability for Loan Estimate errors.

Also, the annotated disclosures provide that both the Adjustable Payment (AP) Table and Adjustable Interest Rate (AIR) Table were adopted based on TILA section 128(b)(2)(C)(ii). However, the preamble to the TRID rule reflects that only the AP Table was adopted based on such section, and that the AIR Table was adopted based on general CFPB rulemaking authority.

As we reported, recently the CFPB also announced its intention to re-open the rulemaking corresponding with the TRID rule. Perhaps the CFPB can use the rulemaking initiative to better address industry concerns regarding TRID rule liability.”

Until such time as we see more clarity my advice to Compliance Services Clients is to promptly cure any discrepancy whether it is in the LE or the CD.  

For now, the fact that the CFPB is citing to the actual law tells me some big time auditing of your LE and CD may be coming soon.

Respectfully,

 Nelson A. Locke, Esq.

Compliance Expert and Attorney

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

Identity Theft Scam involving Realtors, Brokers, and Lenders

Well, the criminals have discovered yet another way to steal identities and money.

Title Company Wire Scam 032916

I would strongly suggest you take a good hard look at any requests from closing agents that involve wires, and verify the request is valid. Further, keeping in mind the requirements of the Financial Services Modernization Act of 1999 – DO NOT transmit any of this non-public information in an unsecured manner. Always use a drop box or a password protected email.

This is getting crazier and crazier. Don’t take chances. Protect your data, trust but verify.

Call us if you would like to discuss our Compliance Services.  Ask about the Audit Protection Plan – included with our program.

(800) 656-4584

Do I really need to look at the SDN List?

Yes. And it only takes about 30 seconds, so why fight this? Either you, or your credit agency, or your lender must do this, but it will come down to YOU if the law is violated. Is peace of mind worth 30 seconds?

You must and you can do so at the Treasury Department Link below.

There is no legal or regulatory requirement to use software or to scan. There is a requirement, however, not to violate the law by doing business with a target or failing to block property. OFAC realizes that financial institutions use software that does not always provide an instantaneous response and may require some analysis to determine if a customer is indeed on OFAC’s Specially Designated Nationals List (or any of OFAC’s other sanctions lists). The important thing is not to conclude transactions before the analysis is completed.

Every transaction that a U.S. financial institution engages in is subject to OFAC regulations. If a bank knows or has reason to know that a target is party to a transaction, the bank’s processing of the transaction would be unlawful. Yes, you Brokers and Lenders are engaging in financial services so you should fit into this description.

There is no minimum or maximum dollar amount subject to the regulations.

U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches. In the cases of certain programs, foreign subsidiaries owned or controlled by U.S. companies also must comply. Certain programs also require foreign persons in possession of U.S.-origin goods to comply. If you specialize in Foreign National Loans, I would say you probably need to be extra careful.

HERE IS THE LINK TO THE OFAC SDN List.

https://sanctionssearch.ofac.treas.gov/

Respectfully,

Nelson A. Locke, Esq.

Compliance Expert and Attorney

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

 

What constitutes proper “changed circumstances”?

 

Hi Folks, we wanted to address a few TRID issues this week.

We hear a lot of comments each week from our clients about how TRID implementation is working. Some clients are in the “TRID Groove” closing their loans in less than 30 days without any LE or CD issues.

Others tell us that almost every deal has a glitch of one kind or another. Most of those clients are Brokers, not Lenders. This demonstrates that the Lender is going to do what the Lender wants to protect himself regarding TRID, and the Broker may be jumping through those hoops for a while until things really settle down.

We thought it might be helpful to send you a few TRID related documents that have been available on this Blog. The first document is a TRID Quick Reference. This is a good one to make copies of and pass around.  Trid Simplified 090115

The next document is a Changed Circumstances Matrix that has been available on the internet for a few months now. It is pretty clear and appears to have been widely accepted by compliance companies and lenders alike. Changed Circumstances TRID 022216

Finally, we have a recording training session here on the blog – it is 30 minutes long and uses plain English. Go take a listen.

If you are uncomfortable with your compliance effort you can call us at (800) 656-4584.

What’s on your compliance shelf?  Why worry? Just call us.

This is what should be on your Compliance Shelf.

Hi Folks,

We get asked a lot what we mean when we talk about the power of the Compliance Shelf. So I decided to tell you and show you a few pictures. These are from clients of ours.

When you are visited by your regulator it goes pretty far if he or she notices a dedicated area for your Compliance Manuals and Notes (the “Compliance Shelf”). The mere existence of this shelf creates an impression that your company takes compliance seriously. So you come out of the audit gate having impressed the regulator with your preparation. That good first impression.

What does a strong Compliance Shelf look like? It has your Audit Policies and Procedures, your MLO Policies and Procedures, your Regulatory Reference Book, an Advertising Log (back two years), a Customer Complaint Log (back two years), and finally, your QC Manual and Audit Report Log, with copies of all audits and management response. Here are two examples – the one on the right was recently audited by Texas and passed.

   

But please, don’t think for a moment that just making this impression will save your audit from disaster. You need to live by your policies and procedures. You need to know what they mean and you need to put them into practice.

Compliance is not a part time thing. You must form a “habit of compliance”. Every day, every file. That’s how you have good audit results. It has to be your company culture. Your “shelf” is just part of the big picture.

So, what’s on YOUR “Compliance Shelf”?

Want to learn more? Call us at (800) 656-4584. Over and out.

(Thanks to Eddie and Fred for providing us with these outstanding pictures.)

How to lose your Broker’s License

Hi People, We have two things of interest here we think you should read.

The first is a Consent Order from a state regulator.

What I would like you to see is on the bottom of page one and top of page two. Notice how vague items a and f were. Any good regulator could drive a truck through that open door and run right over you. This is public record but I redacted anyway. This likely could have been prevented by having a serious compliance program and actually following the guidance. How about you? Have you used the materials we have provided? Do you have a “Compliance Shelf” both physically and virtually? Actual Books for reference, with desktop links on key computers?

Redacted Final Order for Client Review 011116

That brings me to my second attachment. Congratulations to my client Eddie Lester. This is his Compliance Shelf. I visited his office yesterday and everything was good. Locks on files, posters and necessary policies on the wall, “Tool Kits” printed and ready for use, name and hours on the door, and more. How about you?

If you are clients already let us hear your questions.

If you are not our client yet, what are you waiting for? Wait long enough, and you might end up like the broker that was shut down January 4^th.

Pick up that 800 pound phone and call me. (800) 656-4584. Confidentiality will apply, tell me your problems and we will fix them!

Nelson A. Locke, Esq.

Compliance Services

Commercial Loans and Private Lenders

 

January 2nd, 2016

Because of the aggressive nature of the CFPB audit practice and the predictable fear that it creates among brokers and lenders, some of you have chosen to focus on the commercial niche. The mistaken belief is that by switching to commercial, you avoid the risks associated with RESPA, TRID, and the usual compliance requirements of a mortgage broker or lender. Some of you even think you are exempt from the SAFE Act and can let your licenses lapse.

Folks, don’t do this. You can run from compliance but you can’t hide, and they will get around to you eventually. Even if your business model changes to full commercial lending, you still have a healthy list of rules and regulations you MUST comply with in order to pass an audit. And in 99% of the situations I have investigated a license is required.

I drafted a compilation of some Q&A I searched out. It is informative and can be helpful to you. Download this and read it before you make any decisions about reducing or eliminating your compliance efforts.

Commercial Loans and RESPA TRID FAQ 123115

Thanks for reading, call us at (800) 656-4584 and request information about how to engage Compliance Services. You will be amazed at how easy we will make the process for you. Hundreds of clients  and all of them happy.

Nelson A. Locke, Esq

(800) 656-4584

Foreign Nationals and RESPA TRID

January 2nd 2016,

Yes it is true, I cannot stay away from the office for very long. Good for you, huh.

During the past quarter we were engaged by several mortgage companies that  specialize in loans to Foreign Nationals. they also offer federally related loans, but foreign national loans are a specialty.

So I decided to create a one  page summary of when you need to apply RESPA and TRID, and when you can revert to the old way of using a HUD-1 and maybe a classic GFE.

Foreign National Guidelines 100315

Happy New Year everybody!

Nelson A Locke, Esq.

(800) 656-4584

http://www.expertlenderservices.com

 

CFPB Identifies four special audit areas for 2016.

Well, folks, I think you all should read the attached. The CFPB went public with its four primary audit areas, beyond the normal ones disclosed in our Books One, Two, and Three.

1. COMP PLANS, and yes, looking backwards two or three years as well.
2. TRID, with no grace period.
3. MSAs, nothing here to be said. They can be done legally, but it takes a lot of work and commitment by all involved to steer clear of RESPA Violations.
4. ATR – yes, that pesky part of your QM Policy in Book One. They will evaluate your use of some form of proper ATR test.

No where did they mention exempting anyone from these four areas. No special favors for private money lenders who lend against 1-4 family etc. So, please read the attached.

We still have time to get you set up for the end of this year. Where compliance is involved, sooner is better. Later is foolish. You can reach us at  (800) 656-4584 and we will get to work right away!

CFPB Agenda for 2016 120915

(800) 656-4584 or nl@lockelaw.us

http://www.expertlenderservices.com

 

 

Ready for year-end certification?

If your Compliance Program is older than 2014, is what you would consider marginal, or is made up of cut-and-paste, you need to take this last opportunity before 2015 ends to get a fully compliant program into motion.

As you renew your NMLS licenses your Company’s financial reports require you to certify that your compliance program is up to date and remain a priority of management.

If you are still unsure of what is frequently audited, we have developed an audit checklist for your use.  Our checklist is current as of November. Some states have expanded on it but this is what we could consider to be a safe minimum amount of preparation.

We recently expanded staff and can guarantee that any new client who contacts us this week will have the tools to be compliant by the Holidays.

Please let us hear from you. You don’t have to keep worrying about this and you don’t have to suffer the results of a bad audit.

To receive a copy of our Audit Checklist, CLICK HERE.

To call us, dial (800) 656-4584 anytime. Thanks.

Want to see what is on a typical Audit Notice?

This past week I was contacted by several clients who received Audit Letters in the mail. One of them sent me a copy of the Audit Letter to review. 

The Audit Letters are ominous because they are more robust than I have seen in the past and indicate the State is aggressively incorporating federal guidelines. It’s not just about state regulations anymore.  

I think it would be a good idea for you to think about the below, and email me with questions. Some of these things might apply to you.

Here are some examples of just a few of the items included in the eleven page Audit Letter.

• Emphasis on MLO Employment Contracts and Employee Files, likely to investigate compliance with training and to analyze your W-2 versus 1099 situations
• List of third party providers to investigate Privacy Act Compliance, possible unreported ABA situations,  and payments between entities
• Form 941 – Federal Employer Quarterly Tax Return (I told you so)
• Warehouse Line Agreements – looking for more than one agreement and comparing financials used for line approval with actual books and records
• Advertising Log with samples back two years
• Proof of Acceptance of Duties of Managers and Officers
• Bank Accounts verifying third party payments and CFPB Comp Plan commission compliance
• Corporate Minutes or LLC Records to establish Compliance as ongoing topic of Management
• Random spot checks of minimum net worth requirement at any point in time to detected unreported deficiencies in net worth

I have the actual audit letter should anyone want to discuss it.

Call us at (800) 656-4584.

Office Security and the Privacy Act and your Identity Theft Prevention Program……..what to do?

The Financial Services Modernization Act (1999) (“Gramm Leach Bliley”) has two main components that all brokers and lenders should be aware of.

The Financial Privacy Rule regulates collection and disclosure of non-public personal information (“NPI”). The Safeguards Rule regulates the protection of such NPI when it is in your possession.

Lately I have been taking quite a few questions from clients and that leads me to conclude that many brokers and lenders are concerned about the security of data in their office. Good for you!

Thus, this blog post is going to address the Safeguards Rule as it relates to Office Security.

Here is the general idea. All NPI must be protected at all times. This means:

When working at your desk, only have the NPI relevant to the exact files you are actively working on. All other NPI should be off the desk top in a safe drawer.

When you go to lunch, you should lock your office door. If you don’t have an office door to your specific work area then put the  NPI in a file cabinet or desk that locks.

When you go home at night nothing  should be left on desk tops or in shredding boxes (waiting to be shredded) – especially if your office has a cleaning crew.

IF there is a window between your reception area and your work area (think medical office layout) the window must be lockable  or have some sort of protective screen installed.

If you have a door to your production area, it should have an automatic closer on it, and a keypad for employee use for access.

Computers should not be left on at night unless they are password protected.

IF you store files electronically (instead of keeping paper copies) they should be stored on a server locked in a closet or computer room and NOT connected to the internet in any way. Access to that computer must be limited and password protected.

IF you have a staging area for documents to be shredded it must be a locking box.

I hope this helps. The idea is clear.

We have openings for new clients right now. If you want to work with a Compliance Service that is managed by a 26 year Mortgage Banker Veteran and Attorney, call us at 800-656-4584. You won’t believe the value here. We don’t just sell you books and disappear. We are your compliance partner for a full year.

What about that new Special Information Booklet …..the “Toolkit” ….. when do I have to provide?

For many years we have been providing booklets at application and at closing, but the process has escalated to a very serious issue when you are audited. It used to be called the Settlement Costs Booklet. Now it is called the Toolkit. Do you provide the booklet as required?

The booklet must be delivered or placed in the mail no later than three business days after the application is received. We are talking about a qualified application (the “six things test”).

Delivered means handed to, or mailed in physical form in the US Mail, or UPS, or e-mail.  E-mail? Sure, why not? If you e-mail and request a receipt, and send it to an e-mail you know to be valid, it should satisfy Electronic Documents rules.

Lenders are required to deliver or mail the Toolkit not later than 3 days after receipt of an application.  However, in the Federal Register notice announcing the Toolkit’s availability, the CFPB encourages all market participants (such as realtors) “to provide the [Toolkit] to consumers at any other time, preferably as early in the home or mortgage shopping process as possible.”  The Toolkit is designed to be distributed electronically and has interactive worksheets and checklists. So that should end any argument that it had to go in the US Mail, huh. Just be sure you can prove you sent it.

It is not considered delivered if all you do is make it available on your website. You have to go a step further.

By the calls and emails I am receiving, I am discovering that many of you are not ready for TRID yet. If you are not my client, call me at (800) 656-4584 and let’s see what we can do about your compliance program.

Here is a link to the actual Toolkit. Take a look, today.

Filing Suspicious Activity Reports required by AML

We all know about Anti Money Laundering. No matter what kind of lending we engage in, we must be on guard for suspicious activity. We are required to understand what constitutes suspicious activity (“SAR”) (hence Red Flags etc.) and we are also required by the AML statutes to report certain suspicious activities to FinCen.

Finwhat? The Financial Crimes Enforcement Network. The government clearing house and enforcement arm for AML and other activities. These are the people who collect and distribute suspicious activity reports.

So what constitutes suspicious activity? That is for a different post. When we complete annual AML Training, this is all  explained in detail. If you need a refresher course see pages 19-37 of our Compliance Manual Book One. If you are not my client call me and I will inform you.

First here are some documents I put together to walk you through the Banking Secrecy act Web Site, where you can create an account so when you have a SAR to file, it will be easier and quicker for you .

1 SARS reporting via BSA eFile 090915

YOU MUST FILE so you have two choices as I see it. Do it manually, writing it out and mailing or emailing it; or use the eFile system. I recommend you use the eFfile system.

Next here is the link to get to the BSA Web Site. When asked about your regulator pick your state regulator.

http://bsaefiling.fincen.treas.gov/main.html

TRID Simplified…….Don’t lose hope…….you can do it…….the key is to keep calm and read on.

My regular clients will know what this is.

First, download the PDF and print it out.

Trid Simplified PDF Presentation 090315

Next, listen to this audio file. It is only 28 minutes long. There are a couple of minor issues, like when I speak of mortgages on mobile homes I needed to say NOT permanently attached. Also someone asked about the requirement for a signature on the Loan Estimate. There is no place for a borrower to sign. You have to be able to prove you provided it once the clock started ticking, and then prove you provided it again prior to “consummation” – according to the days required by the reg. here is the   language relied on  ” The consumer is not required to sign the Loan Estimate. The creditor may add a signature statement and have the consumer sign page 3 of the Loan Estimate in order to Confirm Receipt of the Loan Estimate by the consumer. If used by the creditor, the signature statement must contain the exact language from the model form. (§ 1026.37(n)(1))”

This is a lot easier than reading a 100 page “Quick Guide”……..

So shut up and dance.