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



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

SARS 090915

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.

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.


Compliance Manual Cover Image B 111914

Recently as several of my clients have undergone audits, it occurred to me that there was an additional way to focus a regulator once they show up in your office. That would be to create a one page mission statement and file it inside the front cover of your Book of Policies and Procedures. The mission statement tells them very concisely what you actually originate.

I completed one of these for a client and it was written to make it perfectly clear as to the type of loans the client originated and DID NOT originate. While the regulator will verify you are prepared and compliant regarding any type of loan you could legally originate, the mission statement helped him focus on where the bulk of your business was – not the occasional “one offs” you might be doing.

I have learned that the best audit will be one where you and the regulator are focused. Your part in this? You need to be focused on your total responsibility as a licensee and on having good policies and procedures, complete journals, good back up records, and good explanations where needed.

The regulator comes in your door not always knowing what they will see. Why not focus them by providing a concise mission statement? This simple step might make for a more efficient and maybe quicker office visit.

For more information, call me at (800) 656-4584.

Loan Journals and Audit Checklists – some Monday morning thoughts.

Thoughts about Loan Journals:

In the past few weeks I have encountered several brokers and lenders who were not keeping complete journals. A complete journal, in my mind, should include all intake, whether that intake be later withdrawn, or declined, or happily funded. And if you only do one type or another of exempt loan, you still need to consider that your regulators may require a journal regardless, where you have created a journal and shown that the loans are exempt. And if your business practice is to say, “we didn’t take an application” are you doing that to avoid the journal ?

The idea behind the journal is to protect consumers and validate proper adherence to state law, the ECOA and FAIR LENDING. And to allow the regulators to quickly review and trace handling of your consumers.  No one has “no” declines or withdrawals. If that’s your story, you may be creating a regulator concern of a different type. A concern that you either underwrite or otherwise work with lenders so loose in their standards regarding QM and ability to repay that they creatively make all your files work.

The objective a journal is to provide a road map of your consumers. You can’t do that if you leave 15% or so off the list.


Seems to me like a recent trend in audit requests, many more of you are popping up on the audit lists. I know because you call me. The best prepared hard money lender will realize he has a license not limited to Hard Money or Commercial. His license allows him to do any kind of mortgage brokerage or lending. Thus, he needs to act as if he is fully prepared in case such an agency or QM type deal came in the doors. It’s nice that some of you say “Well, we don’t do that”. If I were the regulator, that would not give me much comfort. I would want to know about the “what if you did?”

Now about all these audits – look at this checklist. If you see anything on here you don’t have, maybe you should let me know.

General Compliance Checklist for State or Federal Examinations

Use the following one page checklist to assess your level of readiness.

Do we have policies and procedures in place covering?

  • Federal regulations under the CFPB authority, such as RESPA, TILA, ECOA, FCRA, HMDA, FDPCA, SAFE and GLB?
  • Tracked distribution of compliance information and updates?
  • Third-party service provider due diligence, monitoring, non-disclosure, and accountability?
  • Origination, underwriting, and servicing practices, particularly in areas where the exercise of individual discretion is required?
  • Receiving, reporting, and resolving customer complaints, including the tracking of customer
  • complaints to detect trends and the actions taken in response?
  • Loan officer compensation and any other incentive programs for employees who interact with consumers?
  • Fair Lending Compliance, in connection with both origination and loss mitigation?
  • Credit reporting and the handling of credit disputes?
  • Collection of past due accounts, including policies on written and verbal communications to borrowers?
  • Document retention and management that complies with state and federal law?
  • Do we perform periodic compliance audits and self-assessments, especially with regard to fair lending and mortgage servicing issues?
  • How active is our company’s board of directors/managing member in regards to compliance? Do they receive reports and provide guidance on compliance issues?
  • Are minutes taken at regular meetings of our company’s board of directors or managing member and do those minutes document involvement in consumer compliance issues and efforts? If sub- committees exist such as compliance/audit committee and credit/pricing committee, do they have documented minutes showing involvement in consumer compliance issues?
  • Do we have a company-wide training plan that documents training efforts, particularly with regard to fair lending issues?
  • Have we satisfactorily resolved all issues arising during examinations conducted by other regulators?
  • Do we have an examination plan in place that covers:
  • Identification of a liaison/organizational contact who will interact with the regulator?
  • Assignment of a coordinator, who is responsible for coordinating the collection and delivery of requested information/documentation as well as implementing a strategy for dealing with requests for privileged documents?
  • Assignment of personnel to assist with the examination process, including distribution of materials, collection of documents, demonstration of systems and explanations of procedures?
  • Is our IT department aware of the regulator’s e-examination system and how your systems will be able to communicate with them?
  • Are we able to run reports and analyze data in the same way that the regulators can, using its e- examination system?


Nelson A. Locke, Esq.

Compliance Expert and Attorney

Office (800) 656-4584

Cell (305) 951-2785


Recent CFPB Enforcement Action may imply increased standard of care for a Lender or Broker


A recent report (June 2015) issued by the feds spoke of ECOA and Credit Bureau issues, among others. The other issues were credit card and servicer oriented so most would not apply to you all.  

The good news is if you are my client – your Policies and Procedures in Book One cover these areas well. If you are not my client, maybe you should be.

Issue One: Fair Lending comment about underwriting.

If you are a lender underwriting your own files be sure you have some training in place about Fair Lending and ECOA that discusses among other things, public assistance. If you do this and keep a copy in your files behind your Fair Lending Policy, you will strengthen your position in the event of a regulator challenge.

If you are a Broker remember this. It seems logical that if the consumer files an ECOA complaint you could just point the finger at the lender that you brokered the loan to. However there are no guarantees that the consequences won’t drip down to your level like waterboarding. Thus it would not hurt to hold a short meeting with staff and remind them about public assistance. Why take a chance?

I can pretty well tell you if you acted as the Broker and actually have evidence of this training the regulators will go right back to the lender you worked with and forget about you.  You are in a defensible position.

While both the broker and the lender have a duty to comply with Fair Lending and ECOA, I think the lender’s duty is higher.

Here are the CFPB’s exact comment on this consumer violation.

Fair lending violations: Bureau examiners found that one or more institutions denied or discouraged mortgage applications from consumers because they would have relied on public assistance income in order to repay the loan. Excluding or refusing to consider public assistance income violates the Equal Credit Opportunity Act. The CFPB examiners directed that institutions change their policies and identify and provide remediation to harmed applicants.

Issue Two: Credit Bureau errors that cause you to change the loan program.

What about that client who claims the credit bureau has it all wrong? Should you try to help them get the error corrected? If you do are you in a better position should the consumer file a complaint at a later date? I think so.

The critical part of this that could dribble down to you is quality control. If you have been advised of an error by the consumer and as a result of the error you cannot actually put the consumer in the best possible loan, do you have liability if you knew? or should have known from what they told you or showed you? Maybe, and that’s the scary part. I can see some regulator saying you should have advised the client to hold off until the error was corrected instead of directing the consumer to a less advantageous program due to the error on the report.

Ten years ago, maybe not an issue. Today this is the age of consumer protection. Anti-steering and qualified mortgages are in full force and effect. Fiduciary duty is widely invoked. Dodd Frank and the SAFE Act hold you to a much higher standard of care. You must do all you can to insure you provide the best possible program. Especially when you know or should have known of an error that adversely and unfairly affected your consumer’s choices.

Anyway, here is what the CFPB had to say about the bureaus.

Accuracy problems at consumer reporting agencies: Examiners continue to find accuracy problems at one or more of the credit reporting agencies, stemming from issues with information collection and quality control. Examiners found that at least one consumer reporting agency did not conduct regular monitoring of its furnishers to make sure they were following requirements. Examiners also found no quality controls in place to test existing consumer reports for accuracy. CFPB Supervision directed one or more credit reporting agencies to develop a plan to implement such quality control.


Nelson A. Locke, Esq.

Compliance Expert and Attorney

Office (800) 656-4584

Cell (305) 951-2785

More on QM/ATR and Investment/Commercial Loans

Hello all,

One of my valued clients asked me about the applicability of the Qualified Mortgage Rule and the Ability to Repay Rule ……did they apply to loans securing investment or commercial properties. Apparently there are some attorneys and compliance people out there who think they do. As a mortgage guy, I think they do not.

It was a great question and something I think you all should read. Even though many of you do not work in the commercial or investment property arena, you must know the rules. Because a deal might come through your door and you want to handle it correctly.

This question demonstrated how complex things have become. Here we have one question where the answer involves careful study of QM, ATR, RESPA and TILA.

Keep Calm and ask questions! If you are not my client, you probably should be. I still have a few openings.




Transactions Covered by QM and ATR Rules

QM and ATR rules apply to the following:

  • Purchase and refinance transactions secured by owner-occupied and second homes.

QM and ATR rules do not apply to the following:

  • Investment property*

NOTE:   Investment properties that are for business purposes are exempt from QM rules.

If the borrower occupies any investment property for > 14 days in any given year the investment property is no longer considered for business purposes only and would be subject to QM and ATR rules.

Additionally, there can be no evidence that the borrower purchased/refinanced the investment property for personal rather than business reasons (e.g. property purchased for a family member).

This statement is derived from the ABA Opinion published in part below.  The author is well known and reliable.

Ability-to-Repay Rule

The Ability-to-Repay Rule, Regulation Z Section 1026.43, requires that a creditor make a “reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.” The creditor must follow underwriting requirements and verify the information by using reasonably relied upon third-party records. The rule applies to all residential mortgages including purchase loans, refinances, home equity loans, first liens, and subordinate liens. In short, if the creditor is making a loan secured by a principal residence, second or vacation home, condominium, or mobile or manufactured home, the creditor must verify the borrowers’ ability to repay the loan. The section does not apply to commercial or business loans, even if secured by a personal dwelling. It also does not apply to loans for timeshares, reverse mortgages, loan modifications, and temporary bridge loans.

Any questions, call me at (800) 656-4584

Hard Money Business Purpose Loans against Principal Residences

This is “risky business”. While there are exceptions in Reg Z that will allow you to make this kind of loan and stay outside of HOEPA and non-qualified mortgage areas, it is by no means crystal clear that this is something you should happily do again and again.

Here’s the issue. The Dodd Frank Act and the subsequent CFPB rules and interpretations are pretty crystal clear in their primary intent, to protect a borrower’s principal residence, his homestead. I don’t think any of us would argue that point, after all it is called the “Consumer Financial Protection Bureau.”

This is a classic situation of ambiguity. If you take Reg Z’s exception at face value, you might end up OK. The operative word is “might”.

You can protect yourself and improve your chances of surviving a regulator challenge to this type of loan by following this simple procedure.

  • Require the borrower to sign an affidavit at application, acknowledging that they intend for this loan to be for a proper business purpose, and that none of the proceeds will be used for anything other than that.
  • Then, at your closing, have them execute the same disclosure again, this time with a notary present.
  • If you retain these two documents in your files, and the customer’s business fails, and he then says that you steered him into putting his residence at risk, you have an argument.

It may be persuasive enough to keep you out of trouble.

If you just make the loan, and rely on the exception, it may imply you really did not investigate and thus failed some duty of care.

Look, like some of my policies I offer you, this is an optional one. But no one ever failed an audit for being too concerned with protecting consumers. That is exactly what this policy does.

If you want to learn more, call me at the number below. If you are not my client, perhaps you should think about it.

That’s it for now.

Nelson A. Locke, Esq.

Compliance Expert

(800) 656-4584

Do you advertise HUD or FHA products?

If you originate HUD loans (FHA) you should post this disclosure on your web site and your marketing materials.

Back in the day, this really was not an issue. Now with the CFPB it is an issue. Think of it from the consumer protection perspective. False or misleading advertising. Misleading is a big word, loose interpretation.

Things have certainly changed. For example, there used to be two HUD logos that existed. One was solid white, the other had a blue ring around it. The blue one was allowed for lenders to use, to announce their approval by HUD and FHA. The white one was for HUD or FHA use only. If only things were still that simple. However, even then, with only two choices of logos, most of us still got this one wrong and used the white one in marketing. The blue one was correct.

Hud or FHA would see the white logo and then call, probably order us to take down the white one, and we would change to the blue one. That does not happen anymore. I would recommend you NOT use either one.

So what can you do? If you want to stay out of trouble with HUD or FHA and avoid any perception that you are claiming to be affiliated with HUD, or have some sort of real or imaginary approval from HUD beyond that of your DE status, post this on your marketing materials.

“These materials are not from HUD or FHA and were not approved by HUD or a government agency. The Sender is not in any way affiliated with any organization listed or referenced within this website, including HUD/FHA. The inclusion of various education, information, web links, or materials are not an endorsement of the Sender or any of its employees or business partners. For information directly from HUD/FHA, visit

Feel free to cut and paste this on to the bottom of the first page of your marketing material and web site.

Anyone have any questions about anything? Just email me, hit reply and let me help you!

Financial Assessment is taking effect now – were your loan officers and underwriters prepared for the impact of this major change in our thinking?

So, how are you doing with financial assessment? Need any training?

Mortgage Industry Compliance Consulting

This post will be about Reverse Mortgages and the upcoming implementation of financial assessment. While I direct it to HECM originators and underwriters, you can probably rest assured it will end up on the agency or CFPB’s future “check lists” for use during an audit. So, what is a financial assessment?

Financial Assessment

Effective April 27th, 2015, all HECM borrowers will be submitted to a soft underwriting procedure called the “financial assessment”. It is a review procedure developed by FHA with input from the Industry. It requires the originator to be more savvy when collecting the initial data and requires the underwriter to review the borrower’s financial situation and certify to HUD that the borrower is “HECM-worthy”, and that the borrower’s financial profile is such that it becomes unlikely the HECM would default and become a liability to the FHA fund down the road somewhere.

Credit will be scrutinized more closely. In addition to federal or…

View original post 264 more words

Is your compliance consultant licensed? If you need a license, shouldn’t they?

Audit satsifactory

When a mortgage broker or mini-correspondent is making the important decision to retain a compliance firm one of the most important things they should consider is size. In this case, big is not always better and here’s why.

We hear from around 50 mortgage brokers and mini-correspondents a week. Many are already clients of our compliance audit prep and defense practice – calling with a question. The rest, well, they are fishing for the answer to how to best protect themselves as they realize how far out of compliance they actually are.

Some are impressed with large national firms that run full page advertising in trade papers. As they swoon over the large ad they fail to notice that the company employees non-attorney staff that are not trained to reason their way through all these regulations and understand the true meaning of the regs. That’s not us; I am an attorney with special training  regarding the CFPB, HUD, and the APA. Acting as your compliance advisor we will help you reason your way through regulations.

Sometimes the mortgage broker or mini-correspondent fails to ask if the compliance consultant has ever actually been a mortgage broker. And most of them have not. Ask if the consultant has an NMLS license. WE do. I originate loans and hold several NMLS licenses. This means when we work with our mortgage brokers and mini-correspondents we understand the process and how to integrate regulations with reality.

Integrating regulations with reality. Does that sound good to you? Further, would you like working with someone who is available quickly via email or phone to guide you at those critical decision moments? That’s us.

Call today, let’s get together and get you compliant before you find yourself holding that audit letter and wondering what you will do in your next career. Just sayin………

(800) 557-6580

Does the recent SCOTUS decision about overtime affect you?


On March 9, 2015 the Supreme Court reversed a ruling of the U.S. Court of Appeals for the D.C. Circuit that struck down a DOL administrative ruling regarding MLO overtime. The Court in a 9-0 decision ruled that because the 2006 DOL Opinion Letter was itself merely an interpretation of an existing rule and not a new rule with the force and effect of law DOL could reverse its prior position and issue a new interpretation without prior notice and the requirement of industry comments.

History – under the administrative exemption of the FLSA employees who are paid on a salary basis of at least $455 per week 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 should not be considered exempt any longer.

What can you do to protect yourself from being sued for overtime by a disgruntled or opportunistic former MLO? Back in 2002 this happened to me, so I can speak from some experience here.

First – don’t fight the rule but rather have a policy in writing that prohibits any work beyond 35 hours a week unless approved in writing. As long as you would enforce this strongly, I think this creates a rebuttable presumption for the DOL that you may have had an MLO who stepped outside his job description if he worked more hours than 35 hours a week. “Ultra vires” or “frolic and detour” argument. The key to this is to enforce your policy. You would need a procedure in place that monitors MLO time sheets and has your MLO sign a certification about hours worked under penalty of perjury each and every pay period, whether they have commission due or not. And you would need to demonstrate you sent people home when appropriate.

Next – your policy about overtime. Don’t prohibit overtime; just require a pre-approval in writing. Next, monitoring each and every pay period with MLO certification regarding hours reported. Be able to show you enforce your own rules.

OK, confused? I do this. Need help? Just give me a call at (800) 656-4584 and let me be your compliance guy. I am a plain talking attorney who is also an active MLO. That means I know how your world really works. My work always reflects logical application of regulations to the real world. As best as can be done. Your comments are welcome. Let’s stay out of trouble; it’s dangerous out there.

That’s it for now.

More Changes for Brokers and Lenders – no longer exempt?

It now appears that after a five year period of uncertainty and an appeal all the way to the Supreme Court, Mortgage loan officers are now entitled to a 40-hour work week and overtime pay. The U.S. Supreme Court has now ruled that the Department of Labor was within its rights when it chose to reclassify loan officers as non-exempt employees who are eligible for overtime.


In ruling on the appeal, Perez v. Mortgage Bankers Association, the Supreme Court concluded the Department of Labor did not violate the Administrative Procedures Act when it made the change to the loan officer rule. It justified the decision by concluding that the agency was not held to the APA when issuing an interpretive rule. There were three dissenting opinions, predictably from conservative justices.

The suit, which was championed by the MBA, caused the MBA to report it was “disappointed” by the decision, but is ready to move forward and help its members work within the confines of the rule.


Let’s just start by saying, this is not going to be negotiable. It’s a Supreme Court Decision, it’s over. Thus, I really don’t know where to start. That’s because I still fight with brokers and lenders at least once a week who still think W-2 or 1099 is an option for their employees.

Now we have to tackle the idea of time sheets? How are you going to get them to comply? And can your cash flow handle this? And if you set up some form of sham pay plan, are you ready for the inevitable FLSA claim as soon as someone gets angry with you? I’ve been there and it is not a good place to visit.

Further, this is a “top five” source of fines resulting from an audit.

There are options. This is what I do. If you need to talk about options to comply with this change and not go broke, call me at (800) 656-4584. And open your mind, because no matter what you do, it will be change. Over and out.

An Audit Horror Story, will your audit sound like this one?

Fear Name Tag

Last month I was contacted by a very frightened Mortgage Banker, a small shop with about seven employees doing Agency loans.

This woman tried her hardest to always do the right thing but made three big mistakes that I believe will cause her to lose her license. It was avoidable. I got to thinking; is this YOUR story? So I will share just enough of the story  that you can ask yourself that very important question. IS THIS YOUR STORY? Here’s part of what happened.

1. The Banker accepted assurances from staff that compliance and quality control were up to par. They weren’t. Staff gave the quick answer, because they were employees not owners and not invested in the need to tell the complete truth.

2. The Banker’s Company did not have any kind of written customer complaint policy in place. Then a consumer had a “bad experience” and complained to an Agency. When the regulator showed up unannounced to investigate the complaint, which is what they do; a presumption of non-compliance was created when no customer complaint policy was found to be in effect.

3. Once staff became sufficiently frightened by the regulator’s presence staff engaged in “self help” after the fact and tried to “fix” the problem file. They thought no one was looking. Well someone was. A regulator was looking. Now we also had a presumption of dishonesty. This is the one that will always result in the worst possible scenario for the Banker. The presumption is the attitude came from the top. That’s you, right?


This Banker will likely lose her company’s  Lender Approval, and may even lose her personal MLO license. All of this was avoidable. How?

An honest assessment NOW about how good your program really is. Just because you spent a lot of money, does not mean your compliance program is good. It just means you may have paid too much.

Consider the use of an outside Compliance Expert to examine what YOU do and tell you if it is sufficient to keep you in that “presumption of compliance” zone.

Train your staff; tell them the consequences of conduct such as what I have described here.

Keep an eye on them.

Consider appointing your outside QC person as Agency liaison. This keeps the contact professional and does not disrupt staff where they get to the point of fear.

This is what I do. Call me at (800) 557-6580 and ask for help.

Do you offer Reverse Mortgages?


Usually, because of the unique nature of the product and the ever-changing regulations, you should consider having a compliance expert who has actually originated these loans.  In my experience, those traditional forward loan compliance people miss many of the nuances of the HECM program, leaving you to pay the fine. Maybe you need to think about that?

I have personally originated or supervised or underwritten over 3,000 HECMs. I am a DE Underwriter, licensed attorney, and Compliance Expert.

Don’t take a chance that your forward “guy” will actually know the differences. Protect yourself. Call me today.  (800) 557-6580

Take a look here.

“I just got an audit letter. What should I do now?”

Auditor Auditee 022015

When that dreaded audit letter shows up most brokers and lenders instinctively reach out to the regulator and try to start a dialog about his audit objectives. Is this a good thing? I will give you my opinion at the bottom of this post.

It’s always good to know why you were selected for an audit. There are three ways you are usually selected. First way: you have a customer complaint hanging in the wind and the regulator wants to investigate to determine the merit of the complaint and how robust your business practices are, or are not. Second, in the absence of a consumer complaint, an audit could be triggered by a suspicious activity report. A suspicious activity report (“SAR”) can be filed by any qualified industry participant who feels there is probable cause that you or your company may be doing something improper. “May” is the big word here, because this process gets very subjective. It is supposed to be taken seriously but I have seen it used improperly by parties who think that filing SARS makes them somehow look more compliant or concerned with proper operations. Finally, you can be selected randomly for an audit.

So here’s the deal. One way or the other, the auditors are likely coming. Let’s hope you are selected randomly. A random audit will follow the agency audit checklists and will be more friendly and personable.

However, if there was a SAR filed – and there is really no such thing as a “wrongful SAR” because the government impliedly encourages reporting which means literally  anyone wanting to impress their boss can recommend a SAR – you will be affected by the filing for years and approached with suspicion. If you think a SAR triggered your audit, be careful how you respond to the regulator. In fact, it is smart to have your attorney respond for you.

Now, if the audit was triggered by a consumer complaint you can usually tell pretty quickly. It is revealed by the auditor if asked. Your response should be to show you have a good CFPB compliant consumer complaint policy with a designated executive and a proper log book. This will show the auditor how your consumer complaints are handled and what the resolution was. This builds credibility.

However here is my best advice. For any audit notice call your outside compliance specialist right away. Appoint them your CFPB or AGENCY liaison. Let them do the “asking” for you.

By the way, I do this. Call me today. Before you find yourself in trouble. (800) 557-6580

So, can you talk amongst yourselves about what happened during your audit? You will be shocked at this opinion.


This week, the Consumer Financial Protection Bureau (CFPB) notified mortgage lenders on how to treat confidential information related to the agency’s examination practices.

Under the CFPB’s regulations, reference is made to CSI. CSI may include any work papers or other documentation that CFPB examiners have prepared in the course of an examination. Any CFPB supervisory actions, such as memoranda of understanding between the CFPB and an institution and related submissions and correspondence, are also considered as confidential information.

Even if firms have signed private confidentiality and non-disclosure agreements that restrict the sharing of certain information with a regulator, the NDAA may very well be considered voidable and superseded by CFPB regulation.  The Bureau has authority over certain non-bank financial companies such as mortgage lenders and servicers, payday lenders, private student lenders, as well as large debt collectors, consumer reporting agencies, student loan servicers and international remittance providers.

So this bulletin addresses the work papers prepared by the auditor or regulator as they work their way through your records. What I think it means, is that even if you have a confidentiality agreement with a party, federal rules supersede that agreement and you are NOT allowed to discuss the confidential work papers of the auditors who examined you. So if there is a practice out there of sharing “audit stories” it may now become a violation to talk amongst yourselves about certain aspects of audits.

Unless of course a lawyer-client or other qualified privilege exist. Such as psychiatrist, pastor, spouse; etc.

Sounds a bit like shock and awe tactics. Not sure; maybe I have misread it. One things for sure, with all the complexity of the CFPB you will need a psychiatrist, and you already need a good lawyer.  The six page bulletin is available here.

“I have compliance manuals I created a long time ago, they were good back then, why change?”

Here are why you should take a good hard look at your existing Compliance Manual.

DODD-FRANK did not exist “back then”.

The SAFE ACT did not exist “back then”.

The CFPB had not even been conceived “back then”

The NMLS was in its gestation period…..but not up yet “back then”.

Everything is different. Everything has changed. You should either compare your home grown manual to a current iteration of what the CFPB looks for, or just throw in the towel and start as if you didn’t have a program at all. Sometimes the clean sweep is the best way to create the presumption of compliance. Imagine the look on your auditor’s face. He just asked for your Compliance Manuals. And you said….”here they are, we have used these since 2008″.

Look, its ALL different. You originate, you know that. You have been dealing with it daily as your sponsors struggle to protect themselves by monitoring you. It’s a new question every day. It’s a whole new world out there for us mortgage lenders.

Here’s an idea. I offer a subscription plan whereby you can send me your compliance questions whenever they arise, and I will provide guidance via an email response based on knowledge of our current world. Just don’t abuse me, folks. If you are that far out of compliance or out of date, just engage me and let’s get rolling.

You can reach me at (800) 557-6580. That’s it for now.

Financial Assessment is taking effect now – were your loan officers and underwriters prepared for the impact of this major change in our thinking?

This post will be about Reverse Mortgages and the upcoming implementation of financial assessment. While I direct it to HECM originators and underwriters, you can probably rest assured it will end up on the agency or CFPB’s future “check lists” for use during an audit. So, what is a financial assessment?

Financial Assessment

Effective April 27th, 2015, all HECM borrowers will be submitted to a soft underwriting procedure called the “financial assessment”. It is a review procedure developed by FHA with input from the Industry. It requires the originator to be more savvy when collecting the initial data and requires the underwriter to review the borrower’s financial situation and certify to HUD that the borrower is “HECM-worthy”, and that the borrower’s financial profile is such that it becomes unlikely the HECM would default and become a liability to the FHA fund down the road somewhere.

Credit will be scrutinized more closely. In addition to federal or other liens and problems with prior mortgages, the underwriters will now screen at an enhanced level looking for borrower patterns of financial irresponsibility regarding use of credit, payment of taxes, maintenance, and insurance.  Title histories will be scrutinized more closely for unusual changes in ownership. And as always occupancy will remain a key issue for underwriter comfort level.

While this assessment does not rise to the level of a full underwrite it is certainly much more involved than what our borrowers have had to satisfy in the past.

Underwriters, you know your additional responsibilities. You read  ML 14-21, 14-22, and HUD’s Financial Assessment Guide . But what about you originators?

You guys are going to have to  ask more questions, dig deeper into credit, verify more, and educate more. If you don’t, your borrower will hear it all from the counselor, and FUD will ruin your prospects.

Because I also originate loans, I just completed my first round with financial assessment. It was manageable. Your attitude is a big part of how you deal with this change.

I am available for a one hour webinar with yourself or your staff, to review this new development and provide some guidance especially to the MLO. All you have to do is call the number above. Affordable training done by a licensed compliance attorney who actually originates HECM loans, go figure huh.

Don’t lose business where you can avoid it. And don’t originate loans that don’t meet the new guidelines, because that disappoints your senior and upsets the guy who pays the bills.

That’s it for now. If you need me, just let me know.

Just a note, something to think about. Can you create a presumption of compliance?

Wow. As a licensed attorney and mortgage industry specialist, I have been focused tightly on assisting small lenders and mortgage brokers regarding agency compliance and audit preparation. I am here to tell you there are still a lot of folks out there who think it’s still “business as usual” from the pre-SAFE Act and CFPB days.

Well, it’s not.  Just google search companies like the large lender in Utah who recently answered CFPB findings regarding mortgage loan officer steering (comp plan structure) by paying huge fines. It didn’t stop there. Now they are apparently being directed to refund money to clients on any loan “tainted” by these non-compliant pay plans. OK, in trouble, what’s the solution? Pay lots and lots of money, and to wake up every morning for the near future realizing they are now on every agency radar and even an intentional miss-step will likely cause another visit.

Your situation doesn’t have to be like that. If you as a small broker or lender take the situation seriously. Even if your past compliance efforts may have been a little lacking, you will be in better shape when your audit commences if you can demonstrate that you worked hard to get compliant. How the very first audit interview goes will set the tone for the audit. Wouldn’t you prefer that there was a presumption of compliance, rather than a presumption of non-compliance?

That’s where an experienced compliance consultant pays off big. A person with actual experience in the trenches preferably trained in the law, who can guide you into a safer harbor and then be available to assist with audits or defense as required. And defend you if you find yourself in federal court.

So answer me honestly. Are you comfortable with your compliance program? If so, good luck. If maybe, why not let me take a look at what you presently offer? If not, run don’t walk to the phone and call me.

There is no better feeling that closing an audit with minimal findings. I can be reached at 800-557-6580, that’s it for now.

Gramm Leach Bliley – Identity Theft – and “What’s in your wallet”?

I was recently working on a situation where we needed to see some old documents related to a file that was in controversy. After much pushing and pulling a third party produced personal identification, documents, and photographs that had originally been provided when that third party was an employee of a different institution. What were they doing with that information in their possession?  Was this proper? Can you keep personal information about your past clients to include materials that could create a risk of identity theft for them or a potential abuse of  their privacy?

I don’t think so. There might be some argument about regulatory record retention that you could try to rely on, but I believe the CFPB would look upon this as creating a consumer risk that actually had no purpose as an offset.

Now think, what’s in your “wallet”? Of course, I mean your storage files.

If you have any of this personal information, or have kept documents that should have been shredded after submission to your funding lender, I suggest you go to your storage facility and shred all of them right now. Keep only the file basics as required by state and federal law. Protect your client’s identity and privacy by shredding the supporting identification documentation.

Got it?

Let me work for you, Give me a call at 800-557-6580. Knowledgeable and affordable. Over and out.

Have your compliance questions answered within 24 hours by an expert at a fixed cost.

Many of my Mortgage Industry Compliance Clients tell me that before they found me, they sometimes waited days for a response from their compliance advisors. This increased chances that they would be in violation of a regulation and subject to possible fines.

So I set up a system to make this easy for you.

You can subscribe to our Q+A service on a six month or annual basis and I will respond to your compliance questions within 24 hours. If the matter is one so serious that I feel you should investigate your situation further, I will discount my hourly rate for anyone with a subscription. These are not canned answers, they are personal to your question.

This service is a nice compliment to the policies, procedures, governance documents, and training packages that I have already assembled. You have 24 hour access for questions. I have a new client. Win-Win, right!

Our new Plano office is one block away from a Texas Federal Courthouse. CFPB issues are federal and we are admitted to the federal bar. We can represent you when the CFPB comes knocking.

So, think about the value added here. What good does the big firm do you if you can’t get through to them?  Let me hear from you!

Special Logs for Client Use

To my Clients:

On your compliance shelf you should have at least six manuals at the ready.

Here is the list.

  1. Compliance Book One – Operational Policies and Procedures
  2. Compliance Book Two – MLO Policies and Comp Plans
  3. Compliance Book Three – Reference Material
  4. Advertising Log  LOG Advertising Log Client 011716
  5. Customer Complaint Log LOG Complaint Log Client 011716
  6. QC Manual and Post-Closing Audit Reports LOG Loan Transaction Log Client 011716
  7. Conversation Log for Processors LOG Conversation Log Client 011716

In the event you need items 4 to 7, the links are attached.

Thanks for engaging us, we appreciate it!

Nelson A. Locke, Esq.

(800) 656-4584