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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 A complete journal, in my mind, should include all intake, whether that intake be later withdrawn, or declined, or happily funded.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