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”.
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.
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.
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.
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.
Regarding Conflict of Interest and Dual Employment
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.
(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.
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.
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:
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.
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.
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!
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.
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.
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.
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?
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.
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 email@example.com
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 firstname.lastname@example.org
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.
You will not have to be licensed with DFI under the following scenarios:
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.
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.
You must have a license with DFI under the following scenarios:
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.
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.
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.
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.
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.
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.
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.
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.
Your pipeline and your work in progress belongs to your current sponsor, not you. If you sabotage your sponsor’s pipeline, it is theft.
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.
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.
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.
Many regulators will pursue not only the dishonest MLO but also the new sponsor that takes them in.
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.
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.
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.
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.
With the help of a good friend we have assembled a “Return to Work” package that includes the following items.
A customer notification of the risks of COVID and its effect on business.
An employee assumption of risk and waiver of liability upon returning to the office.
A CDC handout on COVID symptoms.
A CDC handout on social distancing and the use of masks.
A CDC handout suitable for use as a door sign about masks required.
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 email@example.com and I will get back to you. The cost is reasonable.
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!”
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.
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.
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.
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.”
“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.
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.
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 firstname.lastname@example.org
Do NOT attempt to handle this yourself.
This is a real issue and could cost you thousands more than necessary.
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.
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.
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.
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.
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.
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 email@example.com and let us know.
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 firstname.lastname@example.org and let us know.
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.
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.
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 email@example.com
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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
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.
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.
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. firstname.lastname@example.org
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.
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.
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.
Paying unlicensed mortgage loan originators or their proxies
Assistants who are acting as licensed MLOs.
Licensed MLOs you sponsor who have you pay their personal, unlicensed LLC or corp.
Licensed MLOs you sponsor who have you pay a third party entity in their name.
Lead Generators who are unlicensed but gather the type of information necessary to originate a loan – beyond mere contact information or public records.
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.
Ignoring SAFE ACT requirements for proper use of NMLS information.
Ignoring HUD, VA, and USDA requirements for government disclaimers.
No formal Advertising Book with a log and copies of all advertising
The Broker or Lender thinks his business cards and web sites are not advertising so he never audits them for compliance.
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.
Making NMLS information too hard for a consumer to locate. For example, burying it in the footer, or using 6 point type.
CFPB requirement for the use of the word LOAN after the words REVERSE MORTGAGE (UDAAP).
Mortgage Call Reports that are inaccurate.
The MCA does not match the Broker’s Loan Journal.
The MCA is late or incomplete.
Lack of Evidence of continuity in your Compliance Efforts
Failure to update.
Failure to miss required annual training.
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.
The loan is masquerading as a commercial loan. The “LLC” scam.
The package is missing minimal GFE and Closing Statement Requirements.
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.
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.
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.
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.
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.
“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”.
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.
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.”
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.
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
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.
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 email@example.com and write CYBER in the subject line.
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.
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.
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.
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?
A person acting in a fiduciary capacity conferred by the authority of a court. Probably NOT you.
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.
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.
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.
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.
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.
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.
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.
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?
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
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.
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.
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.
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.
Back in May 2016 the Department of Labor (“DOL”) announced that effective December 1st, 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 1st 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 1st 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.
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.
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.
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.
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
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
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 firstname.lastname@example.org
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
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.
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.
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.
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.
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.
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.
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.)
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?
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 4th.
Pick up that 800 pound phone and call me. (800) 656-4584. Confidentiality will apply, tell me your problems and we will fix them!
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.
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.
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.
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 tobe 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.
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:
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).
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.
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.
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 http://www.hudclips.com”
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!
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………
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.
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.
WHAT DOES THIS MEAN FOR YOU?
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.
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.