Florida Mortgage Professionals Take Note

July 30th, 2019

Taken from an OFR Audit Letter dated last week.

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

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

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

Nelson A. Locke, Esq.

Compliance Services, USA

800-656-4584

Business Purpose Loan Abuse is about to END

Commercial

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

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

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

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

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

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

Nelson A. Locke, Esq.

Compliance Services, USA.

nl@lockelaw.us

 

 

 

 

 

 

 

Private Lending and Licensing – Round Two.

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

 

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

 

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

 

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

 

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

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

Nelson A. Locke, Esq.

Compliance Services USA and Locke Law US

http://www.lockelaw.us

(800) 656-4584

 

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

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

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

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

That’s it for now.

Compliance Services USA

http://www.expertlenderservices.com

(800) 656-4584

 

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

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

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

LL Logo 112715If the rest of you are nervous I only have two things to say.

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

Nelson A. Locke, Esq

Compliance Services, LLC.

 

 

Discussion of the October 2017 RESPA TILA changes …….

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

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

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

Respectfully,

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

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

Paying unlicensed mortgage loan originators or their proxies

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

Advertising Issues

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

Mortgage Call Reports that are inaccurate.

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

Lack of Evidence of continuity in your Compliance Efforts

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

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

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

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

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

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

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

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

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

Nelson A. Locke, Esq.

Compliance Services USA

http://www.expertlenderservices.com