HUD Mortgagee Letter 2022-22

December 19^th, 2022

RE:          HUD Mortgage Letter 2022-22

                Regarding Conflict of Interest and Dual Employment

Folks,

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

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

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

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

(i) Eligibility of Employees

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

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

(ii) Compensation

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

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

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

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

(iv) Conflicts of Interest

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

Comment: This will be addressed below, item f.

(v) Underwriters

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

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

HUD: The Mortgagee must ensure that its underwriters:

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

Comment: No changes here.

(vi) HECM Originators

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

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

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

f. Conflicts of Interest

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

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

• underwriters
• Appraisers
• inspectors
• engineers

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

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

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

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

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

Comment: HUD specifies MORTGAGE APPROVAL DECISION.  

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

Comment: Opens the door to the realtor issue.

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

Respectfully,

Nelson A. Locke, Esq.

Office (800) 656-4584

www.lockelaw.us

Your website link to HUD may be hijacked.

Looks like the hackers are at it again.

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

This is important, please do not ignore this request.

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

https://www.hud.gov/guidance

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

Nelson A. Locke, Esq

Compliance Services USA

https://www.lockelaw.us

Special AML/RISK/CYBER Certification Course

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

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

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

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

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

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

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

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

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

Thanks in advance.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

nl@lockelaw.us

About the Covid Moratorium…..

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

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

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

(From the Consumer Financial Protection Bureau)

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

Nelson A. Locke, Esq.

http://www.lockelaw.us

More about using unlicensed originators.

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

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

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

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

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

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

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

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

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

Nelson A. Locke, Esq.

Compliance Services USA

Former Obama Appointee to lead CFPB.

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

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

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

Nelson A. Locke, Esq.

Compliance Services USA

Here are some recent Auditor Comments.

August 13th, 2020

 

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

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

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

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

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

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

Nelson A. Locke, Esq

Compliance Services USA

Interesting FRAUD case here. Just an FYI.

 

August 4th, 2020

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

I have nothing to say here. Incredible.

Respectfully,

Nelson A. Locke, Esq.

(800)656-4584

 

Regarding Broker and Lender Quality Control Efforts…….

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

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

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

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

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

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

That’s it for now. Stay safe.

Nelson A. Locke, Esq.

(800) 656-4584

BE AWARE OF THIS……

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

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

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

As always, email us with questions.

nl@lockelaw.us

Nelson A. Locke, Esq.

800-656-4584

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

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

Why? Respa violations 101.

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

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

 

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

Nelson A. Locke, Esq.

Compliance Services, USA

(800) 656-4584

www.lockelaw.us

 

 

 

Regulators will be requiring better responses to their audit findings.

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

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

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

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

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

Thanks for reading.

Nelson A. Locke, Esq.

(800) 656-4584

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

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

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

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

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

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

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

Email if any questions.

 

Nelson A. Locke, Esq

Compliance Services, USA

(800) 656-4584

AML And BSA Annual Risk Assessment Compliance

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

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

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

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

AML And BSA Annual Risk Assessment Compliance

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

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

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

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

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

Florida OFR Audit Alert

August 12th, 2018

This is a special alert for my clients.

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

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

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

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

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

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

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

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

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

That’s it for now.

Nelson A. Locke, Esq

Compliance Services USA

(800) 656-4584

DODD FRANK REFORM BILL WEBINAR

Hi there.

The title says it all.

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

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

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

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

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

See you there.

 

Nelson A. Locke, Esq

Compliance Services USA

(800) 656-4584

http://www.expertlenderservices.com

 

 

 

DODD FRANK REFORM BILL WEBINAR

Hi there.

The title says it all.

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

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

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

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

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

See you there.

 

Nelson A. Locke, Esq

Compliance Services USA

(800) 656-4584

http://www.expertlenderservices.com

 

 

 

Rule Change regarding use of a CD to reset tolerances.

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

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

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

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

Nelson A. Locke, Esq.

Compliance Services USA 

(800) 656-4584

 

Template for Occupancy Fraud Affidavit

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

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

That’s it for now.

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

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

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

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

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

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

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

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

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

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

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

Understood, this _________ day of ________, 2018;

 

____________________________________            ___________________________________

Borrower                                                         Co-Borrower

 

___________________________________

Witness

 

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

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

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

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

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

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

Nelson A. Locke, Esq.

(800) 656-4584

http://www.expertlenderservices.com

Rapid Rescores and Extra Cost

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

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

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

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

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

Nelson A. Locke, Esq.

Compliance Services USA

http://www.expertlenderservices.com

(800) 656-4584

 

 

 

Updated HMDA Guidance

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

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

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

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

 

Name(required)

Email(required)

Website

HMDA WEBINAR - YES(required)

Submit

Δ

Good luck with the reading assignment.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

http://www.lockelaw.us

 

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

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

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

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

That’s it for now.

Compliance Services USA

http://www.expertlenderservices.com

(800) 656-4584

 

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

Hi folks.

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

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

Do NOT make that mistake.

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

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

 

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

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

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

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

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

Nelson A. Locke, Esq

Compliance Services, LLC.

 

 

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

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

EQUIFAX CYBERSECURITY INCIDENT

Dear Client,

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

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

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

Sincerely,

Your Name, NMLS Number, Address, and Phone.

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

Thanks for reading.

Nelson A. Locke, Esq.

http://www.expertlenderservices.com

 

 

2018 HMDA Reporting and Accuracy Testing by the Regulators

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

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

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

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

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

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

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

Paying unlicensed mortgage loan originators or their proxies

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

Advertising Issues

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

Mortgage Call Reports that are inaccurate.

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

Lack of Evidence of continuity in your Compliance Efforts

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

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

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

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

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

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

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

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

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

Nelson A. Locke, Esq.

Compliance Services USA

http://www.expertlenderservices.com

 

 

 

Electronic File Storage – things to consider.

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

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

 

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

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

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

http:/www.expertlenderservices.com

 

 

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

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

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

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

An update on potential CFPB changes……

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

Hot off the CFPB presses:

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

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

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

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

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

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

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

(800) 656-4584

Nelson A. Locke, Esq.

Compliance Services USA

CLICK HERE to view Web Site

CLICK HERE to send email and request more information

Mortgage Brokers and Realtors Indicted

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

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

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

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

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

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

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

sb-1298-mortgage-brokers

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

 Respectfully,

 Nelson A. Locke, Esq.

Mortgage Industry Compliance Expert

Attorney and Expert Witness

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

 

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

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

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

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

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

Paid for referrals through agreements:

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

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

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

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

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

Respectfully,

Nelson A. Locke, Esq.

Compliance Services

Click Here to view our Web Site

 

 

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

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

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

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

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

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

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

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

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

 

 

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

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

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

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

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

Q: Who has to prepare the CD?

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

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

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

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

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

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

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

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

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

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

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

trid-webinar-82715

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

Respectfully,

Nelson A. Locke, Esq.

Mortgage Industry Compliance Expert

Attorney and Expert Witness

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

 

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

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

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

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

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

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

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

(800) 656-4584 Extension 103

CLICK HERE  to view our web site.

 

 

 

Have a laugh on me. Read below.

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

So, at the bottom it also said this:

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

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

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

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

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

With respect,

Nelson A. Locke, Esq.

Compliance Services and Locke Law US, LLC

(800) 656-4584

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

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

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

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

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

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

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

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

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

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

Nelson A. Locke, Esq.

(800) 656-4584

 

 

 

 

 

 

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

October 18^th, 2016

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

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

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

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

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

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

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

Directly from the IRS:

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

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

NOW about the Fair Labor Standards Act:

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

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

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

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

More about your Corporate Governance Book….

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

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

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

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

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

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

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

Thanks.

Nelson A. Locke, Esq.

Compliance Services

(800) 656-4584

 

Don’t get excited, not gonna happen.

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

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

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

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

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

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

Compliance Services Web Site

This is what should be on your Compliance Shelf.

Hi Folks,

We get asked a lot what we mean when we talk about the power of the Compliance Shelf. So I decided to tell you and show you a few pictures. These are from clients of ours.

When you are visited by your regulator it goes pretty far if he or she notices a dedicated area for your Compliance Manuals and Notes (the “Compliance Shelf”). The mere existence of this shelf creates an impression that your company takes compliance seriously. So you come out of the audit gate having impressed the regulator with your preparation. That good first impression.

What does a strong Compliance Shelf look like? It has your Audit Policies and Procedures, your MLO Policies and Procedures, your Regulatory Reference Book, an Advertising Log (back two years), a Customer Complaint Log (back two years), and finally, your QC Manual and Audit Report Log, with copies of all audits and management response. Here are two examples – the one on the right was recently audited by Texas and passed.

   

But please, don’t think for a moment that just making this impression will save your audit from disaster. You need to live by your policies and procedures. You need to know what they mean and you need to put them into practice.

Compliance is not a part time thing. You must form a “habit of compliance”. Every day, every file. That’s how you have good audit results. It has to be your company culture. Your “shelf” is just part of the big picture.

So, what’s on YOUR “Compliance Shelf”?

Want to learn more? Call us at (800) 656-4584. Over and out.

(Thanks to Eddie and Fred for providing us with these outstanding pictures.)

How to lose your Broker’s License

Hi People, We have two things of interest here we think you should read.

The first is a Consent Order from a state regulator.

What I would like you to see is on the bottom of page one and top of page two. Notice how vague items a and f were. Any good regulator could drive a truck through that open door and run right over you. This is public record but I redacted anyway. This likely could have been prevented by having a serious compliance program and actually following the guidance. How about you? Have you used the materials we have provided? Do you have a “Compliance Shelf” both physically and virtually? Actual Books for reference, with desktop links on key computers?

Redacted Final Order for Client Review 011116

That brings me to my second attachment. Congratulations to my client Eddie Lester. This is his Compliance Shelf. I visited his office yesterday and everything was good. Locks on files, posters and necessary policies on the wall, “Tool Kits” printed and ready for use, name and hours on the door, and more. How about you?

If you are clients already let us hear your questions.

If you are not our client yet, what are you waiting for? Wait long enough, and you might end up like the broker that was shut down January 4^th.

Pick up that 800 pound phone and call me. (800) 656-4584. Confidentiality will apply, tell me your problems and we will fix them!

Nelson A. Locke, Esq.

Compliance Services

Commercial Loans and Private Lenders

 

January 2nd, 2016

Because of the aggressive nature of the CFPB audit practice and the predictable fear that it creates among brokers and lenders, some of you have chosen to focus on the commercial niche. The mistaken belief is that by switching to commercial, you avoid the risks associated with RESPA, TRID, and the usual compliance requirements of a mortgage broker or lender. Some of you even think you are exempt from the SAFE Act and can let your licenses lapse.

Folks, don’t do this. You can run from compliance but you can’t hide, and they will get around to you eventually. Even if your business model changes to full commercial lending, you still have a healthy list of rules and regulations you MUST comply with in order to pass an audit. And in 99% of the situations I have investigated a license is required.

I drafted a compilation of some Q&A I searched out. It is informative and can be helpful to you. Download this and read it before you make any decisions about reducing or eliminating your compliance efforts.

Commercial Loans and RESPA TRID FAQ 123115

Thanks for reading, call us at (800) 656-4584 and request information about how to engage Compliance Services. You will be amazed at how easy we will make the process for you. Hundreds of clients  and all of them happy.

Nelson A. Locke, Esq

(800) 656-4584

Foreign Nationals and RESPA TRID

January 2nd 2016,

Yes it is true, I cannot stay away from the office for very long. Good for you, huh.

During the past quarter we were engaged by several mortgage companies that  specialize in loans to Foreign Nationals. they also offer federally related loans, but foreign national loans are a specialty.

So I decided to create a one  page summary of when you need to apply RESPA and TRID, and when you can revert to the old way of using a HUD-1 and maybe a classic GFE.

Foreign National Guidelines 100315

Happy New Year everybody!

Nelson A Locke, Esq.

(800) 656-4584

http://www.expertlenderservices.com

 

Ready for year-end certification?

If your Compliance Program is older than 2014, is what you would consider marginal, or is made up of cut-and-paste, you need to take this last opportunity before 2015 ends to get a fully compliant program into motion.

As you renew your NMLS licenses your Company’s financial reports require you to certify that your compliance program is up to date and remain a priority of management.

If you are still unsure of what is frequently audited, we have developed an audit checklist for your use.  Our checklist is current as of November. Some states have expanded on it but this is what we could consider to be a safe minimum amount of preparation.

We recently expanded staff and can guarantee that any new client who contacts us this week will have the tools to be compliant by the Holidays.

Please let us hear from you. You don’t have to keep worrying about this and you don’t have to suffer the results of a bad audit.

To receive a copy of our Audit Checklist, CLICK HERE.

To call us, dial (800) 656-4584 anytime. Thanks.

What is your MISSION STATEMENT?

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

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

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

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

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

Hard Money Business Purpose Loans against Principal Residences

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

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

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

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

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

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

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

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

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

That’s it for now.

Nelson A. Locke, Esq.

Compliance Expert

(800) 656-4584

Do you advertise HUD or FHA products?

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

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

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

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

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

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

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

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

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

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

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

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

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

(800) 557-6580

Does the recent SCOTUS decision about overtime affect you?

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

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

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

So, pretty much, any MLO who is originating should not be considered exempt any longer.

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

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

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

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

That’s it for now.

More Changes for Brokers and Lenders – no longer exempt?

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

Keep an eye on them.

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

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

Do you offer Reverse Mortgages?

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

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

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

Take a look here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DODD-FRANK did not exist “back then”.

The SAFE ACT did not exist “back then”.

The CFPB had not even been conceived “back then”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Got it?

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

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

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

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

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

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

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

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

Special Logs for Client Use

To my Clients:

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

Here is the list.

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

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

Thanks for engaging us, we appreciate it!

Nelson A. Locke, Esq.

(800) 656-4584

 

Have you scheduled your annual AML/GLB training? It’s a CFPB requirement.

Did you know that once a year, the new regs require you to train your staff (and yourself and your Board of Directors) on the nuances of Anti-Money Laundering and the Privacy Act. It does not stop there. You also have to test them, and retain proof of the tests and their passing scores.

And during the year, you have to provide the training to any new hire within 30 days of their reporting for duty.

Most Brokers and Lenders don’t take this too seriously. It will get you in hot water with the auditors and could cost you dearly if you ignore it.

The solution? Let me do it for you. I have a program that will provide both the annual and “one-at-a-time” training for you at one low cost for the full year. I even proctor the exam. All you have to do is show up via Gotomeeting. Which I also provide.

Give me a shout, there is still time to get this done before they come knocking on your door.

That’s it for now.

So, how do YOU pay your MLOs?

Man I get asked this all the time. Many of you (and you know who you are) seem to want to hang on to that wishful thinking that just because it sounds ok to you to use 1099, or the girl down at the 7-Eleven said that was how she would do it, or your MLO said he would quit if you made him pay taxes…… that the CFPB will feel the same. So let’s try to put this to bed once and for all. They WON’T.

If you exercise any kind of control whatsoever over your MLO you are likely in a W-2 situation and will be viewed as such during an audit. Control can be interpreted to be something as simple as sponsoring the MLO and having your name on their business cards. Let’s go a bit further. Do they use your office, or your electronics, or your 800 numbers, or your copy machines? Do they work when you ask them to work, even just some of the time? Do they have a desk in your office? What does their letterhead say? Do you pay their cell phone bill? Do they wear a polo shirt with YOUR logo on it?

This is an easy test. If they look like an employee they probably are. So now the CFPB and state regulators will look to see if you properly report their earnings and collect the required taxes. That’s when we see the next twist. Is it legal for you as the employer to deduct your half of their taxes from their gross pay, so the net effect to you is ZERO? No way. Do you do that?

As a consequence of miss-classifying an MLO you may end up dealing with not only the CFPB and your State Regulators, but also the IRS. Any of you ever been there? It’s no fun at all. And you have to report those pesky IRS liens to the NMLS and your Warehouse Line renewal. So,  time to get honest with yourself. Are you paying your MLOs properly? If so, do you have a good MLO contract, a hire letter, and a handbook to properly disclose your payroll procedures to them?

AND THEN THE NEXT BIG POT HOLE – IS YOUR COMP PLAN AND BONUS PLAN ACCEPTABLE?

If you don’t know or are worried I can fix this pretty quickly for you. Give me a call, I’m on it.

www.lockelaw.us

That’s it for now, over and out.

Welcome to the Reverse Mortgage Training Blog!

Well, somebody had to do it, right? What I plan to do here is re-build the training libraries I had created for my former employer. Thanks to Go Daddy, they just sort of evaporated one day. Remember that if you plan to use Go Daddy for a blog. It’s nice that they have Danica Patrick working for them, but I would have preferred they had left my blogs alone. Now I have to start all over.

So I plan to use some of the older ones, update them when necessary, and and create many new ones to help a HECM MLO gain more insight into the product and a greater understanding of the senior demographic.

I’m planning on posting about once a week.

So if I gave you access to this blog, USE IT and watch your sales climb. Nothing would make us happier.

 

 

What the HECM is a Reverse Mortgage anyway?

WHAT? REVERSE MORTGAGE?

You know, for years we never had this problem. All mortgages were “forward” mortgages. They all amortized. They all started out high and ended up at zero. And then, in 1988, along came a little guy in Minnesota with a crazy idea. What if we started out low, and went up? Hence, the Reverse Mortgage was born.

First there were only FHA programs. Then Fannie Mae jumped into the hot tub with FHA. Next, Transamerica and Household Bank. Finally, some private banks like Virtual Bank climbed in also.

Then, oops, over 50 million seniors? Might be some risks to consider. So the process started to reverse itself. First Fannie Mae climbed out of the hot tub. Then the insurance companies and private banks jumped out too. Finally, even FHA eliminated half its programs and here we are today with essentially three variants of reverse mortgages to market.

Want to learn more? Listen to this presentation. Things have been changing quickly; I might not be 100% right. But you will come away knowing more than you started with.

Marketing to Seniors – The best way is going to surprise you!

This is one of the most important questions I get asked. I used to be a whale of an originator. Everyone wanted to know how I found all those clients.  I never left my desk.

Further, there are persons in our office right now that follow this system perfectly and have never had to look too far for a new application.

So what is the secret about marketing to Seniors?

Listen and learn.

 

 

“Senior Speak”……what they are hearing when you are busy talking, and how to get them on the same page!

Seniors are unique. As we age, we hear and speak differently. I don’t mean the words or grammar used – I mean what is going on analytically inside our head as we listen to the words being spoken. As most seniors age, they naturally becomes more cautious and vulnerable. That affects the way they hear things.

So to be effective you must take this into consideration when you make a telephone call or an in-person presentation.

Here are some important tips about “Senior Speak”.

Tips to get your clients off that pesky “fence”…..and land the application!

We all know how hard it can be when you work with that certain type of senior who just seems incapable of making the “go ahead” decision. Sometimes they have really good reasons for taking their time. For example, they might be trying to decide if they should downsize instead. Or maybe they are thinking of selling and moving into assisted care. Or perhaps they are thinking about moving to another state.

But many times the decisional paralysis is the result of irrational fear. We have spoken about the fud factor in other sessions. Fud is what causes irrational fear. Many seniors have irrational fear especially as they age. Life is a bell shaped curve and self confidence follows that curve almost exactly. The older we get the less confident we are.

If you have encountered a client that is paralyzed by irrational fear, this audio might help you. It gives you tips on identifying six of the most common irrational fears, and how to address them.

Getting Seniors off the fence 091614

Read about my “TENS LIST” and how to use it to get more applications!

The most successful originators are the ones with the best discipline. They put equal amounts of time each day into farming or prospecting for new applications, as they invest in processing and closing activities on their existing files.

When I was originating, I knew I needed a system that would force me to be organized and consistent in my daily approach to finding new business.

And so, I invented the TENS LIST. Listen here to a short description of how it works.

Then download the example TENS LIST format and put it into motion.  Here’s the form.  LW Tens List 082114

Your applications will climb almost immediately.

Telephone Tips – CALL TWO

And here we have the second half of the story. Remember, in part one of this two part series, you left your client sitting in their favorite chair, eyes closed, dreaming about what they were going to do with all that new found financial freedom.

In this segment we will hear about how to handle the second call – the “good news”. How to set it up and close the appointment.

But what about “bad news”? I will give you some ideas on how to handle that and keep the client in the process.

Remember, no deal is ever cold unless YOU allow it to go cold. Using this information, you will increase your application count and subsequently, your income.

NL Telephone Tips Second Call 080414

Telephone Tips – CALL ONE

Here we go with the first half of our series on mastering the art of the telephone appointment closing.

Here’s a PDF script for you. NL Telephone Tips First Contact 080414

Here is how I feel when this blog works the right way!

Telephone Tips – Introduction

Hey there people, I promised I would give some tips on how to make handling that 800 pound gorilla (the telephone) a more pleasant experience. I made a series of three audio files, this is number one. I will also release a written outline, as soon as I figure out how.

Once again I would like to thank Go Daddy for screwing up and erasing all my prior blogs and making all this work necessary.