Conflict Disclosures and ML 1022-22

March 7th, 2023

Hello to all.

Recently in one of our AML sessions, we made reference to a Conflict of Interest and/or Dual Licensure Disclosure. I have created the disclosure for our clients. It should be added to your initial disclosure package in your Loan Origination System and should be signed by your borrowers up front.

This disclosure should keep you out of trouble related to a borrower who comes back later and says, “You didn’t tell me about your dual compensation” or “You didn’t tell me my realtor was married to you”. I’m sure you get the picture. Some of the worst issues in audits are caused by misrepresentation or non-disclosure. Get ahead of this by telling your clients about dual comp or conflict relationships up front.

And if you have dual ownership, be sure you also use the standard Affiliated Business Arrangement disclosure in Book One. The test is not legal but equitable. Meaning, even if your wife owns all the processing company for example, you have equitable ownership of half and should report it.

To obtain a copy of the PDF you must be a client of ours.

Send an email to and in the subject line, in CAPS, say CONFLICT DISCLOSURE.

Admin will send the PDF to you via return e-mail.


Nelson A. Locke, Esq.

Compliance Attorney

HUD Mortgagee Letter 2022-22

December 19th, 2022

RE:          HUD Mortgage Letter 2022-22

                Regarding Conflict of Interest and Dual Employment


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

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

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.  


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.


Nelson A. Locke, Esq.

Office (800) 656-4584

If you did business with Carrington, you need to read this.

Carrington Mortgage Services, a non-prime lender and servicer, has been ordered to pay back $5.75 million to the homeowners it “cheated” out of their forbearance and repayment options during the COVID-19 health crisis.

An investigation by the Consumer Financial Protection Bureau (CFPB) found that Carrington repeatedly provided false information about pandemic housing protections, deceived consumers into paying late charges they did not owe, and botched homeowners’ credit reports.

“Carrington Mortgage unlawfully withheld legally mandated pandemic protections, wrongly imposed fees, and reported false information to credit reporting companies,” said CFPB director Rohit Chopra. “Homeowners were misled and denied key protections at a time when they were in most need of help.”

The CFPB said the nonbank mortgage company, which serviced nearly half a million GSE-backed loans as of September 2020, violated the Consumer Financial Protection Act when it misrepresented the requirements of the CARES Act and related federal agency guidelines.

“The company misrepresented to borrowers that they could not have 180 days of forbearance upon request and that certain borrowers could not have forbearance at all,” CFPB said in a statement. “Carrington also implied that homeowners had to make more detailed attestations than were actually required by law, and the company imposed late fees when they were not permitted.”

Just goes to show you, the CFPB is watching us .

If you have any questions or need assistance, contact me at (800) 656-4584.

On an important side note – Whatever you do, do NOT overreact to these rates. It will pass. We will be OK. And once you give up your freedom by joining someone out of fear, you will never be the same!

Nelson A. Locke Esq.

Look at this information on increases in Fraud.

25 Jul 2022

Three more co-conspirators have been taken into custody on charges related to a multi-layered mortgage fraud, credit repair and government loan fraud scheme, the US Attorney’s Office for the Southern District of Texas announced.   

Heather Ann Campos, David Lewis Best Jr. and Stephen Laverne Crabtree had evaded law enforcement for several months, officials said. Campos, 43, of Houston, was up for a detention hearing while Best, 56, of Spring, Texas, and Crabtree, 62, of Herriman, Utah, remained in custody pending further criminal proceedings.

All three are accused of sending numerous sovereign citizen letters to federal agencies and the federal court in Houston declaring themselves immune from prosecution and refusing to recognize the authority of the federal courts, justice officials said.

Campos and Best were indicted in January on numerous charges for participating in a conspiracy to defraud mortgage lending businesses, banks, the Small Business Administration, and the Federal Trade Commission, according to the complaint. They indicated they would self-surrender before allegedly fleeing from law enforcement. Since that date, several other co-conspirators were indicted, officials added, including Crabtree. He was released on bond and became a fugitive.

Read more: New York man pleads guilty in mortgage fraud scheme

Those indicted include Steven Tetsuya Morizono, 59, of Mission Viejo, Calif,; Albert Lugene Lim, 53, Laguna Niguel, Calif.; Melinda Moreno Munoz, 41, Elvina Buckley, 68, Leslie Edrington, 65, and ShyAnne Edrington, 29, all of Houston.

The charges allege Campos and Best recruited clients for credit repair using company names of KMD Credit, KMD Capital and Jeff Funding, among others. They allegedly “cleaned” their clients’ credit histories by filing false identity theft reports with the FTC, justice officials said.

“After fraudulently inflating client credit worthiness, the co-conspirators fraudulently obtained credit cards, disaster loans and mortgages for themselves and their clients, according to the charges,” justice officials said. “They were allegedly able to accomplish this through false statements and fake documents.”

Campos was a mortgage broker and Buckley a realtor, while operating as a notary was the responsibility of Munoz, according to the charges. After fraudulently inflating client credit worthiness, the individuals allegedly obtained rental properties to deceptively build a real estate portfolio worth millions of dollars in their clients’ names and profit from rental income. The charges allege Crabtree was a credit repair client and recruited others, including his family members, and conspired to commit wire fraud.

Read more: New Jersey man draws nine-year prison stint for mortgage fraud

They also allegedly obtained loans from banks and the SBA’s Economic Injury Disaster Loan Program and Paycheck Protection Program, justice officials said. They were created in the names of clients, friends and family members through false statements and fake or altered documents, officials added.

Using the alias Jeff, Morizono was the leader and namesake for the scheme purporting to do business as Jeff Funding, according to the charges.

If convicted, they each face up to 30 years in federal prison and a possible $1 million maximum fine.

The Federal Housing Finance Agency – Office of Inspector General (OIG), U.S. Postal Inspection Service and SBA – OIG conducted the investigation with the assistance of the FTC – OIG and IRS – Criminal Investigation.

Other agencies assisted with the arrests of Campos, Best and Crabtree, to include The Unified Police Department of Greater Salt Lake; police departments in South Jordan, Riverton, and Herriman, Utah; FBI Hostage Rescue Team; U.S. Postal Inspection Service – Pittsburgh and Salt Lake City Divisions; and the U.S. Marshals Violent Fugitive Apprehension Strike Force.

The news comes amid a spike in mortgage fraud. According to a CoreLogic report, mortgage fraud risk soared in the fourth quarter of 2021 due to a drop in overall loan application volume and the shift to a purchase market.

CoreLogic’s 2021 Mortgage Fraud Report showed a 37.2% year-over-year increase in fraud risk at the end of the second quarter of 2021. The large increase followed a drop seen in 2020 – a decrease driven mainly by the surge in traditionally low-risk refinances during the pandemic.

When business slows down, regulator activity goes up. This is when you need to be super diligent about your compliance efforts and record keeping.

Nelson A. Locke, Esq.

(800) 656-4584

I’m getting too many calls from Broker Shops paying their MLO staff based on FEE INCOME. This is a violation.

From the CFPB: Permissible methods of compensation. Compensation based on the following factors is not compensation based on a term of a transaction or a proxy for a term of a transaction:

A. The loan originator’s overall dollar volume (i.e., total dollar amount of credit extended – the Loan Amount – or total number of transactions originated), delivered to the creditor. See 1026.36 – Prohibited Acts or Practices – comment 36(d)(1)-9 discussing variations of compensation based on the amount of credit extended. Lender paid loans cannot be paid on splits of FEE INCOME. Basis points of funded loan amount only. Borrower paid can split commissions paid by borrower, but not include lender contributions from the back end. Comp can only come from one source or the other.

B. The long-term performance of the originator’s loans.

C. An hourly rate of pay to compensate the originator for the actual number of hours worked.

D. Whether the consumer is an existing customer of the creditor or a new customer.

E. A payment that is fixed in advance for every loan the originator arranges for the creditor (e.g., $600 for every credit transaction arranged for the creditor, or $1,000 for the first 1,000 credit transactions arranged and $500 for each additional credit transaction arranged).

F. The percentage of applications submitted by the loan originator to the creditor that results in consummated transactions.

G. The quality of the loan originator’s loan files (e.g., accuracy and completeness of the loan documentation) submitted to the creditor.

For those of you who did not live through the crash of 2009-2012, you should note that when production took a dive, audit activity and fines increased. Are you ready for an audit?

If not, call us.

Nelson A. Locke, Esq.

(800) 656-4584

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.

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

Nelson A. Locke, Esq

Compliance Services USA

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

Thanks in advance.

Nelson A. Locke, Esq.

Compliance Services USA

(800) 656-4584

CFPB reports on HECM Complaints

Locations of reverse mortgage complaints, company response rates

By far, the state with the highest number of reverse mortgage-related complaints submitted to the CFPB was California, totaling 110 complaints (or 17.8% of the total). This is not particularly surprising, since California is far and away the most active reverse mortgage state in the country. Nine of the top 10 reverse mortgage lenders in 2021 all feature California as their most active state.

Florida came in second, with 81 reverse mortgage-related complaints (or 13.1% of the total) submitted to the CFPB in the same period. This is followed by Texas (58); New York (29); and Arizona (19) rounding out the top 5, with similar correlations to general loan activity for the industry.

In terms of a company’s response to the complaining consumer, all 618 listed complaints are accounted for with the vast majority — 595 — being listed as “closed with explanation.” Six of the complaints remain in process as of February 16. Interestingly, only 133 of the complaints (21.5% of the total) have received a direct response to the consumer by the company, with the majority of those instances seeing the company elect not to make that response publicly available in a CFPB database.

You all need to have a login and password set up at the CFPB Lender Portal. Here is the link.

You should check contents at least every 90 days. If you have a complaint you ignore, it is a red flag and a sure express ticket to a visit from your regulator.

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

Nelson A. Locke, Esq.

CFPB Audit Initiatives for 2022 – be advised!

Well, here we go. Take a really good look at the last one. I already have one client that has received notice of audit. I can tell you it is my opinion that there will be some “fishing” going on. The CFPB will be looking to find justification for all this bluster.

  • Redlining.  Redlining has been a top priority since the Bureau’s inception in 2011 and both the Trump and Biden administrations, and that the CFPB intends to take “fresh approaches,” citing the DOJ’s anti-redlining initiative. 
  • Appraisal bias.  Home valuations have traditionally been based on human judgment and discretion, and additional objective controls are needed.  The CFPB has already held meetings with industry representatives concerning the policies, procedures and controls currently in use to better understand valuation issues.  The Bureau is also partnering with the FHFA and prudential agencies on a long-standing rulemaking for QC standards for automated valuation methods stemming from a requirement in the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which is currently in the pre-rule stage. 
  • Special purpose credit programs (“SPCPs”).   Also a top priority of Director Chopra, the CFPB seeks to promote usage of SPCPs to increase equitable access to credit. 
  • Small business lending.  The CFPB issued a notice of proposed rulemaking that would implement Section 1071 of the Dodd-Frank Act in September 2021, and encouraged public comments, which are due on January 6, 2022. 
  • Limited English Proficiency (“LEP”) consumers.  LEP individuals face unique challenges in learning about and accessing consumer financial products and services because disclosures are generally not available in non-English languages.  The CFPB’s LEP guidance issued in January 2021 sought to provide better guidance to the industry on serving LEP consumers, and in September 2021, the Bureau’s publication of a blog post on how mortgage lenders can better serve LEP borrowers.
  • Focus on unfairness and discrimination in examinations and supervision.  Violations of law will not be tolerated, especially during the pandemic.  In the CFPB’s quest to advance racial and economic equity, the Bureau has now increased resources targeted toward small business lending.  The CFPB will also pursue “other illegal practices outside of ECOA and HMDA,” with the goal of using its authority to narrow the racial wealth gap and ensure markets are clear, transparent and competitive. (What????) 

Call me if you want to discuss. Our number is (800) 656-4584 and my email address is

Nelson A. Locke, Esq.

Our Office in Texas is moving!

A moving truck being driven by cartoon gator.

On Friday, October 29th, 2021, we are moving our office. We will be closed from noon to 6 PM.

We will be operational Monday, November 1st.

The new address is


Locke Law US, LLC



PLANO TX 75024

Our phone number remains the same. It is (800) 656-4584

Our Website remains the same. it is

My email address remains the same. It is

Thanks to all!

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.

Washington DFI and Contract Loan Processors – here are the DFI rules in a snapshot…….

  1. You will not have to be licensed with DFI under the following scenarios:
    1. You are a W2 employee Loan Processor for a licensed mortgage broker(s). Generally, you must work from a licensed location (main or branch office). See WAC 208-660-300(14)(link is external) for more information.
    2. You are a W2 employee Loan Processor for a loan processing company that has a mortgage broker license. Generally, you must work from a licensed location. See WAC 208-660-300(14)(link is external) for more information.
  2. You must have a license with DFI under the following scenarios:
    1. You must have a loan originator license if you work as an independent contractor Loan Processor (receive a 1099) for a licensed mortgage broker. You must work from a licensed location under the mortgage broker license.
    2. You must have a loan originator license if you work as an independent contractor Loan Processor (receive a 1099) for a loan processing company. You must work from a licensed location under the loan processing company’s mortgage broker license.
    3. You must have a mortgage broker license if you own a processing company that independently contracts (receives a 1099) with licensed mortgage brokers to process loans. Your W2 employees and independent contractors (1099 paid workers) must work from a licensed location. Your independent contractors must be licensed as loan originators.

If you have any questions, give us a call at (800) 656-4584.

Nelson A.Locke, Esq

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

A few words of advice to MLOs who are changing sponsors…..

If you are an MLO looking to change employers and are currently sponsored by a Mortgage Broker Business or Lender, pay attention to these issues.

  1. You must give good notice, and that is usually in your employment agreement. If it is NOT, then reasonableness applies. Which to me means 30 days written notice to insure good customer service and some continuity of planning for both parties. Yes, its an “at will” deal usually, but a contract can change that.
  2. Your pipeline and your work in progress belongs to your current sponsor, not you. If you sabotage your sponsor’s pipeline, it is theft.
  3. Any leads you obtained while working for your sponsor, belong to your sponsor. So you can’t “take your electronic rolodex” with you unless you ask, and your current sponsor agrees.
  4. Don’t have your assistant quit before you, go to work for a new sponsor, and work leads you steal from your prior sponsor. The regulators have seen this before and you are not fooling anyone or avoiding liability.
  5. This is important. The person that hires you is equally liable if they know even a scintilla of the facts regarding where you got your leads, or if they allow you to bring purloined files over via the “assistant” ploy. Now, you have a Dodd Frank, conspiracy, and theft issue.
  6. Many regulators will pursue not only the dishonest MLO but also the new sponsor that takes them in.
  7. Notice I said dishonest? This is a moral turpitude/fraud issue. Means you will be calling me to try and help you save your license.

Just have a conscience, and if you change sponsors, do it with class and do it the way you would want to be treated. Or else. If any of you don’t believe me, I can send you an excerpt from a regulator Administrative Complaint.

Nelson A. Locke, Esq.


Need some Continuing Ed? Here is a limited time offer for free CE classes.

My friend Jim Montrym operates the Mortgage Broker’s School.

His web site can be seen at

He has a new program that is 100% on line and for a limited time, you can access these classes and study at your own pace while earning the CE credits you need for your license renewal.

Give him or Andrea a call at 800-735-8565 – to get your access code for this limited time offer for free on-line CE classes.

This is better done sooner rather than later, folks.

Nelson A. Locke, Esq.


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