AML GLB Client Site

Anti Money Laundering OFAC FinCen ITPP Presentation

Financial Services Modernization Act of 1999

On December 1st, the FLSA “Overtime Rule” is being updated. Who does this affect?

Back in May 2016 the Department of Labor (“DOL”) announced that effective December 1^st, 2016 employers would have to raise the salary level of exempt employees to $47,476 per year for the employee to still be considered exempt. That is about $900 a week.

Now I am getting panic calls and emails asking me if this means you should increase your mortgage loan originator hourly wages to keep the exemption. So here comes the shocker.  

Folks, your mortgage loan originators are NOT exempt. This December 1^st rule applies to true administrative employees and managers. Based on last years DOL ruling, this new ruling does NOT apply to mortgage loan originators. MLOs have not been exempt since May of 2015. The MB had sued the DOL to make them exempt, but SCOTUS agreed with the DOL regarding the DOL ruling that MLOs were not exempt because MLOs were involved in sales.

Let’s start out with the history behind the rule.

Under the old administrative exemption of the FLSA, employees who are paid on a salary basis of at least $455 per week (pre-December 1st 2016) may be exempt from overtime compensation if the employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and their primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. Employees in the financial services industry generally meet the duties requirements for this exemption if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments, or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing, or promoting the employer’s financial products; provided, however, that their primary duty is not selling financial products.

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

So, pretty much, any MLO who is originating cannot be considered exempt any longer. So December 1^st does not affect them. It affects non-selling managers and administrative staff. The new level of over $900 a week is real. That is what you should review.  

Back to your MLOs. What can you do to protect yourself from being sued for overtime by a disgruntled or opportunistic former MLO?

• Don’t fight the rule but rather have a policy in writing that prohibits any non-exempt employee (which is what the DOL calls your MLO staff) work beyond 35 hours a week unless approved in writing.
• If you enforce this strongly I think this creates a rebuttable presumption for the DOL that you may have used your best reasonable efforts to comply.
• You may experience an MLO who stepped outside his job description if he worked more hours than 35 hours a week without written approval. If you kept an eye on him or her and then they raise this issue, you can counter with an “ultra vires” or “frolic and detour” argument. The key to this is to enforce your policy and keep an eye on your non-exempt employees.
• You would need a procedure in place that creates and monitors regular non-exempt employee time sheets and has your non-exempt employee sign a certification about hours worked under penalty of perjury every pay period, whether they have commission due or not. And you would need to demonstrate you enforce your rule and send people home when appropriate.

SUMMARY: Mortgage Loan Originators are non-exempt employees. As such they are subject to the protections of the overtime rule of the FLSA. If you don’t monitor and manage their hours worked, you can end up in a very bad place. Don’t prohibit overtime; rather require they obtain your pre-approval in writing. Next, monitor every pay period with non-exempt employee certification regarding hours reported. Keep these records carefully. When you find a violator, be able to show you enforce your own rules.

ONE FINAL COMMENT. We are still engaging with plenty of loan originators who think they can be paid as a 1099 contractor. The DOL decision applies the common law definition of employee.

Here you go, compliments of Black’s Law Dictionary. “Black Letter Law”.

“An employee is a person who works in the service of an employer under an express or implied contract of hire, under which the employer has the right to control the details of the work performed.”  

So you have a license that requires a sponsor who is paid instead of you, who provides you with documents, compliance overview, and training, and maybe even leads. And you must originate and process your loans under his or her direction. And then, your employer has to pay you from what he is paid, because you cannot be paid directly under the current rules.

If you still think you are independent, you are just not listening.  You are an employee.

 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

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.

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

If in doubt, get a license.

I am being barraged by questions regarding commercial lending and the need or not to be licensed. The area is not as grey as you may think. The problem is many commercial lenders disguise what would otherwise be a RESPA loan on a 1-4 family – by using LLCs. These lenders and brokers are completely ignoring the legal doctrine of beneficial ownership. And many times these lenders and brokers actually believe that no auditor or regulator has ever seen this scheme before. Really?

I believe that the best business practice for any person originating any kind of mortgage residential or commercial – is to obtain the proper license first.

RESPA is applicable to all “federally related mortgage loans,” except as provided under 1024.5(b). “Federally related mortgage loans” are defined as:  1.A loan secured with a first or subordinate lien on residential property  2.Where a one to four family unit is located  3.Where a properly qualified manufactured home is located or to be constructed 4. Where the loan is made by a proper creditor, lender, or dealer 5. If the loans are insured by an agency of the federal government 6. If the loan is intended to be sold to HUD, FNMA, FHLMC, USDA, or the VA 7. If the loan is a home equity conversion mortgage or reverse mortgage subject to federal regulations.

A true commercial loan is a mortgage loan made on a property that is NOT residential (a 1-4 family unit) and where there is NO possibility the true owner or beneficial owner might occupy the property either as a primary or as a secondary. That goes for citizens or legal aliens or consumers of any kind – if the property is a RESPA property that is going to be used by them it will not matter who you call the borrower or how you try to hide the true ownership. A 1-4 family might fall into an exception but the overwhelming position will be that if it is a 1-4, it is a RESPA loan requiring licensing.

To provide a resource for you that will put all this information on one blog entry, I am providing the following list of state requirements.

The following states may require licensing to originate commercial mortgage real estate loans.

One more time – commercial mortgage loans means a loan secured by real estate that is not a residential 1 to 4 family dwelling.

These states require licensing. Arizona California Illinois North Dakota Nebraska Nevada (Company and LO) South Dakota (Company and LO)

These states show that a license may be required. That means get a license. District of Columbia North Carolina

These states require a license to broker these types of loans. Michigan (Real Estate Broker) – Brokering Only Minnesota (Limited Real Estate Broker) – Brokering Only New York (Real Estate Broker)- Brokering Only New Jersey (Real Estate Broker)- Brokering Only

Regarding FLORIDA – “Most” commercial companies are exempt in Florida providing the property is not a 1-4 family unit or the entity is not a sham LLC. The word “most” is the issue. This is a regulator grey area.

Business Purpose Residential Mortgage Loans – The famous Reg Z exemption 226.3: Brokers and Lenders often refer to non-owner occupied business purpose residential mortgage loans as commercial loans. The following states may require licensing: Alabama, Arizona, California, Colorado, Florida, Idaho, Illinois, Louisiana, Michigan, Minnesota, Nevada, New Jersey, North Dakota, Oregon, Rhode Island, South Dakota, Texas, Utah, and Vermont.

Here’s my take. Get a license. It increases your credibility and avoids you being pulled into a situation where the regulator believes you needed a license to originate or make the loan. If the regulator believes it, you will lose the argument. Of course, this is just my opinion.

Respectfully,

Nelson A. Locke, Esq.

Mortgage Industry Compliance Expert

Office (800) 656-4584

http://www.lockelaw.us

http://expertlenderservices.com

 

 

 

The CFPB, the CD, and the Realtors…….

Before you go any further, the key word is PROPOSED.

1.   The CFPB has issued a proposed rule with request for public comment containing both substantive amendments and technical corrections (collectively, Proposed Amendments) to the final TILA-RESPA Integrated Disclosure (TRID) rule that became effective on October 3, 2015.  In a press release the CFPB advised that the Proposed Amendments are “intended to formalize guidance in the rule, and provide greater clarity and certainty.”  Comments are due on or before October 18, 2016.  The CFPB is proposing that the final rule based on the proposal would be effective 120 days after publication in the Federal Register, but is expressly requesting comment on the timeframe to implement the Proposed Amendments. THIS MEANS MOST LIKELY EARLY IN 2017.

2.   Four of the Proposed Amendments that are highlighted by the CFPB in the press release would (1) create a tolerance for the total of payment calculation; (2) exclude recording fees and transfer taxes from the one percent fee limit that applies to the TRID rule exemption for down payment assistance and similar subordinate lien loans often made by housing finance agencies, non-profits, and similar entities; (3) amend the scope of the TRID rule to cover units in a cooperative, whether or not they are considered real property; (4) clarify how a creditor may provide separate Closing Disclosures to the consumer and the seller through the removal of information that raises privacy concerns.THE REALTORS HAVE BEEN COMPLAINING ABOUT NOT RECEIVING THE CD – IF YOU HAVE BEEN GIVING IT TO THE REALTOR YOU MAY HAVE BEEN VIOLATING THE CURRENT PRIVACY RULES – AND IF THIS NEW PROPOSAL IS APPROVED THIS CHANGE WILL HAPPEN AFTER JANUARY, SO DON’T START PASSING OUT CDs LIKE CANDY UNTIL IT IS OK TO DO SO. 

3.   In addition to the CD/Realtor item, the CFPB proposal would make numerous other changes including a change that addresses the so-called “black hole” by providing creditors with greater flexibility to use the Closing Disclosure to reset tolerances.  Currently, only the Loan Estimate may be used to reset tolerances, subject to an exception that permits a creditor to use a Closing Disclosure to reset tolerances in a limited situation.  Essentially, the exception applies when the creditor would not have sufficient time after learning of a change to be able to issue a new Loan Estimate and also satisfy the pre-consummation waiting period requirements under the TRID rule.  The exception has proven to be too narrow in many cases resulting in creditors having to absorb increases in fees or require that the consumer reapply for a loan.  OR CHARGE THE BROKER A CURE FEE. To address these unintended consequences, the CFPB proposes to expand the exception to include both (1) the current situation that is based on the timeframe between when a creditor learns of a change requiring revised disclosures and the consummation of the loan, and (2) any situation in which a Closing Disclosure has already been issued.

4.   Other topics addressed by the Proposed Amendments include affiliate charges, the calculating cash to close table, construction loans, decimal places and rounding, escrow account disclosures, escrow cancellation notices, the treatment of gift funds, the written list of service providers (no surprise there), the distinction between model forms and sample forms, principal reductions, the summaries of transactions table, the total interest percentage calculation, and informational updates to the Loan Estimate.

5.  Now about us. We are attorney owned and our attorney has 24 years experience as a Mortgage Banker. That should speak for itself. Most of our competition does not have that combination of experience. They sell you “policies” and walk away. The CFPB recently identified this type of off the shelf no relationship compliance program as a red flag for examiners. We don’t do that. We offer annual engagements at one price and are with you all year for training, updates, and all your Q&A.

Request our Engagement Package today and we can have your Compliance Program  in really good shape within three weeks.

And you will feel much better about not having to face the regulators alone. But if you try to engage us after you have received your Audit Letter, the price will go up.

 (800) 656-4584

Read my Report on updated EXAM PROCEDURES

This may be the most important update you will ever read about the CFPB and their current Exam strategy.

Recently we obtained specific information about the CFPB’s current Exam Procedures. The information is credible and shows with great clarity what the CFPB expects to accomplish in an exam. It also confirms the CFPB has asked the states to incorporate CFPB and FFIEC procedures into state audits.

The CFPB has also created an Exam Rating System and asked the states to adopt it.  We have been seeing this rating system in use for six months in certain states. It is probably coming to your neighborhood soon.

Read my report and trust me this is worth your time.

CFPB Exam Objectives and Procedures 052616

Call us if you have any questions.

Nelson A. Locke, Esq.

(800) 656-4584

Expert Lender Services Web Site

 

CFPB annotates LE and CD – why?

This information came to me directly from the CFPB.

“In emails sent to CFPB email subscription holders, the CFPB announced the publication of new annotated versions of the Loan Estimate and Closing Disclosure that include citations to sections in Chapter 2 of the Truth in Lending Act (TILA). The CFPB sent an original email on May 12, and then an updated email on May 13 that includes a direct link to the annotated forms. The emails provide that the citations are to TILA sections referenced in the Integrated Mortgage Disclosure final rule.

The use of the Loan Estimate and Closing Disclosure are required by the TILA/RESPA Integrated Disclosure (TRID) rule which became effective October 3, 2016. The rule incorporates both RESPA and TILA disclosure requirements, and the requirements are set forth in Regulation Z under TILA. Based on the varying nature of liability under RESPA and TILA, the CFPB addressed in the preamble to the TRID rule the sections of TILA, RESPA and/or the Dodd-Frank Act that it used as legal authority for the various TRID rule sections.

In a December 29, 2015 letter to the MBA, Director Cordray addressed TRID rule liability concerns. The Director noted that “As a general matter, consistent with existing [TILA] principles, liability for statutory and class action damages would be assessed with reference to the final closing disclosure issued, not to the loan estimate, meaning that a corrected closing disclosure could, in many cases, forestall any such private liability.” The industry took this to mean that in many cases errors in the Loan Estimate could be cured through a correct Closing Disclosure. However, by issuing a Loan Estimate with citations to TILA sections the CFPB appears to have raised the issue of whether there is TILA liability for Loan Estimate errors.

Also, the annotated disclosures provide that both the Adjustable Payment (AP) Table and Adjustable Interest Rate (AIR) Table were adopted based on TILA section 128(b)(2)(C)(ii). However, the preamble to the TRID rule reflects that only the AP Table was adopted based on such section, and that the AIR Table was adopted based on general CFPB rulemaking authority.

As we reported, recently the CFPB also announced its intention to re-open the rulemaking corresponding with the TRID rule. Perhaps the CFPB can use the rulemaking initiative to better address industry concerns regarding TRID rule liability.”

Until such time as we see more clarity my advice to Compliance Services Clients is to promptly cure any discrepancy whether it is in the LE or the CD.  

For now, the fact that the CFPB is citing to the actual law tells me some big time auditing of your LE and CD may be coming soon.

Respectfully,

 Nelson A. Locke, Esq.

Compliance Expert and Attorney

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

Identity Theft Scam involving Realtors, Brokers, and Lenders

Well, the criminals have discovered yet another way to steal identities and money.

Title Company Wire Scam 032916

I would strongly suggest you take a good hard look at any requests from closing agents that involve wires, and verify the request is valid. Further, keeping in mind the requirements of the Financial Services Modernization Act of 1999 – DO NOT transmit any of this non-public information in an unsecured manner. Always use a drop box or a password protected email.

This is getting crazier and crazier. Don’t take chances. Protect your data, trust but verify.

Call us if you would like to discuss our Compliance Services.  Ask about the Audit Protection Plan – included with our program.

(800) 656-4584

Do I really need to look at the SDN List?

Yes. And it only takes about 30 seconds, so why fight this? Either you, or your credit agency, or your lender must do this, but it will come down to YOU if the law is violated. Is peace of mind worth 30 seconds?

You must and you can do so at the Treasury Department Link below.

There is no legal or regulatory requirement to use software or to scan. There is a requirement, however, not to violate the law by doing business with a target or failing to block property. OFAC realizes that financial institutions use software that does not always provide an instantaneous response and may require some analysis to determine if a customer is indeed on OFAC’s Specially Designated Nationals List (or any of OFAC’s other sanctions lists). The important thing is not to conclude transactions before the analysis is completed.

Every transaction that a U.S. financial institution engages in is subject to OFAC regulations. If a bank knows or has reason to know that a target is party to a transaction, the bank’s processing of the transaction would be unlawful. Yes, you Brokers and Lenders are engaging in financial services so you should fit into this description.

There is no minimum or maximum dollar amount subject to the regulations.

U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches. In the cases of certain programs, foreign subsidiaries owned or controlled by U.S. companies also must comply. Certain programs also require foreign persons in possession of U.S.-origin goods to comply. If you specialize in Foreign National Loans, I would say you probably need to be extra careful.

HERE IS THE LINK TO THE OFAC SDN List.

https://sanctionssearch.ofac.treas.gov/

Respectfully,

Nelson A. Locke, Esq.

Compliance Expert and Attorney

Office (800) 656-4584

Cell (305) 951-2785

http://www.lockelaw.us

http://expertlenderservices.com

 

What constitutes proper “changed circumstances”?

 

Hi Folks, we wanted to address a few TRID issues this week.

We hear a lot of comments each week from our clients about how TRID implementation is working. Some clients are in the “TRID Groove” closing their loans in less than 30 days without any LE or CD issues.

Others tell us that almost every deal has a glitch of one kind or another. Most of those clients are Brokers, not Lenders. This demonstrates that the Lender is going to do what the Lender wants to protect himself regarding TRID, and the Broker may be jumping through those hoops for a while until things really settle down.

We thought it might be helpful to send you a few TRID related documents that have been available on this Blog. The first document is a TRID Quick Reference. This is a good one to make copies of and pass around.  Trid Simplified 090115

The next document is a Changed Circumstances Matrix that has been available on the internet for a few months now. It is pretty clear and appears to have been widely accepted by compliance companies and lenders alike. Changed Circumstances TRID 022216

Finally, we have a recording training session here on the blog – it is 30 minutes long and uses plain English. Go take a listen.

If you are uncomfortable with your compliance effort you can call us at (800) 656-4584.

What’s on your compliance shelf?  Why worry? Just call us.

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

More on QM/ATR and Investment/Commercial Loans

Hello all,

One of my valued clients asked me about the applicability of the Qualified Mortgage Rule and the Ability to Repay Rule ……did they apply to loans securing investment or commercial properties. Apparently there are some attorneys and compliance people out there who think they do. As a mortgage guy, I think they do not.

It was a great question and something I think you all should read. Even though many of you do not work in the commercial or investment property arena, you must know the rules. Because a deal might come through your door and you want to handle it correctly.

This question demonstrated how complex things have become. Here we have one question where the answer involves careful study of QM, ATR, RESPA and TILA.

Keep Calm and ask questions! If you are not my client, you probably should be. I still have a few openings.

 

+++++++++++++++++++++++++++++++++++++

 

Transactions Covered by QM and ATR Rules

QM and ATR rules apply to the following:

• Purchase and refinance transactions secured by owner-occupied and second homes.

QM and ATR rules do not apply to the following:

• Investment property*

NOTE:   Investment properties that are for business purposes are exempt from QM rules.

If the borrower occupies any investment property for > 14 days in any given year the investment property is no longer considered for business purposes only and would be subject to QM and ATR rules.

Additionally, there can be no evidence that the borrower purchased/refinanced the investment property for personal rather than business reasons (e.g. property purchased for a family member).

This statement is derived from the ABA Opinion http://www.americanbar.org/publications/blt/2013/04/02_shatz.html published in part below.  The author is well known and reliable.

Ability-to-Repay Rule

The Ability-to-Repay Rule, Regulation Z Section 1026.43, requires that a creditor make a “reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.” The creditor must follow underwriting requirements and verify the information by using reasonably relied upon third-party records. The rule applies to all residential mortgages including purchase loans, refinances, home equity loans, first liens, and subordinate liens. In short, if the creditor is making a loan secured by a principal residence, second or vacation home, condominium, or mobile or manufactured home, the creditor must verify the borrowers’ ability to repay the loan. The section does not apply to commercial or business loans, even if secured by a personal dwelling. It also does not apply to loans for timeshares, reverse mortgages, loan modifications, and temporary bridge loans.

Any questions, call me at (800) 656-4584

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

 

Book Two Client Site

The MLO Manual explained…….

AML GLB Client Site

Anti Money Laundering OFAC FinCen ITPP Presentation

Financial Services Modernization Act of 1999

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.