Lenders Compliance

Theft Prevention

Lenders compliance at realestateloans.com — Posted by lenders @ 12:27

We are a mortgage lender and have an Identity Theft Prevention Program, but we are still not sure what is considered a "covered account", or an "account", or a "Red Flag", or even a "customer". 


What are the definitions for these terms?


Required by the Federal Trade Commission and other Federal agencies, the Identity Theft Prevention Program must be implemented by "financial institutions" and "creditors". 


The foregoing two categories of subject entities have been defined very broadly, so as to reach to all residential mortgage lenders and originators.


Essentially, a financial institution or creditor that offers or maintains one or more covered accounts must develop and implement a written Identity Theft Prevention Program, the purpose of which is to detect, prevent, and mitigate identity theft in connection with the opening of a covered account or any existing covered account.


A "covered account" consists of two classes ...

Read More FAQs 

Q and A

Our company recently commenced requiring prefunding quality control audits which requires substantial manpower.

I have heard conflicting views on whether prefunding quality control audits are required by Fannie Mae and/or HUD.

Can you clarify the prefunding requirement for me?

In order to provide an answer to this question, many issues need to be discussed. HUD does not specifically require that prefunding audits be performed on FHA loans but it strongly suggests that prefunding reviews should be done.
HUD's Handbook 4060.1 Rev-2 Section 7-5-B says, "mortgagees may want to sample cases prior to closing to evaluate the quality of processing and underwriting. Using such reviews, mortgagees may detect problems prior to closing while problems can still be corrected."

As we all know, Fannie Mae requires prefunding reviews and they list the specific elements or audit steps that should be conducted. (And so does Freddie Mac.) ...
Read More FAQs

Compliance Q and A


We are a lender that initially attempts to e-mail disclosures to our loan applicants. Our e-delivery system requires the applicant to consent to e-delivery before the disclosures can be opened. If the applicant responds "yes", the disclosures are opened. 


If there are co-applicants and we receive consent to e-delivery from one applicant, but not the second, is that sufficient for compliance with disclosure requirements under the Real Estate Settlement Procedures Act ("RESPA") and the Truth in Lending Act ("TILA")?

With respect to TILA disclosures, generally, when there are multiple applicants, the disclosures may be made to any applicant "who is primarily liable on the obligation". [12 CFR 1026.17(d)] 
However, when there is a right to rescind (such as a refinance), the disclosures "shall be made to each consumer who has the right to rescind". [12 CFR 1026.17(d)] So, if the transaction is a refinance, all applicants must consent to the e-delivery in order for the lender to be in compliance. 

With respect to RESPA disclosures ...
Read More FAQs 

The Hedgehog and the Fox: A Regulatory Parable

You may be interested in my Magazine Article:Back
The Hedgehog and the Fox:
A Regulatory Parable
December 2013
 Free Subscription to Clients and Subscribers.
An enticing poetic fragment from the 7th Century BCE leads me to consider the relationship between the Consumer Financial Protection Bureau and its regulated entities. It was fun to write it!
I hope you enjoy the article!
President and Managing Director 

Compliance Q and A

What is the definition of an "affiliate," with respect to the QM 3% Points and Fees cap under the Ability-to-Repay and Qualified Mortgage rule?


The CFPB's Ability-to-Repay/Qualified Mortgage's (QM) rule contains a cap or limit on points and fees to qualify as a QM loan. The calculation of points and fees includes certain charges paid to affiliates of creditors.

To qualify as a QM, a loan over $100,000 is limited to points and fees up to 3% of the loan amount. The 3% limit is increased on a sliding scale for loans under $100,000.

In the Small Entity Compliance Guide, the CFPB defines "affiliate" as "any company that controls, is controlled by, or is under common control with, your company" (Ability to Repay and QM Rule, Small Entity Compliance Guide, p. 34).

The CFPB also issued "unofficial staff guidance" in a webinar on October 17, 2013, in which it was stated that the definition of an affiliate is .......

As a servicer, we issue a payment shock notice. I have always thought that this notice was a requirement.

As a servicer, we issue a payment shock notice. I have always thought that this notice was a requirement.

But I am being told that issuing a payment shock notice is optional and not a requirement.

Are we required to issue a payment shock notice?

The payment shock notice is optional. Issuing the payment shock notice is not a regulatory requirement. As such, it has been viewed by HUD as a "best practices" action.

The payment shock notice is usually issued when there is an adjustment in escrow that causes a higher monthly payment, such higher payment usually attributable to an increase in property taxes.

HUD outlined its reasoning for not requiring the Payment Shock Notice ......

Lenders Compliance

Lenders compliance at realestateloans.com — Posted by lenders @ 23:38
am pleased to announce that Michael J. Wallace has joined Lenders Compliance Group. 
Mike joins us as our Director of Marketing Compliance. I have wanted to find just the right person to handle our clients' compliance needs with respect to advertising, marketing campaigns, and lead generation.  

Marketing is an especially important area of mortgage risk management. One mistake in an advertisement can lead to substantive violations of federal and state banking law. Our clients have looked to us to assist them in their marketing campaigns, usually through their engagement teams.
Now, with Mike joining our practice, we have an expert focused principally on this aspect of mortgage compliance.
Mike received his Juris Doctor Degree from Syracuse University, College of Law, and has spent more than 25 years gathering diverse legal experience in representing clients in all aspects of mortgage banking.
The practical aspect of running a mortgage company is very much in keeping with Mike's familiarity with doing business. At one point, he was the President and founding Shareholder of a regional FHA correspondent lender. 
Mike is an expert regarding regulatory compliance matters related to marketing and lead acquisition, and he has created, reviewed, and managed various marketing and lead programs. 
For instance, Mike has been involved with data acquisition and management; creation of multiple creative pieces; and marketing compliance for companies advertising in multiple states. He has also negotiated and reviewed vendor relationships. In addition, he has established and managed lead acquisition programs. 
If you would like to contact Mike, just click the Contact Us button below and check the box for Marketing Compliance.
Best wishes,
Jonathan Foxx
President & Managing Director

Q and A


If the origination fee is a percent of the loan amount, and the loan amount INCREASES due to a higher appraised value than originally used on the GFE, is the origination fee charged at settlement allowed to increase under the COC, with proper re-disclosure?


Bottom Line Up Front: "Yes, but only if issuance of a revised GFE is permissible under 24 CFR § 3500.7(f). In particular, if the loan amount changes and all or a portion of Block 1 is calculated as a percentage of the loan amount, then that portion in Block 1 may be recalculated." (HUD RESPA FAQs, April 2, 2010)

In the answer quoted above, HUD was responding to the following: "If all or a portion of the charge in Block 1 is calculated as a percentage of the loan amount, and the loan amount changes, can the loan originator issue a revised GFE with an updated charge in Block 1?" 

Your question differs from the question HUD answered in one significant way. Your question premises the increased origination fee on the increased loan amount, and the increased loan amount on the increased appraisal value. 

HUD points out that "yes", the origination fee may increase if charged as a percentage of the increased loan amount, and if permissible under RESPA. 

It does not address your implied, underlying question of whether the higher appraised value may be the causal justification for higher origination fees.

Anti Money Laundering


I am the Anti-Money Laundering Program officer. I want to know three things: what are the required sections of the program, how to determine the core procedures that need to be in the program, and what are my responsibilities as the AML officer?


There are four elements to the Anti-Money Laundering Program ("AML") required by the Financial Crimes Enforcement Network ("FinCEN").

These are:

1. Policy and Procedures

2. AML Compliance Officer

3. Training

4. Independent Testing

In order to determine the core procedures that an organization requires, it is necessary to assess its size, complexity, and risk profile, with respect to exposure to money laundering activity and terrorist financing schemes.

Q and A


I would like to know how to define an "applicant" and an "application" under the Equal Credit Opportunities Act ("ECOA"). 


Also, what is a "completed application," according to the ECOA?


The Equal Credit Opportunities Act, and its implementing regulation, Regulation B, set forth guidelines for entities that extend credit with respect to preventing discrimination on the basis of sex, marital status, race, color, religion, national origin, age, applicant's income derived from a public assistance program, and any right the applicant may have pursuant to the Consumer Credit Protection Act. [15 USC § 1691(a), Title 15, Ch 41, Sub IV]


Although it is believed that this ECOA requirement only pertains to the lender, as creditor, this notion is erroneous. Regulation B holds that a mortgage broker is considered a creditor, too, since the term "creditor" also "includes a person who, in the ordinary course of business, regularly refers applicants or prospective applicants to creditors, or selects or offers to select creditors to whom requests for credit may be made." [12 CFR 202.2(l), Title 12, Ch II, Sub A, Part 202]


Lenders compliance at realestateloans.com — Posted by lenders @ 12:24
We are a broker that frequently takes applications for home equity lines of credit (HELOC) for a lender. Do we have a duty to make disclosures to the applicant?

Your duty as a broker to make disclosures with respect to a HELOC depends on whether the lender has provided you with both the application and the disclosures. To the extent the lender has not provided the disclosures to you, you, as a third party broker, have no obligation to disclose. However, if the lender provided you with both the applications and disclosures, you do have a duty to disclose. In each instance, you have a duty to provide the consumer with the home equity brochure entitle "What You Should Know About Home Equity Lines of Credit" or a similar brochure.

Pursuant to the Real Estate Settlement Procedures Act (RESPA), with respect to a home equity plan covered under Regulation Z, "a lender or mortgage broker that provides the borrower with the disclosures required by 12 CFR 1026.40 of Regulation Z at the time the borrower applies for such loan shall be deemed to satisfy the requirements of this section".  [12 CFR 1024.7(h)]

Notice of Incompleteness

Lenders compliance at realestateloans.com — Posted by lenders @ 13:10
In issuing a "Notice of Incompleteness" under the Equal Credit Opportunity Act, what is a "reasonable time frame" to give the applicant for completion of the application?
We are a lender with a current policy of allowing an applicant an additional thirty (30) days beyond the initial thirty (30) day ECOA requirement to complete an "incomplete application". In accordance with policy, if the application is not completed within this thirty (30) day period, the loan needs to be moved to withdrawn by the applicant or is deemed a cold lead.
However, we are finding that this policy requires many files to be disposed of well before the applicant has either finished shopping lenders, or chosen a house to buy.
Is it possible for us to change the thirty (30) day period for the applicant to complete the application to sixty (60) days?
In issuing a "Notice of Incompleteness", the creditor must provide a "reasonable period of time" for the applicant to complete the application. 
[12 CFR § 1002.9(c)]

Mini FAQ's

As a lender, we require our brokers and TPOs to execute an Anti-Steering Disclosure certifying that the loan originator has presented loan options from at least three creditors with whom the LO does business in order to comply with the anti-steering provisions of Regulation Z. However, some of our originators only do business with us or one other lender and do not have the ability to present the consumer with options from three different lenders. Can those originators still make the required Anti-Steering Disclosure and qualify under the "safe harbor" provisions of Regulation Z?



Yes. Generally, to satisfy the safe harbor requirements, the loan originator must obtain loan options from "a significant number of creditors with which a loan originator regularly does business". Three or more creditors constitute a "significant number of creditors".

However, if an originator does not regularly do business with three creditors, obtaining loan options from the one or two creditors with which the originator regularly does business is acceptable, provided the loan options presented otherwise meet the criteria set forth in the regulation. There is no requirement that the originator establish a new business relationship just to meet the threshold of three.

An originator "regularly does business" with a creditor if:

1. There is a written agreement between the originator and the creditor governing the originator's submission of mortgage loan applications to the creditor;

2. The creditor has extended credit secured by a dwelling to one or more consumers during the current or previous calendar month based on an application submitted by the loan originator; or

3. The creditor has extended credit secured by a dwelling twenty-five or more times during the previous twelve calendar months beginning with the calendar month that precedes the month in which the loan originator accepted the consumer's application.

Thus, in the scenario presented, even if you are the only lender with which the originator regularly does business, and the originator presents three loans available from you and no other options from any other creditor which otherwise meet the criteria set forth in the regulation, the originator qualifies for "safe harbor" protection under Regulation Z's anti-steering provisions.

CFPB: Spying to Protect the Consumer

Monday, July 22, 2013

CFPB: Spying to Protect the Consumer

It all began with a Bloomberg article. Although the CFPB spying on the financial habits of at least 10 million consumers seems to be a far cry from NSA's spying on the telephone calls, emails, snail mails, website usage, and many other communication media used by hundreds of millions of US citizens, the timing of the Bloomberg article comes at, shall we say, a rather sensitive time - given its publication just shortly prior to the recent revelations regarding the NSA's rather unique way of interpreting the Fourth Amendment of the US Constitution regarding search and seizure.

Probable Cause Conundrum

I call it the "probable cause conundrum," because (1) the Fourth Amendment expressly states that "the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized," yet (2) a warrant to spy on Americans these days, at least with respect to probable cause and the requirement that a warrant to spy must be limited in scope according to specific information, has been hugely expanded. At least one of the Supremes has interpreted "probable cause" to mean "reasonable." For some reason, I really don't think that point of view was ever the way the Framers considered it, based on the law extant at the time the Constitution was actually drafted. But I digress.

As a result of Tennessee v. Garner [471 U.S. 1 (1985)], inter alia, we all learned that the "reasonableness requirement" applies not just to a search in combination with a seizure, but also to a search without a seizure, as well as to a seizure without a search. But, again, I digress. So not to go too far afield, let us return to that Bloomberg article which, by the way, was published back in April of this year.

To quote the very first paragraph of the article, its author, Carter Dougherty, writes that "the new U.S. consumer finance watchdog is gearing up to monitor how millions of Americans use credit cards, take out mortgages and overdraw their checking accounts. Their bankers aren’t happy about it." And Mr. Dougherty later on states that "Director Richard Cordray has said that the consumer bureau needs raw material to make 'data-driven' decisions based on how financial products and services are used or abused. Research will improve regulation as well as the marketplace."

We don't like to think that our federal agencies are spying on us, watching our communications, perhaps especially our financial habits, determining therefrom how best to "serve" the public interest. Sure, we know that Google and other web giants are constantly monitoring our financial habits - presumably with our permission to do so. Somehow, it's acceptable if private corporations do it, but when the government does it - not so much!

It all becomes rather weird when the NSA (backed by, say, the DOJ) orders private corporations to spy on us, but the latter are not permitted to admit that the former ordered them to do so - with or without our permission - on the basis of what appears to be a new meaning of "probable cause."

What I find interesting is the similarity between the NSA's and the CFPB's reasons for the need to collect, respectively, virtually all communication data on American citizens and also the financial data on millions of American consumers. It seems that spying has an underlying positive cause, one that apparently we citizens simply don't fully appreciate. For if we did appreciate the workings of these agencies that are just trying to protect us, watch over us to make sure we are safe, and do what they can to mitigate our worst fears, we would overwhelmingly and clearly express our gratitude to the NSA and CFPB for their commitment to our protection - and some Americans certainly seem very grateful.

The Fourth Amendment - how quaint it has become!

Justifying Spying
NSA and CFPB – Two Peas in a Pod

But let's look at some of these justifications that both the NSA and the CFPB have in common for spying on us. Or, if you find that phrase to be nettlesome, perhaps the phrase ‘conducting surveillance on us’ is easier to accept.

First Justification: We need a bogeyman, whom we shall call El Coco, its Spanish version, as when a Spanish-speaking parent tells a child 'si no te portas bien vendrá el coco' ("if you're not good the bogeyman will come and get you"). Almost every civilization has had some version of the bogeyman, that amorphous, unpredictable, malevolent being whose primary role is to scare the living daylights out of us and make us willingly compliant and malleable victims.

So, in the case of the NSA, El Coco comes in the form of terrorists and other malcontents; and, in the case of the CFPB, El Coco seems to be residential mortgage lenders and originators (RMLOs) and other members of the financial markets and sometimes even consumers themselves. In both instances, we can thank the government for protecting us from the mischievous schemes of El Coco.

Fortunately, these federal agencies keep guard against El Coco and make sure that nothing physically or financially bad will happen to Americans. If you take the position, as did President Franklin Roosevelt, that "there is nothing to fear but fear itself," then you're really not showing much appreciation for the many protective efforts being done on your behalf, to protect you from the wrathful and heinous acts of El Coco.

Second Justification: The euphemisms "data collection" and "data mining" have become virtually the same meaning, one giving way to the other, as surely as night follows the day. After all, what good is getting all that data about us if you can't mine it for something practical? And what could be more practical than mining data on Americans to catch terrorists hiding among them or non-Americans trying to harm Americans or demolishing supposedly deceptive RMLOs preying on the financial well-being of Americans?

But there are those who resist such sound reasoning, using case law and the Constitution to argue that putting everybody into one massive group lacks the very specificity that the Fourth Amendment requires, with the hope of finding a few bad actors - like casting out large metal nets dragged along by trawling ships, hauling for a large plunder of fish, hoping for a big catch.

As it has been recently reported, the NSA's perception of probable cause - excuse me, 'reasonable' cause - is that 51% passes, but 49% fails, when determining which ‘fish’ shall live and which 'fish' shall die; or, put otherwise, which Americans are bad, deserving of full-court press investigations and the impoverishment caused by litigation defending themselves, and which Americans are good, spared the invasiveness and poverty, but deserving to remain permanently ensconced in the Pool (that is, the deep and dark pool of collected data).

So, a cover story is needed to push back on these recalcitrant, defiant extremists who do not accept the new status quo. And in the case of the NSA, the cover story has been that the purpose of the immense electronic dragnet is this: information is power against El Coco, giving the US a policing and enforcement edge over its adversaries outside of the United States and, as we now know, even within it, by and between American citizens.

The CFPB's cover story is a bit more nuanced, but essentially similar, using the American sense of commitment to a free enterprise system and expectations of market stability. Here's Director Cordray's statement, offered to explain the CFPB’s own dragnet: “The more information there is, the more innovation there can be and the more competition there is among the institutions around customer service. ... It’s something we want to encourage.”

It's a good thing, too, that the CFPB is so concerned about encouraging innovation and competition, otherwise we might think it was not complying with the Dodd-Frank Act's restrictions that prohibit it from data collection "for purposes of gathering or analyzing the personally identifiable financial information of consumers.”

I'm sure that the CFPB believes that the cost of $15 million for the outsourced data extraction and analytical work regarding credit cards will be well worth it. Whatever the expense for collecting data on other financial products under the CFPB's purview will surely also be worth the cost. After all, any information on consumers that the CFPB cannot get by the foregoing extraction process will hopefully be obtained by paying $8.4 million to Experian for data on 5 to 10 million Americans. And that is why the CFPB really must pay $443,260 to Clarity Services, Inc. for providing data on payday loans. And also why it is coordinating with the Federal Housing Finance Agency (FHFA) in building a database of mortgage originations that integrates consumer credit information with loan and property records, for which Core Logic will be paid $796,000 to provide loan-level data on mortgages.

Given the selfless spirit in which these agencies seek to deploy data collection, it seems only fair that we give them the chance to use it in order to protect us not only from the nefarious, outsider El Coco (viz., non-Americans) but also from the nefarious, insider El Coco in our midst and among ourselves (viz., Americans). Really, how else to ensure that more innovation and competition is made available to American consumers? Protecting us from others and even from ourselves surely must be a full time job and certainly costs a lot of money, but it's worth it!

Third Justification: It may seem 'invasive' to take such liberties with our liberties, but by what other means might the NSA and CFPB execute their responsibilities, well, responsibly? One distinct difference between data mined by the NSA and that mined by the CFPB is that we do not get to know anything about the former, virtually forever, but we do get to know about the latter, eventually. Or, at least that is how it is supposed to happen.

Director Cordray has opined that the research developed from the data collection will be made available to the public. Maybe. But to what benefit? I translate the proposition that the developed research will be made public, as follows: 'based on our selection criteria, we will make available the results of our selection criteria." This kind of circular reasoning is endemic and pervasive among the bureaucratic wonks that torment data into a statistically useless condition. It is the same kind of reasoning that evoked the confirmation bias leading up to the great market meltdown a few years ago.

I see virtually no difference between being deprived of mined data on Americans by the NSA and useless data being mined and then provided by the CFPB. My concern is that people are falling into the same kind of conceptual trap that caused the last combustible financial disaster: everybody becomes conditioned to looking at and for a concocted El Coco in one area, thereby confirming one another's biases, while the authentic El Coco is getting ready to launch its new brand of terror.

Congress Takes Notice

And now, just a few days ago, on Tuesday, July 9th, we were treated to a sequel to that first Bloomberg article. This second report, published by Housing Wire, is provided by reporter Megan Hopkins. According to the news report, Mike Crapo (R-ID) "recently asked the Government Accountability Office to investigate the 'big data' collection efforts underway on consumer habits at the CFPB."

On that Tuesday, the House Financial Services Committee expressed considerable concern about the CFPB's data collection initiative. Ms. Hopkins editorially surmises: "The bureau is in a Catch-22: it collects data to inform opinions on how to help borrowers, but this data also remains a privacy concern for government officials and the general public."

One member of the Committee (David Scott, D-GA) said this: "The CFPB was put in with Dodd-Frank to protect consumers. You cannot protect consumers without the capacity of gathering information" ... "If you limit that capacity of the CFPB, it’s like cutting the legs out from under them and then condemning them for being a cripple." (See Second Justification)

To the CFPB’s defense at this hearing came its Acting Director Steven Antonakes, who offered some creative, bureaucratic newspeak by saying that the collected data will be "desensitized." As reported, he said: "We're looking at individual loan-level account information, but we’re not seeking to determine who that particular consumer is. ... We have no interest whatsoever in trying to determine who that specific individual is."

Sure you do! It's El Coco - if you can catch him!

Lenders Compliance

Lenders compliance at realestateloans.com — Posted by lenders @ 12:56

We are reviewing our Quality Control Procedures and our question pertains to our sampling method. Is it adequate to make the 10% sample selection based on a purely random basis?



No. While simply selecting a random 10% sample of the loans originated each month might be adequate for very small lenders who only originate one type of loan and only have one production office, in general quality control sampling needs to be more detailed in order to produce more meaningful and useful results from the quality control audit program.


It is important that the sample of loans selected for audit each month be statistically representative of the lender's total book of business. This will enable a lender to be reasonably assured that a specific finding or error rate, found in the sample of loans audited, also exists at the same rate in the lender's total population of loans originated.


For instance, our Post-Closing Quality Control Audit Program uses the Stratified Random Sample Method, whereby we first divide the total loan production for the month into groups.  At a minimum, we "stratify" the loans by loan type (Conventional, FHA, VA, etc.), as well as by Loan Officer and/or Production Office. Additionally, based upon the nature of the lender's business, we also sort the loans by Rate Type (Fixed or Adjustable).


Once the loans are stratified by groups, we then use the Systematic Random Sample Method to select a minimum of 10% of the loans from each group, by randomly selecting one of the first five loans from each group and then selecting every tenth loan thereafter.


We also use the Discretionary Sampling Method, where needed, and as directed by our clients. This selection method is in addition to the standard 10% sampling method (as described above). The method is used to focus on new types of mortgages and to evaluate the work of particular employees or branch offices.


Overall, we believe that these sampling methods and techniques provide the most meaningful and useful results for a viable mortgage quality control program.

1 2 3 4  Next»

Powered by LifeType