Sep. 26: QC trends; broker’s responsibilities under TRID; with recent rules and rulings, is the CFPB in total control or out of control?

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

As vendors and IT departments across the nation put in overtime this weekend ahead of next weekend’s TRID changes, the frustration out there is palpable. There is, and with good reason, continued concern over the varied regulatory bodies and their varied enforcement possibilities the frustration out there is palpable. The MBA’s Advocacy Update spelled it out. “Unfortunately, the procedures (in the CFPB’s procedures for examining compliance with the TILA-RESPA Integrated Disclosure rule (TRID) & the “Supervision and Examination Manual”) do not address any of the outstanding questions and concerns lenders and vendors still have about the rule nor does it provide any additional clarity as to how the CFPB plans to enforce TRID in the early stages of its implementation.” And mistakes can be very, very costly. Are we having fun yet?

 

I received this note, among several similar letters. “As a lender I understand the importance (and expense) of evaluating counterparty risk. But I wonder if the CFPB expects lenders to be responsible for people the borrower chooses during a transaction, not just third parties where the lender has more control. The CFPB should come up with a form that borrowers sign where they PROMISE not to have any difficulties in life. They will always have a good paying job, no health issues, no children problems, no problems period. Always be able to pay the mortgage debt on time. This signed in blood document will be notarized and sent to any and all lenders. Now, the lender will be assured the borrower will always make their mortgage payment on time and there will be no life issues that could cause any problems. Since the form initiates from the CFPB, it is totally binding and enforceable.”

 

And this on the Hudson Bank matter. “That CFPB consent order is something exceptional. Reading that complaint itself – is there anything the CFPB can’t tell you to do? Some choice excerpts:

 

‘Defendant will invest $25,000,000 in a Loan Subsidy Program to increase the credit that Defendant extends in majority-Black-and-Hispanic neighborhoods in the Affected MSAs to remedy its alleged redlining (“Loan Subsidy Program”). The Loan Subsidy Program will offer residents in majority-Black-and-Hispanic neighborhoods in the Affected MSAs home mortgage loans on a more affordable basis than otherwise available from Defendant.’ So the CFPB is ordering a bank to make discounted loans to individuals of certain races? What about Chinatown? Little Italy? Syrian refugee neighborhoods? Nope.

 

‘Defendant will open or acquire two new full-service branches located within majority-Black-and-Hispanic neighborhoods in the Affected MSAs.’ So the CFPB is telling a bank where to open its branches?

 

‘Within 180 days of the Effective Date, Defendant will ensure that not less than eight percent (8%) of its mortgage loan officers in the Affected MSAs, and in any event not less than three (3) mortgage loan officers total, are assigned to serve branches and loan production offices in majority-Black-and-Hispanic neighborhoods within the Affected MSAs.’ So the CFPB is telling a bank how many loan originators to hire and where they should work?

 

‘…however, Defendant may choose to apply more flexible underwriting standards in connection with the Loan Subsidy Program, so long as those standards comport with safe and sound lending practices.” So the CFPB is suggesting underwriting standards?

 

‘Defendant will spend a minimum of $200,000 per year on the targeted advertising and outreach campaign described in Paragraphs 34-36.’ So the CFPB is setting advertising budgets?

 

‘Radio advertisements in each of the Affected MSAs on at least two African-American-oriented radio stations and/or Hispanic-oriented radio stations in either Spanish or both English and Spanish;…’ So the CFPB is telling a bank on which types of radio stations to advertise?

 

“One could go on, but the above are sufficiently illustrative I would think: the CFPB is telling you who to lend to, where to open branches, number of personnel to hire and where to hire them, underwriting standards, advertising budgets, and radio stations on which to advertise. Also, it seems unclear if these requirements exist in perpetuity or if these expire at some point. It may be until the end of time Hudson must keep at least 3 LOs in the designated offices.”

 

“We are a lender that originated a HOEPA loan. We were asked if we could make a payment to a contractor under a home improvement contract from HOEPA proceeds. Is that permissible?” Lenders Compliance responds with, “A creditor may not pay a contractor under a home improvement contract from the proceeds of a HOEPA loan, other than: 1. By an instrument payable to the consumer or jointly to the consumer and the contractor (and if there are multiple consumers who are primarily liable each must be named as payee); or 2. At the election of the consumer, through a third-party escrow agent in accordance with the terms established in a written agreement signed by the consumer, the creditor, and the contractor prior to disbursement. [12 CFR § 226.34(a)(I); 12 CFR Supp. I to part 226 – Official Staff Commentary §226.34(a)(I)(i)-I]”

 

‘Something you might want to discuss, the transferability of LE (Loan Estimate). Some wholesalers are having a broker do their own LE while others are building a site to have the broker do the LE. Suppose a broker does a LE for a wholesaler and then has to change to a second wholesaler, will the first LE be accepted? Suppose the first lender takes the broker’s LE and the second does not. Or if a banker/broker at first wants to bank the loan then has to broker the loan. Granted these are case by case situations and every wholesaler will have its own rules, but this needs to be discussed.”

 

Annemaria Allen, CEO/President of The Compliance Group, Inc. responded with, “The short answer is to NOT have brokers do the LE. All of our clients are not allowing the brokers to do the LE. What is on the CFPB web-site pretty much spells it out. As you probably know the Creditor is responsible if the broker issues the LE. My understanding from listening to my staff and many of our clients is that most of the lenders will be issuing the LE because of this reason. If you are treating this as a lender transfer then I am interpreting that to mean that the broker is responsible for the LE even when it is transferred to a new Wholesaler (creditor) but then you run into the problem that you outlined below…some will accept the LE from the broker and others will not. The creditor is responsible that the broker is complying with the regulation concerning the LE. I hope that makes sense; as we all know it’s going to be a rocky road out there for a while. There are so many variables that were NOT thought through.

 

19(e)(1)(ii) Mortgage broker.

  1. Mortgage broker responsibilities. Section 1026.19(e)(1)(ii)(A) provides that if a mortgage broker receives a consumer’s application, either the creditor or the mortgage broker must provide the consumer with the disclosures required under § 1026.19(e)(1)(i) in accordance with § 1026.19(e)(1)(iii). Section 1026.19(e)(1)(ii)(A) also provides that if the mortgage broker provides the required disclosures, it must comply with all relevant requirements of § 1026.19(e).

This means that “mortgage broker” should be read in the place of “creditor” for all provisions of

  • 1026.19(e), except to the extent that such a reading would create responsibility for mortgage brokers under § 1026.19(f). To illustrate, comment 19(e)(4)(ii)-1 states that creditors comply with the requirements of § 1026.19(e)(4) if the revised disclosures are reflected in the disclosures required by § 1026.19(f)(1)(i). “Mortgage broker” could not be read in place of “creditor” in comment 19(e)(4)(ii)-1 because mortgage brokers are not responsible for the disclosures required under § 1026.19(f)(1)(i). In addition, § 1026.19(e)(1)(ii)(A) provides that the creditor must ensure that disclosures provided by mortgage brokers comply with all requirements of § 1026.19(e), and that disclosures provided by mortgage brokers that do comply with all such requirements satisfy the creditor’s obligation under § 1026.19(e). The term “mortgage broker,” as used in § 1026.19(e)(1)(ii), has the same meaning as in § 1026.36(a)(2). See also comment 36(a)-2. Section 1026.19(e)(1)(ii)(B) provides that if a mortgage broker provides any disclosure required under § 1026.19(e), the mortgage broker must also comply with the requirements of § 1026.25(c). For example, if a mortgage broker provides the disclosures required under § 1026.19(e)(1)(i), it must maintain records for three years, in compliance with § 1026.25(c)(1)(i).

 

1689 2. Creditor responsibilities. If a mortgage broker issues any disclosure required under § 1026.19(e) in the creditor’s place, the creditor remains responsible under § 1026.19(e) for ensuring that the requirements of § 1026.19(e) have been satisfied. For example, if a mortgage broker receives a consumer’s application and provides the consumer with the disclosures required under § 1026.19(e)(1)(i), the creditor does not satisfy the requirements of § 1026.19(e)(1)(i) if it provides duplicative disclosures to the consumer. In the same example, even if the broker provides an erroneous disclosure, the creditor is responsible and may not issue a revised disclosure correcting the error. The creditor is expected to maintain communication with the broker to ensure that the broker is acting in place of the creditor.

 

Hank Davis, Director of Sales Mortgage for Compliance Advisors – a Metasource company, writes, “I attended the MBA 2015 Risk Management, QA & Fraud Prevention Forum in Dallas and wanted to pass on a worrisome trend I am hearing. Many companies are growing increasingly upset that their QC vendor’s quality is not up to par and that when they try to discuss the quality issues they either aren’t provided a venue to discuss their findings or their vendor doesn’t offer them the opportunity to calibrate on the results and improve audit quality. These companies are becoming increasingly frustrated with the amount of work they have to perform to check and correct their vendor’s inaccurate findings.

 

This is causing an increased amount of lenders to consider bringing their QC process in house…a monumental task. Outside of having to hire auditors, processes have to be built to order credit, reverifications, field reviews, occupancy checks and a robust reporting tool is needed to track and trend your audit results. Contrary to what many people think, there are vendors in the QC space who take customer service seriously and spend the time to calibrate audit results with their clients in an effort to improve quality and customize the audit process. It’s important that lenders look for a QC partner that assigns an account manager, as well as a Senior Auditor to each of their clients and conducts calibration calls in an effort to provide a 100% accurate audit each month.”

 

 

(Warning – Rated R for language and racy situations.)

Have you ever wondered who first uttered the phrase, “You Gotta Be Sittin (with an ‘h’ in there) Me?”  

Well, it just so happens to have originated through the Father of Our country, way back when George Washington was crossing the Delaware River with his troops.  

There were 33 (remember this number) in Washington’s boat. It was extremely dark and storming furiously and the water was tossing them about.  

Finally, Washington grabbed Corporal Peters and stationed him at the front of the boat with a lantern. He ordered him to keep swinging it, so they could see where they were heading.  

Corporal Peters, through driving rain and cold, continued swinging the lantern back and forth, back and forth.  

Then a big gust of wind and a wave hit and threw Corporal Peters and his lantern into the Delaware. Washington and his troops searched for nearly an hour trying to find Corporal Peters, but to no avail. All of them felt terrible, for the Corporal had been one of their favorites.

Sometime later, Washington and his troops landed on the other side, wet and totally exhausted. He rallied the troops and told them that they must go on.  

Another hour later, one of his men said, “General, I see lights ahead.” They trudged toward the lights and came upon a huge house.  

What they didn’t know was that this was a house of ill repute, hidden in the forest to serve all who came.  

General Washington pounded on the door, his men crowding around him.

The door swung open, and much to his surprise stood a beautiful woman.

A huge smile came across her face, to see so many men standing there.  

Washington was the first to speak, “Madam, I am General George Washington and these are my men. We are tired, wet, exhausted, and   desperately need warmth and comfort.”

Again, the Madam looked at all the men standing there, and with a broad smile on her face, said, “Well, General, you have come to the right place. We can surely give you warmth and comfort. How many men do you have?”

Washington replied, “Well, Madam, there are 32 of us without Peters.”

And the Madam said, “You gotta be sh-ittin me.”

 

 

Rob

 

(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)