Dec. 7: Compliance primer: RESPA, UDAAP, change in circumstance, state lending law changes

The year continues to fly by, and here we are at “Pearl Harbor Day” already. Residential lending touches many lives as millions of families around the United States have either been helped by lenders, or work for lenders. Births occur, as do deaths, within our mortgage banking community. This week I received this note from Evan Stone. “An esteemed and distinguished mortgage colleague passed away yesterday. Andrew ‘Drew’ Gissinger lost his brave fight with cancer at the age of 60. Drew’s career achievements included multiple executive level positions at Countrywide, including COO, as well as joining Pacific Union Financial as its Vice Chairman and aiding in its acquisition by Mr. Cooper. Those that either knew Drew or were familiar with him know that he was a spirited competitor. Before embarking on a long and storied mortgage career, Drew played several seasons as an offensive lineman in the NFL. It was with a ‘team first’ mentality that Drew led so successfully. While he will be sorely missed, the many lessons he taught will continue to live on.” Thank you, Evan.

State Regulatory Developments

Let’s see what’s been going on in recent weeks with a random sample across the nation.

For the first time in well over a decade, the Commonwealth of Massachusetts has announced an increase in recording fees. The increase will go into effect on December 31, 2019. Click this link to view a full list of the existing and updated fees.

The Texas Finance Commission and the Department of Savings and Mortgage Lending adopted new regulations which provide certain benefits to military members, veterans, and military spouses with respect to residential mortgage loan originator licenses. Subchapter A: Application Procedures, Rule §2.108 and Subchapter B: Licensing , Rule §81.110 provide information on expedited license procedure, late renewal, authorization for military spouse and available credit toward licensing requirements.

Yes, Texas Adopts New Mortgage Originator Licensing Regulations for Military Members, Veterans, and Military Spouses

On November 7, 2019, the Texas Finance Commission and the Department of Savings and Mortgage Lending adopted new regulations which provide certain benefits to military members, veterans, and military spouses with respect to residential mortgage loan originator licenses.

Georgia recently updated its requirements with regard to pre-hire employment background checks to add a requirement to check the NMLS Consumer Access, in addition to the GA Department of Banking and Finance’s (Department) website for public records related to the prospective hire. All employee files (not just employees working in GA or on GA loan files) must contain proof that both of these searches were run prior to hire in the form of a screen shot or print out. Any licensee that fails to examine the Department’s website and NMLS Consumer Access prior to employment to confirm employment eligibility may be subject to a fine of $1,000 for each violation. For the Department search, a mortgage company should visit and click on “Mortgage Administrative Actions” to run the search.

There is an additional Georgia-specific search that must be run on “covered employees.” Covered employees include those employees who physically work in the state of Georgia and who may enter, delete, or verify any information on any mortgage loan application form or document. For these individuals, Georgia requires background checks be run through the Georgia Crime Information Center (GCIC).

It is also important to note that Georgia maintains a strict prohibition against employing any individual with a felony. GA imposes this prohibition without time restrictions and extends it to all employees, whether or not the employee is located in GA or works on GA loans. Failure to abide by this restriction may result in suspension or revocation of a mortgage company’s GA lender license.

Washington revised the rules implementing Consumer Loan and Mortgage Broker Practices Acts: The Washington Department of Financial Institutions (DFI) recently adopted final rules amending the regulations implementing the Washington Consumer Loan Act (WCLA) and the Washington Mortgage Broker Practices Act (WMBPA), effective November 24, 2019.

Montana reduced the renewal filing fees for mortgage licensees: The Montana Department of Administration recently published a notice of amendment which reduced renewal fees for mortgage lenders, brokers, servicers, loan originators, and branch offices for the upcoming renewal season, effective November 9, 2019.

In cannabis news, California lawmakers rejected a bill that would have allowed the state to license private banks to process money from the cannabis industry. It was cited that the bill faced major challenges, including no protection from federal law enforcement.

Compliance: always something to learn

Can lenders pay advertisers based upon the number of leads received in response to the advertisement? The question is whether this violates Section 8 of Regulation X in the Real Estate Settlement Procedures Act (RESPA) concerning illegal kickbacks. “No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” The RESPA definition of “person” is not limited to settlement service providers. Rather, the term includes all individuals, corporations, associations, partnerships, and trusts. Thus, “person” encompasses an advertisement. With the advertisement directed to those consumers with the intention of persuading the consumer to use the broker’s services, the advertisement falls under the definition of “referral.”

It is generally accepted that “reasonable payments for goods, facilities or services actually furnished are not prohibited by RESPA.” So, if the advertiser is receiving less than fair market value for the advertising space, there is a potential RESPA violation. If acting as a lead generator, in order for the lead not to be deemed a referral, the advertiser must be careful not to introduce the consumer to the broker purchasing the leads, endorse or recommend the broker, or use a designation such as a “preferred” or “recommended” broker. Note that once the advertiser has direct access with a consumer, a regulator will assert that the advertiser is engaging in the licensable activity.


What is a general definition of UDAAP? First, an act or practice that is unfair if it (1) causes or is likely to cause substantial injury to consumers, (2) cannot be reasonably avoided by consumers, and (3) is not outweighed by countervailing consumer benefits. An act or practice is deceptive when a representation, omission, or practice misleads (or is likely to mislead) consumers, and the misleading representation, omission, or practice is material. An act or practice is abusive when (a) it materially interferes with the ability of consumers to understand a term or condition of a consumer financial product or service; (b) takes unreasonable advantage of consumers’ lack of understanding of the material risks, costs, or conditions of the product or service; (c) disadvantages consumers in protecting their interests in selecting or using a consumer financial product or service; and (d) exploits the consumers’ reasonable reliance on an institution to act in the consumers’ interests.

Which leads to the question, “What policy should companies use to satisfy UDAAP?” Verbiage for a policy could read something like: It is the policy of this financial institution to fully comply with FRB Regulation AA and Section 5(a) of the Federal Trade Commission Act (FTCA). Both Regulation AA and the FTCA prohibit unfair or deceptive acts or practices. The Consumer Financial Protection Bureau (CFPB) makes rules about UDAAPs, and the Federal Trade Commission (FTC) enforces them. This financial institution fully recognizes that unfair or deceptive practices are prima facie wrong, and it also recognizes that it must have compliance procedures in place to prevent unintended violations of Regulation AA and the FTCA. Therefore, the Board has directed that management develop a document containing appropriate compliance procedures and train employees periodically regarding unfair, deceptive, or abusive acts or practices.


What are some high-risk areas of UDAAP? And what are Best Practices for UDAAP compliance? Some violations include omission of important information in advertisements or failure to fairly disclose the terms and conditions of a product or service, the omission of important information or failure to fairly disclose the terms and conditions of a product or service, and the omission of important information or failure to fairly disclose the terms and conditions contained in the contract. Best practices include reviewing all promotional materials, bringing to the consumers’ attention key terms, limitations, or other items of a negative nature, clearly disclosing the expiration date of the introductory terms in a contract, avoiding use of the terms “pre-approved” or “guaranteed” in promotional materials, informing consumers of any contract provisions that permit the institution to change the terms and conditions of consumers’ agreements, exercise sufficient controls over third parties to prevent them from committing UDAAP violations, and inform co-signers in writing of their responsibilities and potential liabilities before becoming obligated on a loan by providing the co-signer with a written notice.


Do you ever wonder what compliance folks talk about at Happy Hour? How about, “Is an address change in new construction a ‘change in circumstance?’ Or if initial disclosures were sent, would this be a valid change of circumstances requiring a revised Loan Estimate?

It is a two part question: (1) Does a change in the address of the real property security for a mortgage loan require a revised Loan Estimate; and (2) if so, does this qualify as a “valid changed circumstance” under 12 CFR §1026.19(e)(3)(iv) authorizing revisions to the disclosures of settlement charges in the original Loan Estimate? The answer to the first part is “yes,” even though the physical location of the property has not changed. Under 12 CFR §1026.17(e) of Regulation Z, the implementing regulation for the Truth in Lending Act (TILA), “[i]f a disclosure becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of this part, although new disclosures may be required under paragraph (f) of this section, §1026.19, §1026.20, or §1026.48(c)(4).

The answer to the second part of the question is a little more complicated. Under the RESPA-TILA Integrated Disclosure Rule (TRID), mortgage lenders are held to a “good faith” standard in disclosing fees and charges on the Loan Estimate. Here, since the city’s change to the numerical part of the project address is specific to the transaction and was apparently unexpected and/or beyond the control of any interested party, the address change may qualify as a “valid changed circumstance” authorizing changes to settlement charges in the original Loan Estimate under 12 CFR §1026.19(e)(3)(iv)(A).

Only those settlement charges that the address change “caused” to be increased may be reflected in the revised Loan Estimate, however. In that regard, the Official Commentary for § 1026.19(e)(3)(iv) indicates that you can revise the original Loan Estimate disclosure “only to the extent that the reason for the revision…increased the particular charge.” On new construction, however, it is not unusual for there to be a change to the official address before the final inspection, so this may have been anticipated by the appraiser and no new appraisal or increased appraisal charges needed. Thus, the determination of whether specific increases in settlement charges can be disclosed in a revised Loan Estimate occasioned by the property’s address change must await receipt of further information.

(Warning: don’t read if easily offended. Actually, maybe those are the people who should read this.)

It Snowed Last Night…

Welcome to 2019…first snowfall of the season!

8:00 am: I made a snowman.

8:10 – A feminist passed by and asked me why I didn’t make a snow woman.

8:15 – So I made a snow woman.

8:17 – My feminist neighbor complained about the snow woman’s voluptuous breasts saying it objectified snow women everywhere.

8:20 – The gay couple living nearby threw a hissy fit and moaned it should have been two snow men instead.

8:22 – The transgender (man? woman?) person asked why I didn’t just make one snow person with detachable parts.

8:25 – The vegans at the end of the lane complained about the carrot nose, as veggies are food and not to decorate snow figures with.

8:28 – I was being called a racist because the snow couple is white.

8:31 – The Muslim gent across the road demanded the snow woman wear a burka.

8:40 – The police arrived saying someone had been offended.

8:42 – The feminist neighbor complained again that the broomstick of the snow woman needed to be removed because it depicted women in a domestic role.

8:43 – The local equality officer arrived and threatened me with eviction.

8:45 – TV news crew from CBC showed up. I was asked if I know the difference between snowmen and snowwomen. I replied “Snowballs” and I am now called a sexist.

9:00 – I was on the news as a suspected terrorist, racist, sensibility offender, bent on stirring up trouble during difficult weather.

9:10 – I was asked if I have any accomplices.

9:29 – Far left protesters offended by everything marched down the street demanding for me to be beheaded.

Moral: There is no moral to this story.

It is what we have become.

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Rob Chrisman