Nov. 25: Compliance & regulation news & advice; vendor & 3rd party news incl. NAR’s flood disclosure tracker

“As soon as one door closes and another opens, it’s time to pack up and move because your house is clearly haunted.” LOs know that moving is good for lending. People leave a state for a variety of reasons: to escape from the law, to escape stalkers, be closer to family, to escape from the family… An increase in the share of people who moved due to a change in marital status between 2021 and 2022 may be the result of people resuming plans they had put on pause during the height of the pandemic, according to the U.S. Census Bureau. About 8.2 million people moved between states in 2022, rising from nearly 7.9 million people in 2021. State-to-state movers also made up a larger share of all movers between 2021 and 2022, increasing from 18.8 percent to 19.9 percent, continuing a decade-long trend of rising state-to-state migration even as overall migration has declined. Between 2021 and 2022, the overall national migration rate (the number of movers in the United States relative to the population age 1 year and over) dropped from 12.8 percent to 12.6 percent.

Compliance and regulations


On Halloween the National Association of Realtors (NAR) made a lot of news with its Missouri verdict of a $1.8 billion fine, but did you know that the Federal Reserve Board issued an enforcement action and fined Metropolitan Commercial Bank, of New York, New York, approximately $14.5 million for violations of customer identification rules and for deficient third-party risk management practices relating to the bank’s issuance of prepaid card accounts? In 2020, Metropolitan opened prepaid card accounts for illicit actors who subsequently used the accounts to collect illegally obtained state unemployment insurance benefits. By opening prepaid card accounts through a third-party program manager without having adequate procedures for verifying each applicant’s true identity, Metropolitan violated customer identification rules of the Bank Secrecy Act. The Board is requiring Metropolitan to improve its customer identification, customer due diligence, and third-party risk management programs. The Board’s action is being taken in conjunction with an action by the New York Department of Financial Services, the state supervisor of Metropolitan. The penalties announced by the Board and the Department of Financial Services total approximately $30 million.

Lenders Compliance Group recently wrote on the basics of a quality control plan. There are essentially six parts to a basic Quality Control Plan depending on the company’s size, risk profile, complexity, loan products, and investor conduits, to name a few factors. The QC Plan’s purpose is central to controlling a mortgage lender’s originating environment and critical that the Plan and QC auditing are aligned. Your QC Plan must define your lending standards for loan quality, establish processes designed to achieve those standards and mitigate risks associated with the loan origination processes.

The six parts of a QC Program are: overview, contents, standards and measures, file reviews, and reporting and remediation. Guidelines should ensure that the loans comply with applicable federal, state, and local laws and regulations; the loans comply with investors’ guidelines, such as Fannie Mae’s Selling Guide, all related contractual terms and agreements, and are in all respects eligible for delivery to Fannie; and the Plan must guard against fraud, negligence, errors, and omissions by officers, employees, contractors (whether or not involved in the origination of the mortgage loans), brokers, borrowers, marketing partners, and others involved in the mortgage process.

Lenders Compliance Group recently wrote about if Reconsideration of Value compromise appraisal independence. Financial institutions may incorporate Reconsideration of Value processes and controls into established risk management functions. The risk occurs not only in collateral valuation models but also in the risk of discrimination impacting residential real estate valuations. The concern is that deficient collateral valuations can keep individuals, families, and neighborhoods from building wealth through homeownership by potentially preventing homeowners from accessing accumulated equity, preventing prospective buyers from purchasing homes, thereby making it harder for homeowners to sell or refinance their homes, and increasing the risk of default. Up front, it should be understood that valuations that are not credible may pose risks to a financial institution’s financial condition and operations. Such risks may include loan losses, violations of law, fines, civil monetary penalties, payment of damages, and civil litigation. Read on.

MQMR recently wrote a Compliance Hot Topic on best practices to consider when using a language other than English to advertise to Limited English Proficiency (LEP) consumers. Advertising in a language other than English can be somewhat complicated as it raises UDAAP concerns if a mortgage company is only able to provide communications, disclosures, and loan documents in English. However, failing to service and/or accommodate the needs of LEP consumers raises substantial fair lending concerns. If a mortgage lender or broker is going to market/solicit business in a language other than English, the following best practices should be implemented, as applicable: The marketing material should include a clear disclosure explaining those portions of the transaction which will only be conducted in English – i.e., disclosures, loan documents, closing, servicing, default servicing, etc. The disclosure should be displayed conspicuously with the marketing material to ensure the consumer understands and can make an informed decision on whether or not to work with the mortgage company. Provide the marketing material in both English and the applicable other language. Adopt and implement applicable foreign language disclosures issued by federal agencies and state regulators, such as FHFA’s Language Translation Disclosure. Adopt and implement software which enables the mortgage company to provide loan closing documents in the applicable language to the applicant for their review several days prior to closing. Utilize a qualified and vetted translator wherever applicable and/or document the applicant’s use of a trusted individual (i.e., spouse, sibling, etc.) to assist in the transaction. Maintain objective written policies and procedures addressing LEP consumers and train all employees regarding such policies and procedures.

Social media has become a popular way for MLOs to market themselves and their services. MQMR recently wrote about key controls a mortgage lender/broker should put in place to monitor the activity of its mortgage loan originators (MLOs) on social media. These types of commercial communications through platforms, such as LinkedIn, Twitter, Facebook, Instagram, TikTok, and other websites and platforms are considered advertising by regulators and violations of advertising requirements can be costly.  It is, therefore, important that residential mortgage lenders and brokers employing MLOs monitor the activities of their MLOs throughout the internet to ensure compliance with federal and state advertising requirements. For a complete list of best practices for implementing an effective social media oversight program, read further.

Lenders Compliance Group wrote about the timing of disclosures on reverse mortgages. The Truth in Lending Act (TILA) and its implementing Regulation Z indicate what disclosures are required, and in addition to any other disclosures required by TILA and Regulation Z, creditors must provide the following disclosures in a manner substantially similar to the model form provided in Regulation Z’s Appendix K. Disclosure Requirements include Notice, Total Annual Loan Cost Rates, Itemization of Pertinent Information, and Explanation of Table. For a more in depth look, read on.

Vendor and third-party provider news


Secure Insight and Matchbox have announced a strategic collaboration in support of the Matchbox innovative evO product, which is integrated with Encompass. evO is a robust and intuitive workflow engine that reinvents the Encompass user experience for lenders. Secure Insight’s settlement agent risk and wire validation process is a core component of the evO workflow as it alleviates the compliance and risk issues surrounding mortgage industry settlement professionals. Every evO loan has the data & validation checkpoints from SI that ensure the loan closes with a trusted partner and verified and reputable settlement agent, as well as a verified trust account for the wiring of mortgage proceeds. John Clerkin, VP at Matchbox, stated, “the Secure Insight tool enhances the user experience with evO by providing important risk management checks ensuring a better loan closing experience.”

Rapidio, a pioneer of mortgage underwriting technology, announced availability of its data platform designed with robust security measures that protect user data at every step of the mortgage lending process to safely transform mortgage lending with speed, accuracy and security. Powered by its proprietary Al technology, Rapidio’s data platform provides lenders with accurate, reliable data extraction to improve data accuracy, reduce risk, streamline processes and help meet regulatory compliance requirements. By ingesting every data field from every document, even though it’s not required, lenders gain a complete data story, providing underwriters with exacting, trustworthy data.

Dovenmuehle Mortgage, Inc., a leading mortgage subservicing company, released two new features that provide transparency and improve communication through the company’s borrower-facing web and mobile applications. The new Loss Draft Notifications feature allows borrowers with pending loss draft claims to receive in-app notifications for each claim filed. On the client side, lenders stay current on their borrowers’ loss draft claims through timely status updates on outstanding loss draft claims. Because all claim details are organized and stored within Loan Profile, lenders can easily track all disbursements for individual borrower claims. Dovenmuehle’s Secure Messaging feature offers borrowers a secure messaging portal within the self-serve application to connect directly with representatives and resolve their inquiries efficiently and securely. This user-friendly messaging system facilitates fast interactions, storing all conversations safely in one place.

LodeStar, a national provider of closing fee-related compliance tools for mortgage lenders, announced an integration with nCino’s (NASDAQ: NCNO) mortgage suite for loan officers, borrowers, real estate agents and settlement agents. LodeStar is the first independent closing fee technology to be incorporated into the nCino Mortgage Suite’s dual automated underwriting systems (AUS) feature, which helps mortgage originators select best-fit products for borrowers by simultaneously submitting loan application data to Fannie Mae and Freddie Mac’s respective underwriting engines. Founded in 2013 and utilized by thousands of originators nationwide, LodeStar helps mortgage professionals effectively manage their third-party closing costs to save both time and money as well as maintain TRID (TILA-RESPA Integrated Disclosure Rule) compliance. Quotes are automated in the mortgage lender’s origination system and 100% guaranteed for accuracy.

Down Payment Resource reports housing authorities rolled out 54 homebuyer assistance programs in Q3 and are funding buydowns to offset home affordability crisis. According to DPR’s Q3 2023 Homeownership Program Index (HPI) report, there are now 2,256 homebuyer assistance programs available in the U.S. after 54 new programs were introduced and 50 new agencies stepped up to administer programs. A more detailed analysis of the Q3 2023 HPI findings, including infographics and examples of the programs described in this release, can be found on DPR’s website.

Due to increasing market interest in alternative and enhanced property valuation solutions, Valligent, a Veros Software company, has announced the availability of ValPROTECT Warranty (ValPROTECTSM), a solution that offers recovery of permitted losses in the event a Valligent property valuation is subsequently determined to have been inaccurate. ValPROTECT Warranty aims to provide lenders and investors with peace of mind knowing the valuation determination at time of origination is protected.

DocMagic, Inc., a leading provider of compliant loan document generation, automated regulatory compliance, and comprehensive eMortgage services, has partnered with Vesta, a new and innovative mortgage loan origination system (LOS) and software-as-a-service (SaaS) company, to provide shared clients with automated document generation and automated regulatory compliance during the mortgage origination and closing process. The flexible APIs DocMagic and Vesta offer allow lenders to integrate tightly with many data points, thus minimizing manual tasks. Through DocMagic, lender clients using the Vesta LOS will benefit from increased workflow automation and compliance with dynamic state and county-level regulations. Additionally, through Vesta’s LOS, users can seamlessly initiate document generation and automate compliance-intensive tasks. This interface focuses on total workflow automation, creating a smoother and more efficient lending experience for borrowers.

The National Association of Realtors® unveiled a state flood disclosure tracker aimed to educate the public and Congress as it considers the Federal Emergency Management Administration’s (FEMA) legislative proposals to reform the National Flood Insurance Program (NFIP), including the unnecessary and misguided disclosure form proposal. NAR engaged the Legal Research Center, which has decades of legal research and real estate expertise, to identify all flood disclosure requirements not identified in FEMA’s study supporting this proposal.

Under the proposed legislation, to qualify for the NFIP, states would be required to mandate a real estate-related disclosure form with specific flood-related questions. If passed, all but one state would be required to make significant amendments to its laws and regulations, significantly increasing states’ administrative and enforcement burden for a limited benefit to homeowners, buyers, or renters. Based on the research done by the Legal Research Center, all fifty states and D.C. already require the disclosure of known material property conditions or facts, including prior flood damage. Most states have added flood-related disclosure forms and requirements developed by local authorities with unique knowledge and expertise, benefitted from decades of court decisions and interpretations of common law, and have been tailored to meet state-specific flooding concerns and enforcement. While opposing FEMA’s disclosure form proposal, NAR does agree that the federal government can and should do more to help inform property buyers and renters as part of broader NFIP reform legislation.

After Thanksgiving a little girl was sitting and watching her mother do the dishes at the kitchen sink. She suddenly noticed that her mother had several strands of white hair sticking out in contrast on her brunette head.

She looked at her mother and inquisitively asked, “Why are some of your hairs white, Mom?”

Her mother replied, “Well, every time that you do something wrong and make me cry or unhappy, one of my hairs turns white.”

The little girl thought about this revelation for a while and then said, “Mommy, how come ALL of grandma’s hairs are white?”

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Rob Chrisman