Nov. 30: Letters on whether or not an LO can pay their assistant, rate sheet retention, and the CFPB’s “breathtaking lack of accountability”

Everyone (okay, maybe it is just me) is overwhelmed with logins and passwords – but not the U.S. military! For decades the nuclear launch code was set 00000000:


On the difference between funding and closing a loan, Kathi Y. writes “I’d like to comment about Secure Settlement Andrew Liput’s statement about closing, which I think is mostly correct aside from some further clarification.” (‘The definition of a ‘closing’ depends upon your perspective.  The funding date is the date that the money leaves the lender or their warehouse bank and is wired to the settlement agent.’ Agreed. ‘This starts the clock ticking on interest and other costs of funds. For a lender that is the key date. From a legal perspective, the transfer of property takes place when consideration is exchanged for the property transfer instrument (deed).  Recording is not necessary to effectuate the transfer…once you have the original deed and consideration has passed (funds are transferred to the seller or their agent), then the transaction is ‘closed.’ Recording puts the world on notice of the transfer and amends the title, but the deed date establishes the date of ownership. In this regard I see no real difference between East and West Coast transactions, except that the settlement or escrow agent may take longer to disburse funds. In both instances the document dates control the legal definition of when the property transferred (i.e. the closing).)’ Kathi points out, “He seems to have forgotten the ‘exchange of consideration’ part, which in Escrow States doesn’t take place until after signed loan documents are reviewed by the Lender and deemed complete for funding. This rarely happens the same day as signing. Also keep in mind that loan documents are in fact contracts. And no contract is valid without signatures. The validity of any contract begins on the date upon which the contract is signed (consummated) by all parties, or the date stated within the contract as such; not the date the contract was written.”


And can a loan officer pay their assistant? What about if it’s under the table? (Hah!) In my discussions of this topic with a couple compliance folks, their interpretation (and apparently that of their attorneys) is that HUD does not allow employees paying for employees. So a loan officer cannot pay for an assistant out of their commission, it must be borne by the company.  While the language might sound like it is directed at “net branches” it is not exclusively written for net branches. Here is where you could start some research, in case you’re doing that now and then subjected to a HUD audit: HUD Handbook 4060.1 REV-2, Paragraphs 2-8 and 2-14B ( But if you need some tidbits…“A Mortgagee must pay all of its own operating expenses.  A Branch compensation plan that includes payment of operating expenses by the branch manager, any other employee or a third party is prohibited.” Section 2-8 – “A mortgagee must pay all its own operating expenses. This includes expenses of its main and branch offices involved in originating or servicing any FHA insured mortgages. Operating expenses include, but are not limited to, equipment, furniture, office rent, overhead, employee compensation, and similar expenses.” And there’s Section 2-9 that requires a mortgagee to have direct supervision and control over its employees, and prohibits dual employment in the mortgage lending or other real estate related fields, and Section 2-9(B) that “allows compensation based on the net profits of the branch to branch managers (but this compensation is still subject to Regulation Z LO Compensation rules). For example, the FHA approved mortgagee may collect the revenue from the branch, pay the branch expenses, and then pay the branch manager the remaining revenues, if any, as a commission. Such an arrangement is, essentially, an alternative compensation program for the branch manager and is an acceptable arrangement if all other branch requirements are met.”


Those “in the know” know that Section 2-14 deals with “Prohibited Branch Arrangements.” “An FHA mortgagee must pay all of its operating expenses including the compensation of all employees of its main and branch offices. Other operating expenses that must be paid by the FHA approved mortgagee include, but are not limited to, equipment, furniture, office rent, utilities and other similar expenses incurred in operating a mortgage lending business. A branch compensation plan that includes the payment of operating expenses by the branch manager, any other employee, or by a third party, is a prohibited arrangement. The following includes some, but not all, examples of unacceptable provisions in employment agreements: require all contractual relationships with vendors such as leases, telephones, utilities, and advertising to be in the name of the employee (branch) and not in the name of the FHA approved mortgagee; require the employee (branch) to indemnify the FHA approved mortgagee if it incurs damages from any apparent, express, or implied agency representation by or through the employees (branches) actions; and require the employee (branch) to issue a personal check to cover operating expenses if funds are not available from an operating account.”


Here’s a note that I received that represents other similar questions I have received lately. “How are companies that are using Pricing Engines and sell direct to Ginnie, Fannie, or Freddie managing rate sheet retention for their Retail channel? One of the points of pricing engines is that you can program your margins in the engine and the engines go out every 5 or 10 minutes to retrieve the most recent rate sheet from each investor website you are signed up with…including Fannie Mae cash window or raw MBS marks that can be uploaded.  With certain aggregators, this may only mean a few rate sheets.  With Fannie cash window or MBS marks, this could be tons of raw pricing feeds a day.  Are companies just creating a portfolio rate sheet (for Ginnie/Fannie/Freddie) with margins built into rate sheet and sending to their pricing engine?  Then saving all the investor rate sheets daily as well?  Or are companies sending a raw portfolio rate sheet and managing margins in their pricing engine?  Or are they somehow trying to manage all the raw pricing feeds? Pricing engines do not have long term data/rate sheet retention so if you get audited years down the line or switch pricing engines, you may not be able to access historical pricing in the engine to be able to show how you got pricing for that day.”


This could be a big deal. Few, if any, paper rate sheets are generated any more, and if a lender has to justify giving a price break to a borrower in order to compete with another lender, proving that months or years from now could be problematic. From my observations, although the industry is concerned about the mistaken appearance of disparate treatment for some borrowers in pricing, this seems to be more of an operational question. The CFPB does not address this question in such detail in the rule nor is likely to do so via its guidance channel any further than the existing record retention requirements. At this point it is not a legal question, and it’s up to each creditor to decide how to go about preserving records sufficient to demonstrate compliance with Regulation Z. The CFPB will give interpretational guidance under the regulations, but it is not operations or systems consultants so you’ll have to ask your IT group about the logistics.


And regarding risks during the loan process, Dan Lewis from Credit Plus (e-mail: writes, “Times have changed.  Fannie & Freddie now validate every loan.  The GSE’s used to review only a sampling of the loans they acquired.  Now they’re electronically validating 100 percent of the loans they purchase performing reviews within 120 days. In your November 9th newsletter Undisclosed Debt Monitoring from Equifax was discussed. As a reseller of UDM at Credit Plus we have been able to provide our customers a great solution that takes a pro-active approach in alleviating risk. The one concern brought up was UDM is only a one bureau solution. Credit Plus has resolved that issue and now offers a debt monitoring tool that includes all 3 bureaus. In fact, currently we are the only provider of a 3 bureau solution.  This new product allows lenders to follow Fannie Mae Selling Guide Announcement SEL-2010-11: “Lenders are not required to obtain a second credit report just before loan closing. Rather, Fannie Mae is reminding lenders to have processes in place to facilitate borrower disclosure of changes in financial circumstances throughout the origination process.” The addition of TransUnion and Experian compliment the benefits that come with Equifax’s UDM.  Undisclosed Debt Verification by Credit Plus provides real time activity alerts with no more gaps between the refresh pull and closing date from all 3 bureaus. In today’s environment of LQI, the FHFA new audit policy of 100%, and QM on its way, you can’t afford it miss anything. Let Credit Plus help you stay compliant.”


And I know that I wrote about this topic months ago, but as a reminder, the CFPB has elaborated on some of the factors it will consider in determining what actions to bring, if any, against those subject to its enforcement authority. In its bulletin, the agency announced that it may consider a party’s conduct favorably if the conduct “substantially exceeds” what is required by law in its interactions with the Bureau. They write, “Depending on the nature and extent of a party’s actions, the Bureau has a wide range of options available to properly account for responsible conduct in enforcement investigations. For example, the Bureau could resolve an investigation with no public enforcement action, treat the conduct as a less severe type of violation, reduce the number of violations pursued, or reduce the sanctions or penalties sought by the Bureau in an enforcement action. It must be emphasized, however, that in order for the Bureau to consider awarding affirmative credit in the context of an enforcement investigation, a party’s conduct must substantially exceed the standard of what is required by law in its interactions with the Bureau.” Depending on how you view the world, this could be a half-full, half-empty kind of moment. One thing is for sure, the CFPB, almost from inception, has garnered the hard-to-allocate dollars in Washington, and has expanded its staff five-fold. My gut tells me Washington expects a little ROI. Here is the bulletin from June:


And a week or so ago, the chairman of the House Financial Services Committee (Jeb Hensarling) left little doubt about what he thinks of the CFPB. “We know that this is an agency that was designed to be unique, if not perhaps rogue; it is an agency like no other. Arguably it is the single most powerful and least accountable Federal agency in the history of our nation.” Hensarling said the CFPB was effectively unaccountable to Congress, the courts, and even the president, since once appointed and confirmed, the CFPB director can only be removed “for cause.” “…the CFPB is uniquely unaccountable even to itself since there is fundamentally no ‘it,’ no ‘they’, only a ‘he,’” (referring to CFPB Director Richard Cordray). “There is no commission, only one omnipotent director, fundamentally accountable to no one. Combined with this breathtaking lack of accountability is a grant of power under Dodd-Frank to the CFPB director that is unilateral, unbridled and unparalleled. The director can unilaterally declare virtually any financial product or service as ‘unfair’ or ‘abusive,’ at which point Americans will be denied that product or service even if they need it, want it, understand it and can afford it.” (Hensarling is promoting a bill – HR 2446 – which would replace the director with a five-member commission, with each commissioner serving a five-year term.)




Borrower: Otherwise intelligent consumer who believes lender should kiss him on both cheeks and give him the money – without all this credit report nonsense. 

Closer: This person’s only job is to salvage forty or fifty emergencies at the last moment of every end of month. This person is rarely sane. 

Closing Date: Put into purchase contracts to give the closer fits of hysterical laughter.

Credit Report: Basis for advanced creative writing by Processor and buyer since white-out doesn’t work anymore.

Escrow Officer: A humorless individual who is only truly happy when they can blame the late closing on the lender.

Fannie Mae: Government agency run by ex-stripper.

Freddie Mac: Type of hamburger consumed in cars by loan officers. 

Ginny Mae: Type of alcoholic beverage consumed in large quantities by mortgage employees. 

Good Faith Estimate: Standard document which a loan officer presents to the buyer to confuse them further.

Loan Application: A document which mysteriously causes amnesia to the borrower concerning income, credit, bills, and ex-spouses.

Loan Officer: Highly qualified financial analyst who typically developed these skills while selling used cars or encyclopedias. 

Processor: Overworked, underpaid person who collects the garbage received from the loan officer and transforms it into a real loan. These individuals are known to consume massive amounts of candy, popcorn, and cookies. 

Rate: This figure is always higher than the buyer’s uncle or Realtor thinks it should be. 

Realtor: Highly trained professional who nevertheless has trouble figuring out how to subtract the down payment from the sales price to get the loan amount, but has no trouble figuring exact commission without a calculator.

Underwriter: Conscientious employee otherwise known as “God”. Their most difficult task is responding to loan agent’s explanations of poor credit and income history while maintaining a straight face.





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Rob Chrisman