Credit Reports: RMCR versus Tri-Merge

Question

Upon reviewing and updating our Post-Closing Quality Control Plan, we noticed that it says we must obtain Residential Mortgage Credit Reports (RMCRs) when auditing our files. Is this correct or can we use Tri-merge Credit Reports?

Answer

Yes, you may obtain Tri-merge Credit Reports instead of RMCRs as part of your Post-Closing Quality Control Program. The following are the requirements per HUD, Freddie Mac, Fannie Mae and VA.

HUD

A new credit report must be obtained for each borrower whose loan is included in a Quality Control review; unless the loan was a streamline refinance or was processed using a FHA approved automated underwriting system exempted from this requirement. A credit report obtained for a Quality Control review may be a Residential Mortgage Credit Report, a three repository merged in-file report or, when appropriate, a business credit report. [HUD Manual 4060.1 Mortgage Approval Handbook, Section 7-6, E1. (08-06)]

Freddie Mac

For Loan Prospector Mortgages, the Seller is not required to obtain a new credit report.  For one out of every ten Non-Loan Prospector Mortgages selected for post closing quality control reviews, the Seller must obtain either a new Residential Mortgage Credit Report or a three-repository merged in-file credit report. For the remaining Non-Loan Prospector Mortgages in the Seller’s post closing quality control sample, the Seller must obtain new in-file credit reports containing information from one or more of the national repositories. [Freddie Mac Single Family Seller/Servicer Guide, Section 48.5, (c) (05/15/12)]

Fannie Mae

For all loans selected via the random selection process (and for loans selected through the discretionary selection process, as applicable), the post-closing QC review must include reverification of the borrower’s credit history. If a borrower’s credit was evaluated by using a traditional credit report, the lender must reverify the borrower’s credit history by obtaining a new tri-merge credit report. [Fannie Mae Single Family, 2013 Selling Guide/Part D, Ensuring Quality Control, Section D1-3-02 (07/30/2013)]

VA

Reordering of a new credit from another credit source. Report may be a RMCR or an in-file report which merges the records of the three national repositories of credit files, commonly know as a 3-file merge. [VA Lender Handbook, Chapter 1, 15-1Review of Loans (09/15/2014)]

Bruce Culp

Director/Quality Control & Loan Analytics

Lenders Compliance Group

Record Retention

QUESTION

Are we required to keep hard copies of records? Specifically, how long do we need to retain records relating to Regulation Z (TILA) compliance and periodic statements?

ANSWER

Generally, evidence of compliance does not need to be kept in hard copy. It is permissible to retain documents in any method that faithfully reproduces the documents, such as microfilm, microfiche, or computer programs (i.e., PDFs). Some lenders keep the entire loan transaction file indefinitely in electronic media; however, the creditor’s primary obligation is to keep sufficient records to reconstruct the compliance documents and disclosures.

For instance, a creditor is not required to retain each open-end periodic statement for a home equity plan, as long as specific information associated with each statement can be accessed. [12 CFR Supplement I, Part 226, Official Staff Commentary § 226.25(a)-2]

With the exception of advertising, Regulation Z sets forth a record retention period of two years after the date disclosures are required to be made or action is required to be taken. But an agency involved in supervising and enforcing TILA compliance, such as the CFPB, has the authority to extend the record retention period for longer than the statutorily mandated timeframe. [12 CFR § 226.25(a)]

Jonathan Foxx

President & Managing Director

Lenders Compliance Group

Homeownership Counseling and Cessation of the “Temporary Disclosure”

QUESTION
We are a lender that recently received a notice from one of our investors, advising that there is a “new” Homeownership Counseling requirement with respect to applications dated on or after August 1, 2014, related to providing a complete list of HUD-approved housing counseling agencies to applicants. What new requirement is the investor referring to? What must we include in our disclosures to the applicant in order to be in compliance?  Additionally, are we required to have the applicant sign an acknowledgement of receipt of the disclosure? 

ANSWER 
The requirement referred to in the investor’s notice is not a “new” requirement. The requirement that a written list of homeownership counseling organizations be given to all applicants for federally related mortgages within three business days of receipt of the application has been in effect since January 10, 2014. [12 C.F.R. § 1024.20].  

A lender can fulfill this requirement in one of two ways:

• The first is to obtain lists through the CFPB website;

• The second method is for the lender to generate lists by independently using the same HUD data that CFPB uses. 

With respect to the second method, the CFPB recognized that most lenders would not be able to provide the lists by the January 10, 2014 effective date, because lenders had to undertake significant development of their systems to ensure that the lists are generated in compliance with the regulations. Thus, the CFPB provided “temporary disclosure” language which lenders used while incorporating the homeownership counseling instructions into their systems. 

As set forth in the e-mail you received from the investor, many investors are no longer allowing the “temporary disclosure”, but are requiring lenders to provide the required list of housing counselors directly to the applicants. In its bulletin, the CFPB noted that it understood the time necessary for the systems development to be six months.  As a result, many investors no longer allowed the “temporary disclosure” after July 10, 2014.  [CFPB Bulletin 2013-13].

The list of housing counseling agencies must meet the following requirements:

• Contain ten HUD-approved housing counseling agencies (viz., the CFPB maintains a tool on its website from which this list may be generated); 

• The ten agencies included on the list must be those that are closest to the centroid of the zip code of the applicant’s current address and must be listed in descending order of proximity to the centroid (viz., the lender can also give the applicant the option of inputting a different location from the applicant’s current zip code); 

• For each of the ten agencies, the following data must be provided:

·       Agency Name

·       Phone Number

·       Street Address

·       City

·       State

·       Website URL

·       Email Address

·       Zip Code

·       Types of Counseling Services Provided

·       Languages Spoken

• Contain the following text:

“The counseling agencies on this list are approved by the U.S. Department of Housing and Urban Development (HUD), and they can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost to you.  This list shows you several approved agencies in your area.  You can find other approved counseling agencies at the Consumer Financial Protection Bureau’s (CFPB) website: www.consumerfinance.gov/mortgagehelp or by calling 1-855-411-CFPB (2372). You can also access a list of nationwide HUD-approved counseling intermediaries at http://portal.hud.gov/hudportal/HUD?src=/ohc_nint. 

An acknowledgement of receipt of the list is not required under the regulations; however, it is required by many investors. As such, you should check with your investors as to their requirements in this regard.

Joyce Pollison

Director/Legal & Regulatory Compliance

Lenders Compliance Group

Email Advertising: CAN-SPAM Compliance

QUESTION 

I am aware of the “do not call’ list, but is there a similar type of “do not email” list?  Also, what regulations do we need to be aware of if we choose to solicit business via email?

ANSWER 

There is no email equivalent to the federal “do not call” list, yet there are federal rules set forth in the CAN-SPAM Act that must be adhered to when a commercial message or advertisement is transmitted via email. [“CAN-SPAM” is a nickname for Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (15 USC Chapter 103).]

The CAN-SPAM Act covers all commercial messages defined as “any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service” [See Section 3(2) of the Act] Unlike many other advertisement regulations, the CAN-SPAM Act does not contain an exception for business to business emails. 

     Below is a summary of the important CAN-SPAM requirements:

1. Opt-Out/Unsubscribe Requirement [Section 5(a)(5)] – The email must contain a clear and conspicuous explanation detailing a mechanism for the recipient to opt out of all future emails. All opt-out requests must be honored within 10 business days. The only information recipients can be asked to provide, in order to opt out of future emails, is their email addresses. 
2. No ghost emails permitted – A valid physical address of the sender of the message and/or the advertiser must be set forth in the email [Section 5(a)(5)]. 
3. Be transparent [Section 5] – (a) the email must clearly and conspicuously indicate it is an advertisement; (b) the subject line must relate to the body of the email and not be deceptive; and, (c) the “from” header must be accurate and identify the sender on the email.

In addition to some violations of the CAN-SPAM Act being deemed criminal offenses, each separate email in violation of the Act subjects the sender of the email to statutory and actual damages as well as attorney’s fees.

In sum, you need to make sure that all email solicitations comply with the CAN-SPAM Act, because an email blast which fails to comply with the CAM-SPAM Act could result in substantial economic damage to a mortgage lender.

Michael Barone

Director/Legal & Regulatory Compliance

Lenders Compliance Group