Identity Theft Prevention: Interagency Guidelines

QUESTION

We are a bank and we are particularly interested in the Interagency Guidelines relating to identity theft prevention. What do these guidelines say about detection, prevention, and mitigation?

ANSWER

There are seven elements that the Interagency Guidelines outline for implementation by financial institutions and creditors. These elements are incorporated in the Identity Theft Prevention Program, including a Supplement thereto that sets forth certain Red Flags (a list that is not meant to be exhaustive).

[12 CFR pt. 334: Appendix J (FDIC); 16 CFR pt. 681: Appendix A (FTC); 12 CFR pt. 222: Appendix J (FRB); 12 CFR pt. 41: Appendix J (OCC); 12 CFR pt. 717: Appendix J (NCUA). See also Identity Theft Red Flags and Address Discrepancies under the Fair and Accurate Credit Transactions Act of 2003, Final Rule: Federal Register: November 9, 2007, 72/217, Rules and Regulations: 63717-63775]

These elements are:

1) Identity Theft Prevention Program,

2) Identify relevant Red Flags,

3) Detect Red Flags,

4) Prevent and mitigate identity theft,

5) Update the Program,

6) Administer the Program, and

7) Legal requirements.

Regarding the Red Flags, these are categorized into five groups, as follows:

1) Alerts, notifications, and warnings from a consumer reporting agency.

2) Suspicious documents.

3) Suspicious personal, identifying information.

4) Unusual use of, or suspicious activity related to, the covered account(s).

5) Notice from customers, victims of identity theft, law enforcement authorities or other persons regarding possible identity theft in connection with covered accounts held by the financial institution or creditor.

[12 CFR pt. 334: Appendix J, Supplement A (FDIC); 16 CFR pt. 681: Appendix A, Supplement A (FTC); 12 CFR pt. 222: Appendix J, Supplement A (FRB); 12 CFR pt. 41: Appendix J, Supplement A (OCC); 12 CFR pt. 717: Appendix J, Supplement A (NCUA)]

Jonathan Foxx

President & Managing Director

Lenders Compliance Group

Borrower Identification under the Patriot Act

QUESTION 

The company that generates my loan documents includes a form which requires the closing agent to obtain two forms of ID from the borrower. Does the Patriot Act require us to obtain and verify a borrower’s identity at closing with at least two forms of identification?

ANSWER 

No. There is no set number of forms of ID required by the USA Patriot Act. Section 326 of the USA Patriot Act requires financial institutions to implement a Customer Identification Program (“CIP”) that is appropriate for the size and location of the financial institution. This regulation requires the CIP to be in writing, incorporated into the institution’s Identity Theft Prevention and Red Flags program, and approved by the Board of Directors, a committee of the Board of Directors, or Senior Management.

A financial institution must implement reasonable procedures for verifying the identity of any person who applies for a residential or commercial mortgage loan. These procedures may vary based upon the circumstances of each situation and whether any “Red Flags” are present based on the information obtained by the financial institution regarding the consumer.

It should be noted that the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial Crimes Enforcement Network, National Credit Union Administration, Office of the Comptroller of the Currency, Office of Thrift Supervision, and the United States Department of the Treasury have recommended that “given the availability of counterfeit and fraudulently obtained documents, a bank is encouraged to obtain more than a single document to ensure that it has a reasonable belief that it knows the customer’s true identity”. [Interagency Interpretive Guidance on Customer Identification Program Requirements, April 28, 2005.]

This Guidance can be located by clicking on the link below.

http://www.fincen.gov/statutes_regs/guidance/html/faqsfinalciprule.html

Joyce Wilkins Pollison

Director/Legal & Regulatory Compliance

Lenders Compliance Group

Defining a Settlement Service Provider

QUESTION

We continually hear about the importance of the “Settlement Service Provider” in originating residential mortgage loans. But it seems sometimes that almost everybody involved in a loan transaction is such a company. Is there a list that we can go by to determine who is and who is not a Settlement Service Provider?

ANSWER

There is a list of sorts, in RESPA, but it is not meant to be exhaustive. RESPA provides quite a broad definition of a settlement service, starting with the meaning of a “Settlement Service.” That is, whoever provides a settlement service is obviously a settlement service provider. With regards to your language of “loan transaction,” in context, this is a process, called a “settlement,” or a “closing,” or “escrow,” that has procedures for executing legally binding documents relating to a lien on a property that is subject to a federally related mortgage loan.

Any provider of a settlement service is, mutatis mutandis, a settlement service provider. The following list is a guide, certainly not meant to be exclusive, that forms a basis for RESPA’s broad way of defining a settlement service. [24 CFR § 3500.2(b)]

1. Origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of such loans);
2. Rendering of services by a mortgage broker (including counseling, taking of applications, obtaining verifications and appraisals, and other loan processing and origination services, and communicating with the borrower and lender);
3. Provision of any services related to the origination, processing or funding of a federally related mortgage loan;
4. Provision of title services, including title searches, title examinations, abstract preparation, insurability determinations, and the issuance of title commitments and title insurance policies;
5. Rendering of services by an attorney;
6. Preparation of documents, including notarization, delivery, and recordation;
7. Rendering of credit reports and appraisals;
8. Rendering of inspections, including inspections required by applicable law or any inspections required by the sales contract or mortgage documents prior to transfer of title;
9. Conducting of settlement by a settlement agent and any related services;
10. Provision of services involving mortgage insurance;
11. Provision of services involving hazard, flood, or other casualty insurance or homeowner's warranties;
12. Provision of services involving mortgage life, disability, or similar insurance designed to pay a mortgage loan upon disability or death of a borrower, but only if such insurance is required by the lender as a condition of the loan;
13. Provision of services involving real property taxes or any other assessments or charges on the real property;
14. Rendering of services by a real estate agent or real estate broker; and
15. Provision of any other services for which a settlement service provider requires a borrower or seller to pay.

Jonathan Foxx

President & Managing Director

Lenders Compliance Group

Seller Concessions on Final TIL

QUESTION

We are a lender with a question regarding seller concessions at closing and the inclusion of seller paid fees on the final Truth-in-Lending and Itemization of Amount Financed. Perhaps the best way to ask the question is by example. 

A loan closed with $2,400.00 in seller concessions. At the time we closed the loan, in our LOS system, we marked the following fees as paid by seller: $900.00 origination fee, $800.00 lender attorney fee, $700.00 abstract fee. By marking these fees as paid by seller, the LOS system does not include those fees in the final Truth-in-Lending or Itemization of Amount Financed. 

Should those fees have been included on the final TIL and Itemization of Amount Financed?

ANSWER

The $700.00 abstract fee is not a finance charge and should not be included on the final TIL or Itemization of Amount Financed. [12 CFR 1026.4(c)(7)] With respect to the $900.00 origination fee and the $800.00 lender attorney fee, unless the lender has a written agreement with the seller obligating the seller to pay the fees on behalf of borrower, the origination and bank attorney fees should have been included on the final TIL and Itemization of Amount Financed.

Under Regulation Z, seller’s points are excluded from the finance charge. Seller’s points include any charges imposed by the creditor upon the non-creditor seller of property for providing credit to the buyer or for providing credit on certain terms. 

With respect to other seller paid amounts paid at or before consummation or settlement on behalf of the borrower by a non-creditor seller,

“The creditor should treat the payment made by the seller as seller's points and exclude it from the finance charge if, based on the seller's payment, the consumer is not legally bound to the creditor for the charge.” [Supplement I to Part 1026 – Official Interpretation at Section 1026.4, paragraph 4(c)(5)(emphasis added)]

So, only if the consumer is “not legally bound to the creditor for the charge”, can the amounts paid by seller be excluded. 

In many instances, the seller concession is provided for in the purchase agreement. However, this is an agreement between the seller and buyer/borrower, not the seller and creditor. It does not obligate the seller to the creditor nor does it absolve the buyer/borrower of his obligation to pay the charge to the creditor. As stated above, in order for the fees to be excluded from the finance charge, there would have to be a written agreement between the seller and creditor obligating the seller to pay the charges and confirming that, based upon the seller’s payment, the borrower is not legally bound to the creditor for the charge.

Joyce Wilkins Pollison

Director/Legal & Regulatory Compliance

Lenders Compliance Group