NMLS Mortgage Testing and Education Update

QUESTION 

Have there been any recent changes or developments concerning Testing and Education Requirements for non-bank Mortgage Loan Originators?

ANSWER 

At the recent NMLS Annual Conference held in Austin, TX, I attended a break-out session conducted by SRR officials Pete Marks and Rich Madison. Also presenting was Tammy Scruggs, a Director in the Kentucky Division of Financial Institutions and Vice-Chairperson of the Mortgage Testing and Education Board. (MTEB)

The MTEB has approved Rules of Conduct which cover test takers, education students and Standards of Conduct which cover course providers. It has also approved Administrative Action Procedures which determine how violations and investigations will be managed. Their role is to act in both an oversight and advisory capacity. The MTEB is comprised of at least nine state regulators representing each of the five CSBS Districts and at least one AARMR representative.

Test Administration

The number of tests administered in 2010 totaled 368,000 and has slowed at a steady pace staying at the 130,000 level for three years and then further declining to the 2016 figure of 59,000. The drop is attributed to the decline in the number of state specific tests, resulting from the introduction of the Uniform State Test in 2013. The National Test numbers have been at their historical highs over the last three years with 2017 getting off to a great start.

Test performance has been declining throughout 2016 as evidenced by the National Test with Uniform State Content First-Attempt Pass Rates ranging from about 63 % for the first three months of 2016 to an average score of 58.8% for the last five months of the year. Trends suggest that the quality of the test takers may be deteriorating.

Content Outline Expansion Program 

Presently, individuals taking the SAFE Mortgage Loan Originator Test National Component with Uniform State Content can review a Content Outline that breaks down the sections of the test by categories and provides topics covered in each section along with the percentage of the questions coming from each section. The outline is roughly three and one-half pages. The outline will be going through a revision which will take the outline to four times the detail that is there now to about 16 pages. It is expected that test takers will have a much broader understanding of the test elements without exposing the test content. The content of the test will remain the same. It is expected to be implemented, subject to getting the necessary approvals, sometime in the second quarter of this year.

It was pointed out that the test taker is responsible for changes that may have occurred in laws and regulations within the test cycle. Below is the actual language that appears.

Legislative Updates Legislative changes may occur throughout the test administration cycle. Candidates are responsible for keeping abreast of changes made to the applicable statutes, regulations and rules regardless of whether they appear on this outline or the test.

Also in play is a Standard Setting Process which will link a passing score to the ability level of a minimally qualified candidate. A Subject Matter Expert Panel will evaluate the test resulting in the evaluation of the panel output.

UST Adoption

The State adoption of the Uniform State test has been very successful. Florida and Arkansas have either adopted the test or will do so shortly. That will leave the remaining states not adopting to four. Of those four, Utah, Minnesota and South Carolina have legislation in motion to allow adoption. West Virginia has been meeting with CSBS leadership to further discuss adoption. It is possible that all states may be using the UST by the end of 2017.

Test and Education Security

Enhancements to the security of education programs and tests have been made during the period. A Candidate Agreement has been completed. Candidates must sign the agreement in advance to be able to proceed with testing. Rules of conduct for education students are also completed and in place. The MTEB is now allowed to act in an appellate capacity on cases brought before them. Web surveillance is also in place with the primary focus of searching for misuse of test content. Student authentication is in process. The concept is to find a way to determine that the online course taker is legitimate.

The number of investigations is quite low. Twenty-five cases were investigated in 2016 which represented a 50% reduction over the previous year. Some of the areas of concern are bad content at the test center and MLO’s changing the test score on the score report and presenting it to their employer.

Alan Cicchetti

Director/Agency Relations, Lenders Compliance Group 

Executive Director/Brokers Compliance Group

Consumer Signatures

QUESTION

We are constantly worrying about getting consumer signatures on our TRID disclosures. In fact, we are unsure of signatures on several consumer disclosures. It seems like a minefield at times to determine if we should be getting disclosures signed. Here’s our question: what are some of the disclosures that we need to get signed by the consumer?

ANSWER

Actually, this question comes up more often than you might expect. At Lenders Compliance Group, we get this question regularly, especially when there is a transition to a new disclosure protocol. It can be confusing. I will outline here a few disclosures on which consumer signatures may or may not be required.

·         Loan Estimate (initial or revised):

o   Not required. Optional. [1026.37(n)(1) & (2)]

·         Closing Disclosure:

o   Not required. Optional. Signature(s) for documenting receipt of the Closing Disclosure is at the lender's option, in order to evidence receipt by borrower three (3) business days prior to closing. [Commentary ¶37(n); Commentary ¶38(s)]

·         Loan Estimate with signatures versus Intent to Proceed:

o   Signature(s) for confirming receipt of the Loan Estimate may not be used as replacement for signature(s) required by Intent to Proceed. [§1026.37(n); 78 FR 79813]

·        Closing Disclosure (non-borrowing spouse) three (3) business days prior to closing and at closing:

o   Not required. Optional. Signature(s) for documenting receipt of the Closing Disclosure is at the lender's option, in order to evidence receipt by borrower three (3) business days prior to closing. [Commentary ¶37(n); Commentary ¶38(s)]

There are many caveats, but here are a couple to consider. You should determine if consumer signatures are required by a specific loan program or investor. Also, the Loan Estimate or Closing Disclosure can be transmitted in accordance with E-Sign compliance standards; but, there is no regulatory requirement that either the Loan Estimate or the Closing Disclosure must actually contain signature(s). [§1026.37(o)(3)(iii); §1026.38 (t)(3)(iii); 15 USC 7001 et. seq.] To appropriately implement the E-Sign process for consumer signatures, and to review other caveats, it is a good idea to seek the guidance of a compliance professional.

Jonathan Foxx

Managing Director

Lenders Compliance Group

Alternate Closing Disclosure and HELOCs

QUESTION

We have been using the Alternate Closing Disclosure Form for our refinance transaction. But it does not include a HELOC field for stating draws. By the way, our input is based on the information we put into DU. But what happens if the cash to/from borrower in DU does not match the amount stated on the Alternate Closing Disclosure? We have asked our compliance counsel but they were not sure about how to process the field information onto the form. What scenario can you provide for this situation?

ANSWER

The Alternate Closing Disclosure Form (“ACD”) for refinance transactions unfortunately does not have a field for stating HELOC draws. Generally, it is acceptable if the cash to/from borrower in DU does not match the ACD form. This is due to the fact that the automated engine is programmed to look for the draw amount to be in the Details of Transaction in order to accurately calculate the CLTV. However, the ACD form simply does not have that data stated in its calculation.

There are a few scenarios where this situation plays out in HELOC transactions.

The following five scenarios are applicable.

1) Purchase transaction with a new HELOC (with or without a draw).

• Drawn amount of the HELOC entered in line j of the Details of Transaction (DOT).
• Monthly payment for the amount drawn on the new subordinate lien entered in Section V, Proposed Monthly Housing, Other Financing P&I.
• No draw, enter $0.00.

     2) Refi with a new HELOC (no draw).

• No draw, enter $0.00 on line j of the DOT.

     3) Refi with a new HELOC (draw)

• New draw entered in line j of the DOT.
• Monthly payment for the draw on the new subordinate lien entered in Section V, Proposed Monthly Housing, Other Financing P&I. This scenario is a bit complicated by the fact that the CFPB has indicated they do not want the drawn amount included in the final cash to close; therefore, there will be a discrepancy between the DU/1003 cash to close and the Alternative CD cash to close by the amount of the draw.

     4) Refi with an existing HELOC (no draw)

• As an existing HELOC, DU will produce a transaction report that actually shows it on the credit report and imports the balance into the liabilities section.
• No new draw, so no entry on the DOT is required.
• Monthly payment that shows the outstanding balance of the existing HELOC entered in Section V, Proposed Monthly Housing, Other Financing P&I.

     5) Refi with an existing HELOC (draw)

• Draw is indicated in one of two places:

• Either in line j of the DOT with the remaining balance in liabilities screen,

• Or draw plus the balance stated in liabilities screen.

• If liabilities screen is used, the new draw is stated in Other Liquid Asset to ensure there are credit for the funds.
• Either entry is acceptable, and the CLTV would calculate accurately.
• Monthly payment associated with the new outstanding balance of the existing HELOC entered in Section V, Proposed Monthly Housing, Other Financing P&I.

Jonathan Foxx

Managing Director 

Lenders Compliance Group

Institutions not covered by the FDCPA

QUESTION

Our policy for debt collection is being updated. We know that certain institutions are not debt collectors per the FDCPA. What debt collector institutions are not covered by the FDCPA?

ANSWER

The Fair Debt Collection Practices Act (FDCPA) applies only to the collection of debt incurred by a consumer primarily for personal, family, or household purposes. It does not apply to the collection of corporate debt or debt owed for business or agricultural purposes.

The FDCPA defines a debt collector as any person who regularly collects, or attempts to collect, consumer debts for another person or institution or uses some name other than its own when collecting its own consumer debts.

An institution is not considered a debt collector under the FDCPA when it collects:

• Another institution’s debts in isolated instances;
• Its own debts under its own name;
• Debts it originated and then sold but continues to service (for example, mortgage and student loans);
• Debts that were not in default when they were obtained;
• Debts that were obtained as security for a commercial credit transaction (for example, accounts receivable financing);
• Debts incidental to a bona fide fiduciary relation­ ship or escrow arrangement (for example, a debt held in the institution’s trust department or mortgage loan escrow for taxes and insurance);
• Debts, regularly, for other institutions to which it is related by common ownership or corporate control.

Other debt collectors that are not covered by the FDCPA include:

• Officers or employees of an institution who collect debts owed to the institution in the institution’s name;
• Legal-process servers. 

Jonathan Foxx

Managing Director 

Lenders Compliance Group