Thursday, December 27, 2018

Policies and Procedures: Specific Components

We are a medium sized lender located in the Midwest. Recently, we decided to redraft our policies and procedures. However, we want to be sure we cover important features of a policy. It came to our attention that you provide policies and procedures for your clients. So, I am writing on behalf of my company to get your view. What are some specific components of policies and procedures?

Although there is a tendency to standardize the structure of policies and procedures, there are many instances where one size does not fit all. Nevertheless, in my view there are twelve basic features of a well-designed policy document.

Before drafting the policies, it is important to consider many factors, such as the institutions size, risk, and complexity; the nature and frequency of information updates; and the technology to be used in implementation. I could provide an outline of the steps involved in determining the choice of policies needed by a financial institution as well as how best to establish their implementation. But your question asks for the specific components of policies and procedures, so I will offer the twelve features that we recommend. If you need guidance in this matter, we offer cost-effective compliance support. Contact us HERE.

Here are the twelve basic components to a policy and procedure.

1.Outline the system that is appropriate to the nature, size, complexity, and scope of the business operations, as it pertains to a regulatory, statutory, Best Practices, or institutional policy solution.

2.Use standard data reporting formats and standard procedures for compiling, maintaining, monitoring, and furnishing information.

3.Maintain records for a reasonable period of time but not less than required by statute or any applicable record keeping requirement.

4.Establish and implement internal controls regarding the accuracy and integrity of information, such as periodic, preferably independent, internal audits, and provide standard procedures and means to verify random reviews.

5.Train staff involved in activities relating to the policy and procedure requirements, with attention given also to the reporting or filing requirements that may be mandated.

6.Provide appropriate and effective oversight of relevant service providers whose activities affect the fulfillment of the policy initiatives.

7.Ensure that information is specific to the financial institution; however, be mindful that mergers, acquisitions, change in corporate structure, and other obligations may affect re-aging and reporting.

8.Delete, update, and correct information, as appropriate, to avoid inaccurate information, and be sure to state the date of the update.

9.Conducting investigations, reviews, audits, procedural remedies, and process undertakings whenever there is an apparent breach of the policy, so as to ensure that the policy has accounted for any systemic failures.

10.Provide technological methods or other means to prevent a compromise of the Compliance Management System.

11.Keep information ready for periodic updating of the policy’s approved content and reporting requirements, and be sure to review all information with management, including an understanding that management will ratify the update.

12.Conduct a periodic evaluation of the practices, acquired information, disputed information, corrections of inaccurate information, means of communication, and other factors, that may affect the fulfillment of the policy’s purpose.

Track and document any practices or activities that may compromise accuracy or integrity of information. This means you need to review existing practices and activities, technologies, and other methods. Review historical records, too, and consider any previous disputes. Consider feedback from consumers, regulatory agencies, federal and state statutory frameworks. Include all relevant company departments in the discussion. Finally, meet periodically with management and affected company departments to review the policies.

Jonathan Foxx
Managing Director
Lenders Compliance Group

Thursday, December 20, 2018

Social Media Advertising – Contest to Attract “Shares” and “Likes”

A couple of our loan officers want to promote their social media page by doing a drawing for the most “shares” and “likes.” How can we do this and not violate RESPA? 

The loan officers have not really provided much information to you about their proposed posting. That can be dangerous from a compliance standpoint because companies sometimes fail to understand that social media advertising is no different from any other kind of advertising in terms of compliance requirements. The social media posting needs to satisfy all advertising requirements as if it appeared in print media. You should require the loan officers to provide you with a copy of exactly what they want to post and then review it in light of your company’s Social Media and advertising policies. That being said, it is more likely than not that the proposed contest would violate RESPA Section 8 - and possibly other laws and regulations as well. I will address the problem areas one by one:

1. RESPA Section 8(a)

RESPA Section 8(a) prohibits the transfer of a thing of value pursuant to an understanding that settlement service business will be referred to any person:

(a) No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

A Section 8(a) violation requires three elements:
  • The payment or receipt of a “thing of value.”
  • An agreement or understanding.
  • A referral of “settlement service” business.

The origination of a federally related mortgage loan is a settlement service, including but not limited to the taking of a loan application, processing, underwriting and funding.

An agreement or understanding for referral of business can be inferred and does not need to be written or even verbal. It can be implied from conduct.

The definition of “thing of value” is very broad and includes “any payment, advance, funds, loan, service, or other consideration.”  Under Regulation X, the implementing regulation of RESPA, a “thing of value” is very broadly defined in includes the opportunity to win a prize. For example, HUD’s Industry “FAQs about RESPA” states that a lender may not set up a contest for real estate agents under which the agent who provides the lender with the most business will win a trip to Hawaii. The trip itself, and even the opportunity to win the trip, would be a thing of value given in exchange for the referral of business. (Note, however, that the FAQs also state that a lender may give a borrower an incentive, such as a chance to win a trip or a rebate for doing business with the lender, because such an incentive is “promotion” and not payment for a “referral.”

In the proposal from your loan officers, the drawing prize would most likely qualify as a “thing of value.” And, since this thing of value would presumably be offered not only to prospective borrowers, but also to people whose “likes” and “shares” would amount to recommendations to others, there is a high likelihood that the “likes” and “shares” could be construed as “referrals” of settlement service business provided in exchange for a thing of value and, hence, a violation of RESPA.

2. Possible Illegal Lottery  

Many states have enacted laws that restrict the use of “lotteries” and sometimes make conducting them a crime.  The law of each state where the promotion can be viewed should be read carefully to determine whether this promotion is covered by any anti-lottery or gambling law.  In that regard, a lottery is generally defined to include an advertising technique that involves: (1) consideration, (2) chance, and (3) a prize. For example, if: (1) a consumer closes a loan with a mortgage lender, (2) and the consumer’s lucky number is drawn, then (3) the lender awards the consumer a trip to Hawaii. Here the elements might possibly be: (1) the website viewer provides your company with consideration by posting “likes” and “shares” in order to win a prize in the drawing.

3. Possible UDAAP  

Since, in order to participate in the contest, it is required that the contestant provide “likes” and “shares” of the website, these could certainly be construed as an actual or implied “endorsements.” Do the postings then fall into the category of fake or false “testimonials” or “endorsements” if the “likes” and “shares” are posted only to win the contest?  FTC rules state that endorsements in advertising must reflect the honest opinions, findings, beliefs, or experience of the endorser. They should not contain any representations that would be deceptive or could not be substantiated if made directly by the advertiser. [16 CFR §255.1(a)] An endorsement includes any advertising message (including verbal statements, and demonstrations.) Advertisements presenting endorsements by what are represented, directly or by implication, to be “actual consumers” should use actual consumers, in both the audio and video or clearly and conspicuously disclose that the persons in such advertisements are not actual consumers of the advertised product. [16 CFR 255(2)(b)]  Here, the advertised product is, by implication, the company and its various loan products.

4. Discriminatory Impact/Redlining  

Federal regulators have encouraged mortgage lenders to be careful about advertising patterns or practices that a reasonable person would believe indicate prohibited-basis customers are less desirable.  This means that the rules of the contest must be carefully drawn to make sure that no protected class of persons is excluded from access to participation, either intentionally or statistically.

In short, contests like this posted on social media can be fraught with compliance risk, much of which may not be immediately apparent. You are wise to require prior review.

Michael Pfeifer, Esq.
Director/Legal & Regulatory Compliance
Lenders Compliance Group &
Servicers Compliance Group   

Thursday, December 13, 2018

Qualified Mortgages: Inclusion of Affiliate Fees in Points and Fees Test

As a lender, we are exploring an opportunity to open an affiliated insurance company. However, we are concerned about fees, as fees to affiliates are included in the qualified mortgage (QM) points and fees calculation. We already have an affiliated title company. Currently, we include the entire fee paid to the title company in the points and fees calculation. Having to include both the fees of the title company and the insurance company in the points and fees calculation will be especially problematic for lower balance loans. However, I am hearing that we may only need to include in the points and fees calculation that portion of the fee actually retained by the affiliate. Can you please shed some light on this issue?

In accordance with the Official Commentary to the Truth-in-Lending Act, only that portion of the fee that the affiliated ultimately retains that is included in the QM Points and Fees test.

For example, let’s assume that your title company, who is an agent for the title insurer, retains 85% of the title premium, with the 15% balance going to the third party title insurer. As the title company only retains 85% of the fee, only that portion is included in the points and fees test. The same would hold true for your affiliated insurance company. The fact that the Closing Disclosure shows that the entire fee is paid to the title company does not alter the fact that the portion of the fee that is not ultimately retained by the affiliate need not be included in the points and fees calculation.

The relevant section of the Official Commentary is set forth below as well as an excerpt from the informal guidance given by the Bureau during a CFPB/MBA Webinar held on October 17, 2013.

Official Commentary Paragraph 32(b)(1)(i)(D) (emphasis added).

1. Charges not retained by the creditor, loan originator, or an affiliate of either. In general, a creditor is not required to count in points and fees any bona fide third-party charge not retained by the creditor, loan originator, or an affiliate of either. For example, if bona fide charges are imposed by a third-party settlement agent and are not retained by the creditor, loan originator, or an affiliate of either, those charges are not included in points and fees, even if those charges are included in the finance charge under §1026.4(a)(2). The term loan originator has the same meaning as in §1026.36(a)(1).

Unofficial Transcript of the CFPB/MBA Webinar held on October 17, 2013:

LISA APPLEGATE: Okay, let’s stay on the topic of affiliates and move on to fees paid to affiliates. The Bureau has received many requests for confirmation that charges paid to its affiliates, are limited to the amount the affiliate retains, even if the combined charge is originally paid to the affiliate.

ANDY ARCULIN: Okay, so this is something that has come up quite a bit, and it commonly, to give you just an illustration, and I’m sorry, I don’t have it on the screen for you, but I think it will be easy enough to follow. The most common illustration of this rule that I’ve heard is, the creditor has an affiliated appraisal management company - an AMC. And a charge is paid to the AMC, say its $500 to do an appraisal, but the AMC itself doesn’t do the appraisal, the AMC itself hires an appraisal company that actually is an independent, unaffiliated third party to do the appraisal and pays that non-affiliate $400, but keeps $100 for itself. The question that has come up is, the $500 charge that’s paid to the affiliate, meaning the money is handed to the affiliate and the affiliate essentially outsources the work, is that required to be included in points and fees or is only the piece that the affiliate keeps for itself required to be in points and fees? This is, our reading of this rule is that, generally “paid to,” means a person that is the ultimate recipient of and retains the charge. You know, I would also just note that it doesn’t matter, under these rules, who pays it, as long as it’s not the creditor. If you know, there’s no requirement that the consumer has to pay this charge, it simply just says “paid to.” But that’s sort of an aside. What matters is that, you know, for purposes of our interpretation of this rule, the portion that’s retained by the affiliate is what would need to be included in points and fees. So under the example I gave, you have, if you have $500 that’s sent to an affiliate, but $400 is actually, you know, assuming that the charge is reasonable and there’s no compensation paid in connection with it, just to make sure we’re covered there, the $400 is to a third party that’s not affiliated and the charge wouldn’t be included anywhere else, in our view, only the $100 retained by the affiliate would be included in points and fees.

Joyce Wilkins Pollison
Executive Director/Lenders Compliance Group
Director/Legal & Regulatory Compliance

Thursday, December 6, 2018

Tolerance Categories and Good Faith

TRID has three categories for tolerance. I know that the categories depend on the lender’s “good faith” in implementing them. What would constitute “good faith” in these categories?

Regulation Z, the Truth in Lending Act’s implementing regulation, establishes tolerance categories limiting the permissible variations between the estimated amounts and the actual amounts, specifically, a 10% category, an unlimited variation category, and a zero percent category. 

An amount disclosed on the Loan Estimate is considered in good faith (and in compliance with the regulation) if the actual charge does not exceed the estimated amount by the amount permitted by the applicable tolerance rule.

The 10% Category is an estimate of a charge for a third-party service or a recording fee and is in good faith if:

(1) the aggregate amount of actual charges for third-party services and recording fees does not exceed the aggregate amount of those charges disclosed on the Loan Estimate by more than 10 percent;
(2) the charge for the third-party service is not paid to the creditor or an affiliate of the creditor; and,
(3) the creditor permits the consumer to shop for the third-party service.

Only these items fit into the 10% category:

(1) fees paid to an unaffiliated third party if the creditor (i) permitted the consumer to select a settlement service provider not on the written list of service providers and (ii) disclosed on that list that the consumer may select the provider; and,
(2) recording fees.

The Unlimited Variation category is an estimate of the following charges and is in good faith if it is consistent with the best information reasonably available to the creditor at the time it is disclosed, regardless of the amount of variation between it and the amount actually charged:

(1) prepaid interest;
(2) property insurance premiums;
(3) amounts placed into an escrow, impound, reserve, or similar account;
(4) charges paid to third-party service providers for which the consumer is permitted to shop and that the creditor did not identify on the written list of service providers; and,
(5) charges paid for third-party services not required by the creditor, including services provided by affiliates of the creditor.

Differences between the amount of these charges disclosed in the Loan Estimate and actual charges do not constitute a lack of good faith so long as the original estimated charge, or lack of an estimated charge for a particular service, was based on the best information reasonably available to the creditor when the Loan Estimate was provided.

The Zero Percent category is for all other charges and are in good faith only if the actual charge does not exceed the estimated amount. These include, but are not limited to, fees paid to the creditor, fees paid to the mortgage broker, fees paid to an affiliate of the creditor or mortgage broker, fees paid to an unaffiliated party if the creditor did not permit the consumer to shop for a third-party settlement service provider, and transfer taxes.

An estimate of the following charges is in good faith if it is consistent with the best information reasonably available to the creditor at the time it is disclosed, regardless of the amount of variation between it and the amount actually charged:

(1) prepaid interest;
(2) property insurance premiums;
(3) amounts placed into an escrow, impound, reserve, or similar account;
(4) charges paid to third-party service providers for which the consumer is permitted to shop and that the creditor did not identify on the written list of service providers; and,
(5) charges paid for third-party services not required by the creditor, including services provided by affiliates of the creditor.

Differences between the amount of these charges disclosed in the Loan Estimate and actual charges do not constitute a lack of good faith so long as the original estimated charge, or lack of an estimated charge for a particular service, was based on the best information reasonably available to the creditor when the Loan Estimate was provided.

Jonathan Foxx
Managing Director
Lenders Compliance Group

Thursday, November 29, 2018

HUD: Suspensions, Debarments, LDPs

We were asked to complete a form by one of our investors. One of the questions asks us if our company and/or principals were ever denied, suspended, or debarred by HUD. What do these HUD actions imply?

Although some people believe the Department of Housing and Urban Development (HUD) can only force mortgagees and lenders to indemnify or reimburse FHA for insurance claims paid on mortgages that are found not to meet HUD guidelines, HUD has vastly more authorities to ensure enforcement. To be sure, in October 2010 HUD proposed regulations to strengthen and expand its ability to compel indemnification and reimbursement. [75 FR 62335] But HUD has many more enforcement authorities.

With respect to your specific inquiry, HUD can suspend, debar, or issue a Limited Denial of Participation (LDP) to participants in HUD programs. [24 CFR, Part 2424] These sanctions are typically meted out for fraud or other serious misconduct.

Suspensions and debarments operate throughout the government; that is, if one agency suspends or debars, the person or entity is debarred from doing business with the entire federal government. HUD does provide an appeal opportunity. [See 24 CFR, Part 24; 24 CFR, Part 26] In my view, one should not navigate this process without the assistance of legal counsel, supported by a firm such as ours to handle the due diligence.

The nomenclature of the terms “suspend” and “debar” mean precisely what they imply. If a person or entity is suspended, they are barred from doing business with the government for a specified period of time, ranging upwards of one year, sometimes longer. If a person or entity is debarred, they are prohibited from doing business with the government for what is a normally a set period, usually in effect much longer than a suspension.

Unlike suspensions and debarments, LDPs are unique to HUD. There are specific rules governing LDPs. [See 24 CFR, Part 2424, Subpart J] LDPs are issued for the same types of misconduct as suspensions and debarments, but, as implied in the term itself, these are more limited in impact. An LDP does not bar participation in the programs of other federal agencies. Furthermore, LDPs are usually limited to specific HUD programs and/or specific HUD field offices. Most of the time, LDPs are issued for one year or less.

Persons or entities receiving an LDP, suspension or debarment can appeal within HUD and have an on-the-record hearing before a HUD Administrative Law Judge. [24 CFR, Part 2424.1130] It is also possible to appeal to the federal courts. The appeal process, though, should be conducted with support of legal counsel in conjunction with a firm like Lenders Compliance Group to handle the due diligence.

Managing Director
Lenders Compliance Group

Wednesday, November 21, 2018

Collecting a Debt: Inconvenient Contact

We tried to collect a debt and our regulator notified us of a complaint for contacting the debtor at an “inconvenient” time. That is his word, not ours. This seems very arbitrary! We really do not know how to figure this out. What time is considered an inconvenient time?

The applicable regulations are much less arbitrary than you think! With respect to an inconvenient time, the consumer is required to provide prior consent or a court needs to authorize such contact, in the absence of which there is a clear mandate that a debt collector may not contact the consumer on any date, at any time, or in any place, if the debt collector knows or should know that such time, date or place is inconvenient.

What constitutes actually knowing the acceptable time, date or place to contact the debtor?

Courts will generally find such actual knowledge pertains if the consumer informs the debt collector, even casually or informally, that a particular time or place of contact is inconvenient. This is supported by the purpose of the Fair Debt Collection Practices Act (FDCPA), which has a primary goal of protecting unsophisticated consumers who are not expected to assert their rights. Moreover, courts will often impose a burden of reasonable injury on the debt collector to determine what times or places are inconvenient.

Please note, the term “consumer” includes the consumer’s spouse, parent (if the consumer is a minor), guardian, executor, or administrator. [15 USC § 1692c(d)]

The statutory language sets forth the timeframe for unusual and inconvenient hours: between 9:00PM and 8:00AM. [15 USC § 1692c(a)(1)]

It is worth noting that the Federal Trade Commission (FTC) takes the position that contacting the debtor on Sundays is not presumptively unusual or inconvenient.

However, contact with certain types of employees at their places of employment may be viewed by courts and the FTC as inherently inconvenient. For instance, it is prohibited to contact a nurse or a doctor working at a hospital, or a waiter at the restaurant where he or she works. Be cautious in this regard, since it is easy to fall into a grey area!

Contact with a consumer may be unusual or inconvenient for a variety of reasons other than those described herein, and, whatever the view, be especially careful to determine if the debt collector knows or should know that such a time, date or place is inconvenient.

Jonathan Foxx
Managing Director
Lenders Compliance Group

Thursday, November 15, 2018

Escrow Account Transfers

We recently went through a risk assessment in our servicing division. The risk assessment was done by a risk management firm like yours. There was a defect found in the way we transfer the escrow account from our servicing to a new servicer. I don’t know how we missed it, but now we expect to face a regulatory audit. What are the basic requirements for the escrow account if our loan servicing is transferred to a new servicer?

I would be remiss if I didn’t begin this response with a plug for own risk assessment reviews. There really is no firm like Lenders Compliance Group in the country, a pioneer in risk management, with the widest range of knowledge and expertise, and the widest range of cost-effective, compliance-related services. Check us out!

There is not much detail to go on in your inquiry. The question itself is broad. But I think several requirements are fundamentally mandated to comply with applicable regulations for escrow account transfers. Here are a few “IFs” to keep in mind.

Where loan servicing transfer is concerned, the transferor servicer must submit a short year annual escrow account statement to the borrower within sixty days after the effective date of the servicing transfer. [24 CFR § 3500.17(i)(4)]


The transferee servicer changes the monthly payment amount,
o it must provide the borrower with an initial escrow statement within sixty days of the date of the servicing transfer.

The transferee servicer provides an initial escrow account statement upon the transfer of servicing,
o the transferee servicer must use the effective date of the transfer of servicing to establish the new escrow account computation year.

The transferee servicer retains the monthly escrow payment used by the transferor servicer,
o the transferee servicer may continue to use the escrow account computation year established by the transferor servicer, or may use a short-year annual escrow account statement to establish a new escrow account computation year.

The transferee servicer must treat any surplus, shortage or deficiency in the escrow account pursuant to the standard rules for surpluses, shortages and deficiencies. [24 CFR § 3500.17(e)]

Managing Director
Lenders Compliance Group

Thursday, November 8, 2018

Payment Shock Notices

During a banking examination, the examiner said we should consider issuing a payment shock notice. We do not believe there is a requirement to issue such a notice. Although it was only a suggestion, we are a concerned that our regulator will frown on our not providing this notice. What is a payment shock notice? And, is a payment shock notice a regulatory requirement?

A payment shock notice is a voluntary notice that a lender or servicer may provide to a borrower to alert the borrower to the potential for a substantial increase in property taxes for a home. A typical example involves a newly constructed home, where the property taxes for the first year may be based on the unimproved value or only partially on the improved value. This situation can result in a substantial increase in the property taxes once the taxes are fully based on the improved value.

Consider this notice a Best Practice!

HUD actually took a position on this subject twenty years ago. In deciding to adopt a Best Practice approach to allow a payment shock notice – but not mandate the notice – HUD stated:

“The Department intends this final rule to encourage more originators and servicers to adopt practices that will ensure that consumers are informed of the payment shock problem and given the opportunity to avoid it. These practices include:
  • Notifying borrowers in advance and providing an opportunity to make voluntary payments ahead of the schedule to avoid payment shock. The Department encourages servicers to use the recommended format published today to notify borrowers of this potential problem when the originator or servicer, in applying sound business judgment, believes that payment shock is like to occur. 
  • Offering consumers extended repayment plans, even beyond those required under RESPA, to make up substantial shortages associated with payment shock." [63 FR 3214, 3233, 3237-3238 (1998)]
So, this is in line with a Best Practice procedure, which is good for the lender, servicer, and consumer in the long run. I believe that it is appropriate to provide a payment shock notice when a lender or servicer anticipates a substantial increase in the bills paid out of the escrow or impound account after the first year. By the way, the payment shock notice can be delivered with or separate from an initial escrow account statement. [63 FR 3214, 3237-3238 (1998)]

Think of this notice as a Best Practice that is common and customary, which I would guess is why the examiner recommended it to you. By issuing the payment shock notice, you are advising the borrower of the potential for a substantial increase in bills paid out of the escrow or impound account because of property taxes (or another applicable item) after the first year. This procedure then gives the borrower a chance to voluntarily make higher payments into the account during the first year to offset the payment shock.

Jonathan Foxx
Managing Director
Lenders Compliance Group

Thursday, November 1, 2018

Leaving “Direct-to-Voicemail” Messages

I am the compliance officer of a bank. Our servicing department recently came across a way to leave so-called “back-door” voicemails. I had never heard of this term and and my research turned up very little to go on. Apparently, it has something to do with being able to leave voicemails without ringing the consumer’s phone. It seems deceptive to me. What is “back-door” voicemail” and is it covered by a regulatory rule?

The place to start your research would be the Telephone Consumer Protection Act (TCPA), which prohibits any person within the United States from “mak[ing] any call…using any automatic telephone dialing system or an artificial or prerecorded voice…to a telephone number assigned to a paging service, cellular telephone service…or any service for which the called party is charged for the call.” [47 USC § 227(b)(1)(A)(iii)]

Your question seems to be describing “direct-to-voicemail” messages. If so, yours is a timely inquiry, since, in a case of first impression, a federal district court in Michigan recently considered whether the term “call,” as used by the TCPA, includes direct-to-voicemail messages - that is, voicemail messages delivered within the electronic space without being announced by an audible ring. [Saunders v. Dyck O’Neal, Inc., 2018 U.S. Dist., W.D. Michigan, July 16, 2018]

Briefly, the Federal Home Loan Mortgage Corporation (FHLMC) assigned Dyck O’Neal, Inc. its interest in an outstanding debt owed by Karen Saunders. Dyck O’Neal attempted to collect the debt by leaving about thirty automated voicemail messages on Saunders’ phone over a twelve-month period. Each time, Saunders received a notification on her phone that she had a new voicemail.

Dyck O’Neal had contracted with a company named VoApp, a third-party vendor, to deliver the voicemails. This vendor’s technology reaches the target’s voicemail through a so-called “back-door” in that, rather than calling the target’s phone number and waiting to leave a message on the target’s voicemail, VoApp’s technology calls a phone number assigned to the voicemail service provider’s enhanced service platform (i.e., the voicemail computer or server), not the target’s phone number. By routing the message through the server, VoApp was able to deliver a message to the server space associated with the target Ms. Saunders, and then she received a notification that she had received a new voicemail message without ever having received a traditional call.

Saunders sued, alleging violations of the TCPA. The defendant filed a motion for summary judgment, arguing that the voicemails did not violate the TCPA. But the federal district court in Michigan denied the motion for summary judgment, holding that a direct-to-voicemail message qualified as a “call” under TCPA’s section 227(b)(1)(A)(iii).

With respect to telephonic access to the consumer, the TCPA does cast a broad net in regulating any “call,” which is a term that includes any communication or attempt to communicate via telephone. It is worth noting that the Court emphasized the effect of the call, as it opined that the “effect on Saunders is the same whether her phone rang with a call before the voicemail is left or whether the voicemail is left directly in her voicemail box” – specifically, she receives a notification on her phone that she has a new voicemail.

By leaving a voicemail directly in the server space associated with Saunders’ phone, the defendant had attempted to communicate with Saunders via her phone, which is the definition applied to the TCPA’s use of the term “call.” Further, the automated message instructed Saunders to call back at a specific telephone number, inviting additional communication over the telephone. Thus, the effect on Saunders was the same whether her phone rang with a call before the voicemail was left or whether the voicemail was left directly in her voicemail box.

So, whether this technology offers “back-door” voicemails or “direct drop” voicemails (another term referring to the same kind of service), it would be smart to approach this issue with considerable care. Courts have consistently held that voicemail messages are subject to the same TCPA restrictions as traditional phone calls. By the way, the same can be said for text messages. The U.S. Supreme Court has observed that “[a] text message to a cellular phone, it is undisputed, qualified as a ‘call’ within the compass of § 227(b)(1)(A)(iii).” [Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 667 (2016)]

Jonathan Foxx
Managing Director
Lenders Compliance Group

Thursday, October 25, 2018

Property Inspection Waivers

We have a loan in which the FNMA DU Findings indicated the subject is eligible for a Property Inspection Waiver. The Approve/Eligible results were achieved prior to a hurricane and declaration by the Federal Emergency Management Agency (FEMA) that the county where the subject property resides has been declared a natural disaster. The property did not sustain any damage due to the natural disaster, as evidenced by the consumer and a drive-by inspection by the Loan Officer. Can we move forward with the closing utilizing the PIW?

Sadly, the answer is no. Once the natural disaster has occurred, FNMA revokes offers of the Property Inspection Waiver ("PIV"). They do so by following the declared areas as set forth by FEMA. If the loan has not closed and funded prior to the occurrence and is located in the disaster-impacted area, FNMA will only accept the loan for delivery if a full appraisal is prepared after the disaster occurred to ensure it has not been damaged by fire, wind, falling or rising water, or other causes of loss and destruction. If a property is located in a condo or co-op project, both the condition of the unit and the condition of the building in which the unit is located must be assessed. Loan case files must be resubmitted to DU for refreshed AUS results.

In the case where the loan has closed but has not been delivered to FNMA, the lender must determine if the condition of the property has materially changed since the note date. The lender may exercise the appraisal waiver if the condition has not materially changed. 

In any event, the lender is expected to make prudent and reasonable actions to determine whether the conditions of the property may have materially changed. The lender is ultimately responsible for determining if an inspection of the property and/or a new appraisal is necessary to supports its representations.

Lenders should use the following criteria when determining if the mortgage loan can be delivered to Fannie Mae -
  • If the property has been damaged and the damage does not affect the safety, soundness, or structural integrity of the property and the repair items are covered by insurance, the lender may deliver the mortgage to Fannie Mae. In these circumstances, the lender must obtain documentation of the professional estimates of the repair costs and must ensure that sufficient insurance proceeds are available for the borrower's benefit to guarantee the completion of the repairs. 
  • If the property was damaged and the damage is uninsured or the damage affects the safety, soundness, or structural integrity of the property, the property must be repaired before the mortgage loan is delivered to Fannie Mae.
  • FNMA DU may not be current in relation to disaster-affected areas and could return allowable PIW AUS results. The lender, again, is responsible for determining if the subject property has been affected and how best to support and defend the collateral supporting the mortgage loan.

Brandy George, Six Sigma
Director/Underwriting Operations Compliance
Executive Director/LCG Quality Control

Thursday, October 18, 2018

Charging Fee for Preapprovals

As a lender, we frequently receive requests for preapprovals from consumers so they can shop for their home with knowledge as to what they can afford in terms of a loan. We pull a credit report prior to issuing the preapproval. Currently, we do not charge any fees in connection with the preapproval. 

Can we charge a “preapproval” or “preapplication” fee prior to pulling credit?

You do not state the type of loan the preapproval is being issued with respect to.  For purposes of this response, the assumption is that consumer is seeking preapproval for a consumer loan secured by a one to four-unit residential property in which the consumer intends to reside. Thus, if the preapproval results in a mortgage application, it will be subject to the TILA-RESPA Integrated Disclosure (“TRID”). 

You also do not provide any information regarding the extent of your verification process, other than to state that you will pull a credit report prior to issuing the preapproval. For purposes of this response, and without delving into the issue of preapproval versus prequalification and UDAAP concerns raised by whether a preapproval program comports with the Home Mortgage Disclosure Act’s (“HMDA”) definition of preapproval, the assumption is that the preapproval program does not qualify as a HMDA preapproval program.

Under TRID, a creditor is barred from imposing any fee on a consumer in connection with the consumer’s mortgage loan application, such as an application, appraisal or underwriting fee, prior to the consumer’s receipt of a Loan Estimate and the consumer thereafter indicating an intent to proceed. The one exception to this prohibition is that a creditor may impose “a bona fide and reasonable fee for obtaining the consumer’s credit report” prior to the issuance of the loan estimated”. [12 CFR 1026.19(e)(2)]. Thus, at any time prior to the delivery of a loan estimate in connection with the application, the creditor may impose a credit report fee.

TRID also prohibits a creditor from requiring the consumer to submit documents verifying information related to the consumer’s mortgage loan application prior to the creditor proving the Loan Estimate. [12 CFR 1026.19(e)(2)(iii)] However, TRID does not prohibit the consumer from voluntarily submitting verification documentation such as bank statements, W-2s, etc. In that instance, the creditor is permitted to use the information as part of its verification process.  Notwithstanding, there can be no requirement that the consumer provide such information prior to the creditor’s issuance of the Loan Estimate.

So, back to the question, can a “preapproval” or “preapplication” fee be charged with respect to a request for a preapproval prior to a creditor pulling credit? 

In support of charging a fee, the typical creditor argument is that at this point, we do not have all 6 pieces of information for a TRID application (consumer’s name, income, social security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount sought), so TRID does not apply and therefore nothing prevents us from charging such a fee.  Typically, the missing piece is the property address.

At the outset, the assumption is that the “preapproval” or “preapplication” fee exceeds the bona fide and reasonable fee which a creditor may charge for the credit report. If the fee simply equates to the charge for the credit report fee, it is certainly permissible, and it would be advisable in that instance to call it a credit report fee rather than rename it a “preapproval” or “preapplication fee”. Transparency is key in eliminating any UDAAP concerns. 

If the “preapproval” or “preapplication” fee exceeds the credit report fee and is intended to be an additional application or underwriting fee, charging the fee based on the fact that the creditor does not have a TRID application (notwithstanding that the approval is for a loan that will be subject to TRID), sends a creditor down a slippery slope. And, absent further regulatory guidance, it is a business decision as to whether you as the creditor want to walk down this slope. The cautious position is that once the missing 6th piece of information is obtained, usually the property address, the preapproval application morphs into a TRID application and thus, the charge of the “preapproval” or “preapplication” fee becomes a TRID violation. Additionally, to the extent the creditor required the consumer to provide verification documentation in order to obtain the preapproval, there is another TRID violation. The creditor may assert that the creditor did not require the consumer to provide verification documentation. But, realistically, if the creditor is charging a fee and gives the consumer a list of documents that consumer may “voluntarily” provide, it is difficult to believe that a consumer will believe s/he is does not need to provide the documents in order to obtain the preapproval.

As an aside, it is important to remember that if you as the creditor have pulled credit and decided to deny the application based on the credit report and communicated such to the consumer, you must issue an adverse action notice under the Equal Credit Opportunity Act.  [12 CFR 1002.9]

Joyce Wilkins Pollison
Director/Legal & Regulatory Compliance
Lenders Compliance Group