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Thursday, May 31, 2018

Loan Officer Compensation


QUESTION
I have a corporate loan officer that is going to be helping a branch loan officer to close loans, how can the corporate loan officer be compensated?  

ANSWER
The corporate loan officer will need to be compensated on the same structure as the branch loan officer (i.e., bps or flat fee but must be the same) and pay should be divided based on percentage of work actually performed. 
[12 CFR 1024.14(c)]

This division should be set out in the compensation agreements for each of the loan officers with notation of the actual tasks to be completed by each; and make clear that each loan officer will receive the same compensation for each of the loans jointly worked. In no event shall the referral of jointly worked loans be based on the terms of the loan or a proxy for the terms. [12 CFR §1026.36(d)] No incentive should exist for a loan officer for steering a borrower to a jointly worked loan. 

Here are relevant citations.

12 CFR 1024.14(c) provides:
“No split of charges except for actual services performed.
“No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section. The source of the payment does not determine whether or not a service is compensable. Nor may the prohibitions of this part be avoided by creating an arrangement wherein the purchaser of services splits the fee.”

12 CFR §1026.36(d)(1) provides:
“PAYMENTS BASED ON A TERM OF A TRANSACTION.
  1. “Except as provided in paragraph (d)(1)(iii) or (iv) of this section, in connection with a consumer credit transaction secured by a dwelling, no loan originator shall receive and no person shall pay to a loan originator, directly or indirectly, compensation in an amount that is based on a term of a transaction, the terms of multiple transactions by an individual loan originator, or the terms of multiple transactions by multiple individual loan originators. If a loan originator's compensation is based in whole or in part on a factor that is a proxy for a term of a transaction, the loan originator's compensation is based on a term of a transaction. A factor that is not itself a term of a transaction is a proxy for a term of the transaction if the factor consistently varies with that term over a significant number of transactions, and the loan originator has the ability, directly or indirectly, to add, drop, or change the factor in originating the transaction.”
Brennan Holland
Director/Legal & Regulatory Compliance
Lenders Compliance Group

Thursday, May 24, 2018

Multipage, Catalog and Electronic Advertisements


QUESTION
We are going to send out a multipage advertisement that catalogs our many services. It will be in print and electronic versions. Is this form of advertising a single advertisement?

ANSWER
This is a relatively common form of advertising among financial institutions.

If a catalog or other multipage advertisement, or electronic advertisement (such as an advertisement appearing on an Internet website), that contains a trigger term gives information in a table or schedule in sufficient detail to permit determination of the required advertising disclosures, it will be considered a single advertisement if the table or schedule is clearly and conspicuously set forth and any statement of trigger terms appearing anywhere throughout the advertisement clearly refers to the page or location where the table or schedule begins. [12 CFR § 226.16(c)(1); 12 CFR Supplement I to part 226 – Official Staff Commentary § 226.16(c)(1)-1]

Therefore, any statement of the finance charge or any other term that must appear in the account opening disclosures (as set forth in Regulation Z, section 226.6) appearing anywhere in the advertisement must clearly refer to the page or location where the table or schedule begins. [12 CFR § 226.16(c)(1)]

As an example, for an online advertisement, any statement of the finance charge or any other term that must appear in the account opening disclosures (as set forth in Regulation Z, section 226.6) that appears anywhere in the advertisement could be accompanied by a link that takes the consumer to the table or schedule containing the additional information. [12 CFR Supplement I to part 226 – Official Staff Commentary § 226.16(c)(1)-2]

Jonathan Foxx
Managing Director
Lenders Compliance Group

Thursday, May 17, 2018

Property Tax Disbursements

QUESTION
We are a mortgage servicer with a question about disbursing property tax payments. What if an escrow item can be paid in installments? Is there a methodology for annual or installment disbursements?

ANSWER
With property taxes, if the taxing jurisdiction offers a choice between annual and installment disbursements for taxes, the servicer must use the following methodology:
  1. The servicer must make disbursements for the taxes on an installment basis, if the taxing jurisdiction does not offer a discount for disbursements on a lump-sum annual basis and does not impose an additional charge or fee for installment disbursements; or
  2. The servicer in its discretion may, but is not required to, make disbursements for the taxes on a lump-sum annual basis, if the taxing jurisdiction offers a discount for disbursements on a lump-sum annual basis or imposes an additional charge or fee for installment disbursements (and the servicer complies with the requirements to make disbursements in a timely manner). 

It is important to note that HUD encourages, but does not require, a servicer to follow the preference of the borrower if the servicer knows the preference. [24 CFR § 3500.17(k)(1)]

Also, a servicer and borrower may mutually agree to a different disbursement basis or disbursement date for property taxes, as long as the agreement meets the requirements that disbursement be made in a timely manner. Such an agreement must be voluntary for the borrower, that is, the approval of the loan and loan terms may not be conditioned on such an agreement of the borrower. [24 CFR § 3500.17(k)(4)]

Jonathan Foxx
Managing Director
Lenders Compliance Group

Thursday, May 10, 2018

Notice of Errors

QUESTION
We dealt with a complaint by a borrower who had sent a notice of error to the wrong address at our company. Our disclosures are clear about which address to send these letters to; however, this borrower was miffed that he could not be sure, so he sent it to a general mailbox. When we didn’t respond, he escalated the complaint to our regulator. Why should we be responsible if a borrower can’t read plain English and mistakenly sends his letter to the wrong company address?

ANSWER
The Real Estate Settlement Procedures Act, like the Truth-in-Lending Act, offers mortgage loan servicers the opportunity to designate an address to which requests for information (RFIs) or notices of error (NOEs) (some of which are considered “qualified written requests” or QWRs under the RESPA statute) must be sent.

The idea that a financial institution should treat borrower NOEs according to a borrower’s level of sophistication has not fared well in the courts. For example, the U.S. Court of Appeals for the 2nd Circuit rejected the idea. It found that the borrower in a similar situation had adequate notice of the loan servicer’s designated address for the receipt of QWRs and that the servicer’s statutory duty to respond to the borrower’s letter was never triggered.

Crucially, the 2nd Circuit refused to consider another argument raised by the borrower because he hadn’t pursued it until his appeal – that a mortgage servicer must establish a separate physical office for responding to QWRs. [Regulation X § 1024.35(c) and Comments 35(c)-2 and -3. Mack v. ResCap Borrower Claims Trust, 678 Fed. Appx. 10 (2nd Cir. 2017)]

In another case, the 11th Circuit dismissed the same argument and held that the servicer’s use of the same address for additional purposes was irrelevant to RESPA liability. The 11th Circuit noted that the servicer had subjected itself to the administrative burden of evaluating and prioritizing a larger quantity of mail to identify QWRs (or NOEs or RFIs), perhaps to minimize customer confusion, and that to penalize it for doing so would be perverse. [Bivens v. Bank of America, 868 F.3d 915 (11th Cir. Aug. 17, 2017)]

Jonathan Foxx
Managing Director
Lenders Compliance Group

Thursday, May 3, 2018

Disclosing State Imposed Fee

QUESTION
We lend in the state of South Dakota which, by law, requires a survey. The requirement for a survey is not a lender requirement; rather, it is imposed by state law. That being said, we are unclear as to how the survey fee should be disclosed on the Loan Estimate and Closing Disclosure.

ANSWER
The fee should go in Section H, “Other Costs,” as it is not for a service the lender requires in connection with its decision to make the loan, but rather it is for a service required by the government. 

Typically, we see survey fees disclosed in Section C, “Services You Can Shop For.” That section includes services that “the creditor requires in connection with its decision to make the loan; that would be provided by persons other than the creditor or mortgage broker; and for which the creditor allows the consumer to shop in accordance with §1026.19(e)(1)(vi).” [Official Commentary 37(f)(3)-1 (emphasis added)] 

As the survey fee is not required by you as the lender in connection with your decision to make the loan, it does not belong in Section C. So, if not in Section C, where does it belong?

Section H, “Other Costs,” includes those services which are “ancillary to the creditor’s decision to evaluate the collateral and the consumer for the loan.” Included among these costs are amounts disclosed for items “established by government action” as well as those “based on an obligation incurred by the consumer independently of any requirement imposed by the creditor.” The creditor cannot retain any portion of the disclosed other cost. [Official Commentary 37(g)-1] 

Thus, as the requirement for a survey has been imposed by state law and no portion of the fee is being retained by you as the lender, Section H is the appropriate place to disclose the fee.

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