QUESTION
As a stateside, non-depository, mortgage licensee,
I am interested in learning about areas of concern relating to regulatory
examinations. What are some of the hot topics and regulator recommendations in
these areas?
ANSWER
I recently attended the 29th Annual Regulatory
Conference, held in Boston, for the American Association of Residential
Mortgage Regulators (AARMR). One of the breakout sessions was entitled Examination Hot Topics. The session was moderated by a state regulator
from Georgia and included three state regulators from the states of Missouri,
Connecticut and Michigan.
Topics and issues raised are detailed below.
Loan Brokerage Fee Agreement: The disclosure
should be provided by the broker and not the lender.
Profit-based Bonuses: Broker, mortgage loan
originator, profit-based bonuses are exceeding the 10 % threshold.
Marketing Services Agreements: The use of
Marketing Services Agreements has increased resulting in RESPA issues. One area
of contention is whether advertising should be paid by the mortgage company or
the loan officer.
Rental Agreements: There is no basis by which
to establish market value of rental agreements. The example referenced two
identical office spaces within the same office complex valued at $300 and $600,
respectively.
Change in Circumstances: The calculations do
not provide adequate supporting information in the file to facilitate the examination
review.
Mortgage Fraud known as “Convenience Fraud:”
MLOs are signing borrowers’ names on forms. They are also using electronic
signatures. This activity has resulted in loss of licenses.
Cut and Paste Tactics: This activity is on the
rise. The activity includes altering IRS Form 4506-T relating to designation of
third parties to receive the tax return information. It also includes the forging
of signatures on borrower loan documents, claiming as an excuse that the
borrower was on vacation. One regulator stated that they found practice
signature evidence and the actual cuts in the borrower loan file!
Unlicensed Loan Originations: Unlicensed
individuals are taking applications over the phone (usually in call centers), due
to lack of management oversight of their operations. This process results in
more loan volume. Companies offer the excuse that they are only taking “partial”
applications.
Mortgage Call Report (MCR): The MCR
information is inaccurate. The requested loan list at the time of examination
does not correlate with the loans listed on the Mortgage Call Report. Companies
need to establish a process that includes work papers to back-up the
information. It was also recommended that MCR reporting duties should not be
assigned to untrained individuals and that a back-up person be assigned to the
task.
Unlicensed Underwriting: Brokers are doing
underwriting without the required lender licensing.
Third-Party Processing: Lenders are inquiring
about the requirements for third-party processing and underwriting. Many are
engaged in the activity without the proper license.
Hiring Practices: There is evidence of
companies hiring convicted felons in direct violation of statutes and
regulations. Some of these companies have been reported to the regulators by
competitors.
Disclosure Text Errors: Incorrect language is being
used in disclosures related to TRID and foreclosures. Be certain to reference
state and federal requirements in this area.
Advertising: Issues have been identified
relating to advertising. The main point is that marketing and compliance
departments have two different goals. The compliance group must review all ads
prior to being released to the public. There are issues with companies misleading
the public by holding themselves out as government agencies.
Mortgage Servicing Compliance: Examinations of
mortgage servicers identified issues involving the lack of compliance with the
terms and conditions by the new servicer. Recommendation was for servicers to
have robust policies and procedures. It was also noted that companies are not
posting payments properly. Files need to have better documentation.
Commingling of Funds: Companies are commingling
operating funds and escrow funds in direct violation of the law.
It is my hope that you have come away with
some new insights into examination areas of concern raised by state regulators.
We can assist you in
preparing for examinations and in providing you with the ability to outsource
some of the compliance functions in your operation. Our compliance support
includes all mortgage banking policies and procedures, mortgage and servicing
compliance, quality control analytics, vendor management, licensing and Mortgage Call Reports.
Please contact us for a free consultation.
Alan Cicchetti
Director/Agency Relations, Lenders Compliance Group
Executive Director, Brokers Compliance Group
