QUESTION
Thank you for your FAQs. We get together each
week for sales and compliance meetings, and your FAQs are always discussed. We
find them timely, informative, and helpful.
I want to thank you for your help in informing us about how to navigate the compliance issues associated with the pandemic. Your assistance is more needed now than ever. We have downloaded each update to your Checklist on Disaster Recovery and Business Continuity, which includes a response to the pandemic.
Also, we purchased your comprehensive Business Continuity Plan with Pandemic Response. Our company has distributed the Checklist and Plan to all our branches and branch managers. We also train on them and keep them current.
Do you expect to publish any updates soon, given the new surge of the virus?
As a Chief Compliance Officer, I often wonder what a firm like yours sees regarding the common prohibited acts and practices. From your vantage point, you likely have a much wider view than I do here at my company, even with my attending training, webinars, and educational forums. I hope you would share a few precautionary tips with us to be on the lookout for them.
What are some common prohibited acts and practices?
ANSWER
I appreciate your encouraging words regarding
our Business Continuity Plan Checklist & Workbook (Includes COVID-19
Pandemic Response).
The Checklist went through eight updates from March to November 2020. It is as good now as it was in November! However, there have been a few important regulatory issuances since then.
The Delta variant has presented new challenges to companies, primarily concerning training and remote work. An update will be published soon.
The Checklist is still complimentary!
- To request the Business Continuity Plan Checklist & Workbook (Includes COVID-19 Pandemic Response), please click HERE.
With respect to the Business Continuity Plan with Pandemic Response, because it is one of our policy documents, we continually update it for changes involving legal and regulatory compliance and Best Practices. We do not just sell this policy; we work with you to ensure that you understand it and conform it to your business needs.
- To request the Business Continuity Plan with Pandemic Response, please click HERE.
I think you make a good point about how my firm sees much more than any single company regarding regulatory compliance issues. Whereas a Compliance Manager for a company is locked into a provincial setting, more familiar with a company’s compliance needs than the broad scope of compliance needs facing similarly situated entities, our firm sees it all.
These days, depending on just the Compliance Manager – no matter how competent and well-resourced – is sort of like the fallacy of putting all your eggs in one basket. This form of compliance is usually risky: it is the unknown knowns that catch you!
This is why our clients are small firms with limited internal compliance up to money center banks with large compliance departments that nevertheless retain us as their independent resource. Even the largest companies do not have the kind of panoramic vision our firm has since we deal exclusively with companies that are transactionally involved in mortgage lending and mortgage servicing.
Our fees are low and cost-effective because we distribute our overhead across so many clients. That makes it possible for us to reduce the fees for every company, small and large.
- For information about our compliance support, please click HERE.
Some Common Prohibited Acts and Practices
for Credit Secured Residential Dwellings
The question about prohibited acts and practices necessarily leads to a broad array of possible “precautionary tips.” I could write a lengthy tome on this subject. However, I will provide some compliance concerns that are repeat offenders.
The following list is short compared to the many compliance infractions that beset companies.
Some items on the list result from the broad scope of view I mentioned above; meaning, we regularly caution our clients about them.
I list the “precautionary tip” first, followed by a brief outline of the regulatory challenge.
Delayed Crediting of Payments
A mortgage loan servicer must credit a periodic payment to the consumer’s loan account as of the date of receipt, except when a delay in crediting does not result in any charge to the consumer or in the reporting of negative information to a consumer reporting agency.
If a servicer specifies in writing the requirements for the consumer to follow in making payments but accepts a payment that does not conform to the requirements, the servicer must credit the payment as of five days after receipt. Partial payments may be held in suspense or unapplied funds accounts.
Late Charge
“Pyramiding”
A creditor, assignee, or servicer must not impose on the consumer any late fee or delinquency charge in connection with a payment when
(1) the fee or charge is attributable only to the failure of the consumer to pay a late fee or delinquency charge for an earlier payment, and
(2) the payment is otherwise a periodic payment (i.e., an amount sufficient to cover principal, interest, and escrow, if applicable, for a given billing cycle, even if the amount is not sufficient to cover late fees, or other fees, or non-escrow payments a servicer has advanced on the consumer’s behalf) received on its due date or within any applicable grace period.
Failure
to Provide Payoff Statement
A mortgage loan servicer must not fail to provide within a reasonable time (not more than seven business days, after receiving a written request), an accurate statement of the amount currently required to pay the obligation in full as of a specified date, often referred to as a payoff statement.
(Note: This requirement applies to a loan secured by a dwelling, whether or not the dwelling is a principal dwelling.)
Loan Originator
Compensation
Payments may not be made to loan originators based on the terms of the transaction other than the amount of credit extended. In general, a loan originator who receives compensation directly from a consumer may not also receive compensation from someone else in connection with the same transaction (“dual compensation”).
Steering
Loan originators must not steer consumers to consummate a loan not in the consumer’s interest based on the fact that the loan originator will receive greater compensation for the loan.
Loan Originator
Qualification Requirements
Loan originator organizations (that is, loan originator entities other than individuals) must make sure that their loan originators are licensed or registered under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) and other applicable laws.
For employees who are not required to be licensed, a loan originator organization must ensure that its loan originators meet character, fitness, and criminal background standards similar to SAFE Act licensing standards and provide training appropriate and consistent with the loan originators’ origination activities.
Name and NMLSR Identification Number on Documents
Each loan originator must include its name and NMLSR identification number on any of the following documents whenever provided to a consumer or presented to a consumer for signature-credit application, note or loan contract, and security instrument. Any loan originator without an NMLSR identification number must include its name.
Financing
of Single Premium Credit Insurance
The financing of single premium credit insurance is prohibited.
Negative
Amortization Counseling
First-time homebuyers who enter into transactions that may result in negative amortization must obtain counseling regarding the amortization features and provide documentation of the counseling from a HUD-approved or HUD-certified counseling organization or counselor.
Ability
to Repay
Creditors must consider eight underwriting criteria: current income or assets, current employment, credit history, monthly mortgage payment, monthly payment for other mortgage-related obligations, monthly payment for other loans associated with the property, other debt obligations, and monthly debt-to-income ratio or residual income.
Lenders must apply the underwriting criteria to determine whether borrowers have the ability to repay their loans based on fully indexed rates and not teaser rates. Lenders must verify the information relied on in applying the underwriting standards.
Lenders are presumed to have complied with these ability-to-repay (ATR) requirements if they issue “qualified mortgages” (QMs) with a “safe harbor” for lower-priced (generally higher quality, prime) loans and a “rebuttable presumption” for higher-priced (generally lower quality, subprime) loans.
Periodic
Statements
Mortgage loan servicers must provide periodic statements for any closed-end consumer credit transaction secured by a dwelling except for reverse mortgages, transactions secured by interests in timeshares, and any fixed-rate loan for which the servicer provides a coupon book that contains specified information. Small servicers are exempt from this requirement.
Jonathan Foxx, Ph.D., MBAChairman & Managing Director
Lenders Compliance Group
