Do you already have written policies/procedures for the CFPB's LO Rule?
For depository institutions, having written policies and procedures for the Federal Loan Originator Rule (addressing compensation and other rules) is mandatory.
Just a brief reminder today on the new-in-2014 requirement to have written policies and procedures for the CFPB's Loan Originator Rule. The Rule only specifically requires depositories to have written policies/procedures in place, but it obviously isn't a bad idea for non-depositories to follow suit--especially given the CFPB's requirement for non-depositories to have a written compliance management system.
Here are the issues that must be covered in the written policies/procedures on the Loan Originator Rule:
1.Compensation
This part of the LO Rule gets the most attention, and we all know it by now. Basically, it's illegal to pay a loan officer based on the terms of mortgage loans, e.g., interest rate.
2.Anti-Steering
The LO Rule prohibits a loan officer from steering borrowers into a loan to gain any financial incentive. This shouldn't be a factor if your compensation plan is simple and if loan officers have little or no control over pricing, but you still must have this in writing.
3.Ongoing Training
As of 2014, depository institutions have an obligation to provide ongoing training to its loan officers. Don't panic! I bet the training you're providing is already sufficient. But this would be a good time to flip through the requirements and double check. You can see a trend throughout this rule of spreading accountability out ... here the lender is expressly made responsible for ensuring the individual originator gets proper training.
4.Screening/Qualification
The LO Rule requires that no depository hire an originator without first appropriately screening that individual. Note: More specifically, you can hire that person, but they can't act as an originator until passing the screening tests. The screening requirements are pretty specific, and too lengthy for our purposes. But they, for example, wouldn't allow for a felony conviction within the last 7 years. It's also required that the company be able to determine that the potential originator has demonstrated the financial responsibility, character, and general fitness such as to warrant that he/she will operate honestly, fairly, and efficiently as a mortgage originator.
Notes:
Careful! This will normally only apply to new hires. But be careful because sometimes it applies to people already working for you. For example, if you read something in the newspaper about your originator getting in a drunk driving collision- this may be something that requires you to send that person through this screening/qualification test again.
Loan originators that are federally licensed (as required to work in a non-depository) are exempt from this requirement, as opposed to loan originators who are merely "registered," which is almost every originator employed at a depository.
5.Identification by Name & NMLS #
Under the new LO Rule (as of 2014), name and NMLS # for the company and individual originator must be placed on certain loan documents, such as the Note. This means that the loan officer on a mortgage can be identified forever (at least until the loan pays off). That's why when we talk about Ability to Repay violations we laugh about calling a loan officer to testify 20 years after she's retired and moved to Cape Verde to sing in a French Caribbean pop band.
Note: Will all policies/procedures look the same?
No. The policies/procedures required by the LO Rule need only to be "appropriate." This means that larger, more complex organizations should have more sophisticated sets of policies and procedures. Smaller institutions should not be criticized for keeping it simple.
In other news:
Like to have training on the upcoming TRID Rule for your staff? Drop us a line and we can sign you up ... we'll be traveling around delivering personalized training to sales and production staff.
Will credit cards be replaced by mobile payments via cell phone? Maybe not just yet. This article from Scientific American argues that credit cards aren't going anywhere.Why? First, credit cards make everyone happy-- banks get paid, customers have convenience, and stores get sales. Second, companies fighting to offer a mobile payment option are undercutting themselves--Apple Pay doesn't work at Walmart, Lowes, Dunkin, CVS, and others because those stores are backing another phone payment system called CurrentC. The Google Wallet was introduced in 2011 but never worked because Verizon, AT&T, and T-Mobile were trying to develop their own, at first called "Isis." (Yikes, unlucky choice of names). Note: This isn't the only marketing victim of the ISIS terrorist group. Closer to home, there's a medical supply company out of Fall River, MA unfortunately called ISIS Medical.
Just finished shoveling my driveway, check it out!
According to this article, down-payment requirements are shrinking and more borrowers are pointing down 3% or even less. Do you think this is good or bad? Seems like the answer should be "good, but only if used responsibly and offered to appropriate borrowers."
Have you ever heard of the "Fraud Triangle?" Fraud investigators and forensic accountants use this framework to figure out who is embezzling money. You can use it to assess the risk of pretty much anyone lying, cheating, or stealing, be it friend, colleague, or politician. You have to start with one basic assumption: the likelihood of someone stealing, cheating, or lying depends on the following three factors-
How much of an opportunity does he have to do it (and get away with it)?
How much does he need it?
How easily can he justify his actions?
A loan officer might have an opportunity to cheat on the annual NMLS test if he knows no one is watching him. A teller may feel pressured (need) to steal if her daughter's medical bills are piling up. A jilted employee may be able to justify a theft if her boss recently embarrassed her in front of the entire department.
Example - Solve the Mystery!
You own a chain of smoothie stores. Over the course of a year, you notice that one particular store has a product-to-income ratio lower than all the others, and it's getting worse. It appears that someone at this store is either skimming money or giving away too many "freebies." Your stores have a friendly, casual atmosphere, and you don't want to call the police to investigate all of the employees. But a hundred dollars a week starts to add up after awhile! So instead you start to look at this using the Fraud Triangle, with the 8 employees that work there as suspects.
#1. Opportunity.
Employees normally work in pairs, so one can work the cash register and the other can serve during a rush. But there are three employees--one a manager--that work by themselves at night when business is slow. These three employees have a greater Opportunity than the others, so they are more likely to be responsible. *You also note that there is no video surveillance, giving all employees a greater opportunity to steal. Installing cameras would reduce this opportunity.
#2. Need.
Of those three employees, is anyone in particular struggling to make ends meet? Does anyone use drugs, or seem to have an expensive lifestyle? Is it possible one of them is young and feels the need to give away free smoothies to impress his friends? One employee is retired and works part-time, mostly to stay active and socialize--this person appears to have low Need and is unlikely the culprit. But you're not sure about the other two. They're both full-time. One is a manager with young children. The other is younger, in college part- time, but living in his own apartment. Both likely have a need for more income. But your manager never has visitors, she leaves her children with a babysitter while working. The other often has same- aged friends visit for smoothies.
#3. Rationalization.
Can you think of anything that would help here? Is either unhappy with the job or feel like they deserve a raise? Have you insulted either of them? Knowing them, do you think one has less integrity than the other, so as to allow them to Rationalize stealing from you? You think back ... The manager has been successful with you, rising steadily through the ranks and receiving a bump in income nearly every quarter. The other employee has been with you the same amount of time, but not received any promotion or increase in pay.
Mystery solved! Upon further investigation, you find proof that it was this employee. He had been "selling" a few people smoothies but pocketing the cash for himself. He had the opportunity while working alone. He felt a need for the extra money because he was struggling to afford his apartment after moving out of his parents' place. He rationalized the theft by convincing himself that he was underpaid, that he hadn't received any raise during the same time the manager was promoted numerous times.
If nothing else, at least now you'll be analyze who's been stealing tupperware from the kitchen at work!
"A man who will steal for me will steal from me."
- Teddy Roosevelt
(upon firing a cowboy who had put Roosevelt's brand on a steer belonging to another man).
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**These are our opinions. We're not authorized, or willing, to express those of others.**