Summer 2016 CFPB Mortgage Exam Trends
A summary of what the CFPB is finding as reported in its Summer 2016 report.
The CFPB regularly issues summary reports on what its examiners are finding. The most recent "Supervisory Highlights" is from July 6th and is available here.
The CFPB described several common findings related to mortgage compliance. Here they are:
1.Incorrect Calculation of Amount Financed
In the case of discount points, if you're disclosing a negative finance charge and an amount financed that exceeds the stated loan amount, you're probably doing it wrong.
2.RESPA Section 8 Violations
If you have an affiliated business arrangement, do you require borrowers to use that service? Is it possible your affiliated business disclosures are inaccurate? If so, these are some common violations that the CFPB has recently found related to the RESPA Section 8 rule (in other words, the prohibition on accepting a fee or kickback in exchange for referrals).
3.Failure to Provide FCRA Adverse Action Notices Remember that if you take adverse action based in part on the consumer's credit score, then you have to include the credit score and related information (such as how to get a copy of the credit score) in an adverse action notice.
4.Incorrect Disclosure of Interest-Only Loans
Ouch ... I know I've seen a few construction loans come across like this. Turns out the CFPB has found a good number of instances (enough to make the top 6 list) where the interest-only portion of a loan wasn't disclosed separately, but rather just included in a standard P&I.
Good reminder to check any loan products that have interest-only features.
5.Weak Compliance Management System
The CFPB report is relatively vague on this topic. Remember that CMS is the process by which you manage compliance, and you will be graded on how well you perform regarding oversight, training, monitoring, independent audit, and other CMS categories.
They only gave two specific examples:
Weak oversight of automated systems, including inadequate testing of codes that calculate the finance charge and the amount financed
Failure to monitor for changes that would require updated disclosures (this might include failure to ensure that your system is sending TRID disclosures on land-only loans, for example)
6.HMDA
Of course, they note that HMDA compliance "remains a top priority." They also noted some particular violations. It may be best for me to quote directly from the CFPB on this one:
During one or more HMDA data integrity reviews conducted substantially within the last year, examiners found that after issuing a conditional approval subject to underwriting conditions, the institutions did not accurately report the action taken on the loans or applications. For example, examiners found where one or more institutions issued a conditional approval subject to the applicants meeting underwriting conditions, and then the applicants withdrew their applications before the institutions made a credit decision, the institutions incorrectly coded the action taken as "Application denied" (Code 3) or "File closed for incompleteness" (Code 5) instead of "Application withdrawn" (Code 4). In other instances, examiners found that one or more institutions incorrectly coded the action taken as "Application approved but not accepted" (Code 2) instead of "Application denied" (Code 3) after the applicants failed to respond to a conditional approval subject to the applicants meeting underwriting conditions, and did not send the applicants either a written notice of incompleteness or an adverse action notice as required by Regulation B.
In Other News:
Keeping an eye on recent enforcement actions is a good way for a compliance officer to stay in touch. Where do you find stuff like this without a paid subscription to some research tool? Well, some institutions post that online, as the FDIC does here.
Looks like the SCA-sponsored LOS/POS Lunch will be August 10th for anybody still interested, please contact me or Paul Bates at PBates@scapartnering.com.
If you're a depository in Massachusetts, you're crazy if you're not offering solar energy loans subsidized by Massachusetts. As a reminder you can find out more here at their website or call one of us at SCA because we're helping Massachusetts with this great program.
What happens when the only feedback you receive is negative? Well, normally I would say you need to start doing a better job. But maybe the real point is that you'll stop focusing on doing things right, and instead obsess over making a mistake. Certainly we see this sometimes with responses to our QC and Compliance Audits. So you made a mistake ... big whoop! Let's look at why it happened and how we can stop it from happening again. Then go home, play Frisbee with the dog and read your daughter a bed-time story. Life goes on!
"A good plan violently executed today is better than a perfect plan executed next week."
- General George Patton
Thanks so much for reading our weekly newsletters. We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy. Your calls and e-mails are very helpful - please keep contributing.
**These are our opinions. We're not authorized, or willing, to express those of others.**