Finally Getting It Right

The CFPB’s announcement that it had finalized the long-awaited amendments to TRID, initially proposed in July 2016 and commonly referred to as “TRID 2.0,” was a welcome surprise. The industry had been calling for updates, both in the way of substantive changes as well as clarifications of numerous ambiguities in the rule, since TRID’s inception. With the finalization of TRID 2.0, the CFPB has at last answered those calls.

“While the yearlong delay since its initial proposal has been frustrating to many in the industry, I think it’s clear from reading through the final rule that the changes ultimately adopted, and the Bureau’s accompanying commentary, reflect a thorough and thoughtful consideration of all feedback received from consumers and industry in response to the updates initially proposed. The Bureau clearly took their time to try to “get it right,” and I think they should be commended for that,” said Michael Cremata, Senior Counsel and Director of Compliance, ClosingCorp.

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Headquartered in San Diego, Calif., ClosingCorp owns and operates the premier source of intelligence for closing costs and service providers in the U.S. residential real estate industry. Through innovative solutions, progressive technologies and strong alliances, the company delivers timely, accurate and transparent results that help optimize closing processes and services for mortgage lenders, title and settlement companies and real estate professionals. Clients rely on ClosingCorp to help improve efficiencies and mitigate risk.

“Some of the important changes made by the rule include: introducing a tolerance for the “total of payments” disclosure; clarifying requirements around the disclosure of construction and construction-permanent loans; expanding the exemption for certain housing assistance loans; and clarifying and revising various calculations in the “Calculating Cash to Close” table. All of these changes are helpful, and should be welcomed by the industry. However, there are a few areas where I believe the Bureau missed the mark.

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“One such area is the final rule’s failure to add meaningful guidance regarding the extent to which settlement service fees may be itemized on a Loan Estimate (LE) or Written List of Providers (WLP). While the initial proposal included a helpful clarification that fees for certain “packages” of settlement services may be aggregated, the Bureau decided to drop this clarification from the final rule in favor of a comment clarifying that lenders need not include on the LE or WLP “related fees . . . not themselves required by the creditor . . . such as a notary fee, title search fee, or other ancillary and administrative services.” Whether or not these fees are disclosed on the LE or WLP, though, the rule makes clear that they still must be included in tolerance calculations at closing if they fall in the “10% bucket.” Therefore, no lender would intentionally exclude “related” fees from the LE or WLP and thus suffer a smaller “baseline” for purposes of calculating tolerances (and that’s to say nothing of the context in which the fees are held to zero tolerance, in which case there’s no clarity at all as to how they would be treated for tolerance purposes).”

However, John Levonick, Director of Regulatory Compliance at Clayton Holdings believes that as the industry digs through the new 2017 TILA-RESPA Integrated Disclosure Rule (TRID), or TRID 2.0, compliance and quality control service providers are left scratching their heads about the complexity, and possible confusion, that the rule’s open adoption period is going to create.

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“Based on our preliminary review of the 560 pages of “clarifications” that make up TRID 2.0, many if not most of the changes ease more onerous obligations from a timing, data, tolerance, content or calculation validation perspective,” said Levonick.

“The TRID 2.0 rule has an effective date that is 60 days from the date on which it is published in the Federal Register. However, compliance with the rule is optional for creditors until the mandatory compliance date of October 1, 2018. This creates an open phase-in period from the publication date through October 1, 2018, whereby creditors are permitted to choose to handle certain origination practices and disclosures either (1) in the way that was in place prior to the TRID 2.0 effective date, or (2) in the way identified as appropriate in TRID 2.0. In other words, during this phase-in period creditors can selectively comply with whichever individual requirements within the original rule and the TRID 2.0 rule that they prefer. Good news for lenders; bad news for automated rules engines and QC personnel.

“From a technology standpoint, this will cause certain external automated compliance tools to falsely identify errors that prior to TRID 2.0 were “material” and are now no longer. Providers will then need to manually “clear” these non-material errors. Most of the TRID 2.0 changes will require only minor readjustments to current loan origination system configurations (although construction loans will require more). But even minor changes take development time. And, at the moment, with many lenders focused on the coming Uniform Closing Dataset (UDC), the TRID 2.0 changes—which will not be subject to enforcement liability until the October 1, 2018 mandatory compliance date—will not go to the head of the queue.”

The bigger question is how will the Secondary Market react to TRID 2.0? Will investors be concerned about liability, and whether consumers have a private right of action for errors arising during this 2017 TRID phase-in window? “This will remain an unknown, to be addressed on a case-by-case basis as issues are identified. While the CFPB has stated that its “clarifications” are not retroactive, what will become of pre-existing TRID errors that, had they occurred after TRID 2.0’s effective date, would not be TRID errors?” answered Levonick.

“In the meantime, we all continue to work through the new rule, hopeful that, in the long run, its clarifications will reduce confusion, lead to fewer errors in origination, and increase secondary market pull through on loan acquisitions,” he added.

Cremata agrees that TRID 2.0 has some flaws. “It’s disappointing (although not surprising) that the Bureau refused to address simultaneous issue rates, additional cure mechanisms, or the so-called “black hole” (although the black hole is the subject of a new proposal, released at the same time as the final rule, on which the Bureau is currently seeking comments).

“Overall, the finalization of TRID 2.0 represents a significant positive development for the industry. Although it fails (or declines) to resolve several of what have been the industry’s biggest pain points with TRID, it nonetheless introduces a number of much-needed clarifications and amendments, and is unquestionably a step in the right direction by the Bureau,” he concluded.

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Ernst: Historic Number Of County Recorder Fee Changes

Ernst, a provider of technology and closing cost data for the real estate and home finance industries for the past 28 years, reported that the company was seeing vastly more fee changes for recording documents into the public record that has been typical for this time of year. Ernst tracks fee changes for the vast majority of lenders, automatically making updates to their systems so that guaranteed accurate fees are provided for disclosing to consumers on Loan Estimates, per CFPB’s TRID requirements.

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“We expect to see a fair number of fee changes and updates coming out of the nation’s County Recorders’ offices each month, but June has seen vastly more change activity than has been historically normal,” said Gregory E. Teal, president and chief executive officer of Ernst.

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County Recorders are under no obligation to inform mortgage lenders of fee changes but lenders are required under TRID to disclose accurate fee information to borrowers within three days of receiving a completed loan application. Failure to track changes in every jurisdiction can expose the lender to non-compliance risk, so Ernst tracks these fees with patented fee search technology and then updates its fee engines, guaranteeing the accuracy of every fee it reports back to lenders.

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In all, Ernst saw more fee changes in the first three weeks of June than it had seen in any one month over the past 11 years. We processed over 1000 data changes that impacted both recording fees and transfer taxes in nearly 350 or more recording jurisdictions. Uncharacteristically we’re continuing to see ongoing fee changes targeted  for implementation in both July and August.

Ernst programs processed 250 million real estate transactions in 2016, making it the most used technology of its kind in the industry. Since the company was founded 28 years ago, Ernst has processed well over 1 billion transactions and unveiled dozens of technologies and products that produce efficiency across the real estate industry. CEO Gregory E. Teal is a Mortgage Banking magazine Tech All-Star. The firm estimates that its technology is in use for 90% of the nation’s new loan originations and refinance transactions.

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QuestSoft Urges CFPB To Delay Implementation Of HMDA Specific Data Points

In a letter written to the Consumer Financial Protection Bureau (CFPB) addressing proposed changes by the CFPB to its HMDA regulations, QuestSoft president Leonard Ryan urged the Bureau to delay its changes to geocoding and remove additional demographic data.

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The eight page letter focused on five key areas of the new regulation:

  1. Bona Fide Errors and Proposed Geocoding Safe Harbor
  2. Demographic Data Collection – Specifically as it related to Ethnicity and Race Subcategories
  3. Reporting Threshold Adjustments
  4. NMLSR ID Reporting
  5. Industry Readiness

Ryan expressed concern for the future of LMI lending as a result of the CFPB plans to introduce a less accurate geocoding system but bolster it with a safe harbor. The new geocoder is expected to be 30% less accurate on results close to census tract boundaries and not be able to accommodate new addresses as quickly as products used in the industry today (including the FFIEC geocoder).

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Ryan also expressed concern that a guarantee on the geocoder will eliminate the higher quality products from the market and cause accuracy concerns for the Community Reinvestment Act and the trading of Low Moderate income loans in the open market.

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In the letter, Ryan continued with a detailed analysis of problems facing the industry over the new Ethnicity and Race Subcategories, urging the Bureau to provide at least one extra year due to implementation delays of both the CFPB and the GSE’s in releasing the new Uniform Residential Loan Application (URLA).

“In many ways, the demographic data additions are turning out to be the biggest train wreck of the new regulation,” Ryan said. “The lack of clarity and confusion over properly classifying borrowers has the potential to be a regulatory and fair lending compliance nightmare.”

A complete version of the letter is available at

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Don’t Fear HMDA


Here we go again. The industry just got over the pain of complying with TRID and now the CFPB is at it again. This time the changes will come for HMDA.

“The new HMDA reports will add significant costs and regulatory burdens to lenders, especially in the short run when lenders are becoming acclimated to the new reporting requirements,” noted Marisa Calderon, Executive Director of the National Association of Hispanic Real Estate Professionals (NAHREP). While the challenges and expenses will be similar to TRID, the richer HMDA data set will allow lenders to analyze their peers, their peers’ and their own lending patterns, and the communities they serve. The data analysis on a richer HMDA data set could help lenders uncover unmet needs and create new and better lending programs tailored to the needs of these communities.”

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Calderon is an 18-year veteran of the financial services and housing industry. She takes a direct role in the association’s conference and event planning efforts, including NAHREP’s Housing Policy and Hispanic Lending Conference in Washington, D.C. and the association’s marquee event, the National Convention and Latin Music Festival. Ms. Calderon serves on the Fannie Mae Affordable Housing Advisory Council, Advisory board of Banc of California, on the board of directors of the Hispanic Wealth Project and is co-author of the association’s annual publication, The State of Hispanic Homeownership. She speaks at conferences and events regarding NAHREP’s advocacy efforts, policy positions and on general Hispanic housing trends.

“Beginning with the HMDA data collected in 2017 and submitted in 2018, the responsibility to receive and process HMDA data from lenders will transfer to the Consumer Financial Protection Bureau from the Federal Reserve Board,” Calderon pointed out. “In addition, filers will submit their HMDA data using a web interface referred to as the “HMDA Platform.” As part of the submission process, a HMDA reporter’s authorized representative has to certify to the accuracy and completeness of the data submitted.”

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On the bright side, vendors are ready to help lenders meet this challenge. For example, PROGRESS in Lending gave QuestSoft its Innovations Award for the work it has already done to ensure lender compliance. Last October, QuestSoft sent specifications to 29 loan origination software companies, and those imports are expected to come online during the first quarter of 2017. Customers can then import live data from those LOS platforms to see gaps, interact with their systems, and internally adjust their procedures. QuestSoft’s CFPB HMDA test version is also being provided well in advance of the CFPB’s schedule. Compliance RELIEF has been designed so that as error codes and other specifications are made available by the CFPB, QuestSoft will be able to incorporate them quickly and distribute updates to lenders testing their processes.

“On a granular level, HMDA will be a more smooth process to implement vs. TRID,” said Jon Johnson, Compliance Manager of Castle & Cooke Mortgage. “We were also given more time to implement HMDA and it won’t disrupt existing processes as much. Systems and people are being trained up right now.”

Johnson began working for Castle & Cooke Mortgage in 2016. Previously, he worked for the mortgage document preparation provider, IDS, where he was a project manager, compliance officer, and spokesperson for the implementation of TRID. Currently, Jon manages a team that helps with TRID, ECOA, and HMDA compliance. Jon is working on Castle & Cooke Mortgage’s new HMDA requirements implementation. Jon acquired a law degree from Arizona Summit Law School.

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“Lenders need to make sure that their systems are updated and that they are collecting the new data,” he advised. “If you have a file that you start this year, but it doesn’t close until next year we have to gather those additional data points. This is a great opportunity for lenders to look at their data and begin to make changes. We’ve seen the CFPB be a little more lenient with TRID, but in this case the CFPB has come out strong even before the new rules are in place.”

But the impact of these HMDA changes can be far reaching, according to Michael Vitali, Senior Vice President of Compliance at LoanLogics. ”HMDA is cumulative whereas TRID is loan by loan. Before cell phones and cameras, investigators had to do much worse, but today everything is instantaneously available. HMDA is like the cell phone. It’s now all out there for regulators to see much easier. The good side is that if a lender uses all this new data they can look at their portfolio in advance and make adjustments.”

At LoanLogics Vitali monitors regulatory developments and their practical implications for lenders, servicers and vendors in order to support Executive Management in high-level strategic decision-making. This includes identifying new market opportunities and new product enhancements. He supports the company’s Compliance Analysts on a day-to-day basis, including reviewing and approving the scope and substance of compliance reviews, answering loan-level questions, and participating in the preparation for, and defense of, regulatory exams of our clients.

His duties also include the research, interpretation and conveyance of proposed legislation related to the industry to recommend policy and/or procedure changes to maintain continued compliance with all applicable laws, rules, and regulations, investor requirements, and standard mortgage practices. “The main thing in 2017 for lenders to do will be preparation,” he said. “This business is very production geared. With refis drying up they may be focused there and not pay too much attention to this. That would be a mistake. You can’t wait until 2018 to make sure that everything is collected. The LOs also need to be trained.”

As we all know, the CFPB fined Nationstar $1.75 million for “consistently failing to report accurate data” about mortgage transactions from 2012 through 2014. It was the largest HMDA penalty ever imposed by the CFPB. This is what is to come for lenders that are not ready.

“Lenders need to do this right,” warned Vitali. “The fine was not discrimination, it was for mistakes. I look at it this way: Nobody ever took HMDA data seriously, but they will now. Technology will help lenders identify risk. Lenders will have an opportunity to look in the mirror to see if they like what they see. If they don’t like what they see they can go get a haircut or a shave to look better. The major drawback is that lenders tend to rely too much on the technology without evaluating their own processes and data.”

“The upside is that it will expand homeownership to classes of people that have been disenfranchised,” added Dr. Rick Roque, President and Founder of MENLO, a firm that advises mortgage lenders on their M&A strategies. “The largest growing homeowners are women and immigrants. The HMDA data will provide more insight into who lenders are providing financing to and why. If I’m a local lender in Miami beech and my usual borrower earns $500,000 or more, that data is going to be very homogenized, which might open you up to litigation if that borrower is not representative of the majority of borrowers in your area. So, lenders that may be under capitalized may have difficulties.”

This is where automation comes in. “Technology offers visibility,” notes Roque. “Most lenders want to do the right thing, but they are not aware of how homogeneous their consumer base is. Lenders that are behind the eight ball now are going to be screwed in 2018.”

Johnson at Castle & Cooke Mortgage notes that lenders need to customize the technology. “Lenders need to be able to build reports off of the data points so you can see patterns. Also, you have to compare the data in all of your systems so it’s the same. The data in your LOS has to match the data on your docs, for example. Lenders can do this if they prepare.”

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Are You Ready For A CFPB Audit?


On July 21, 2010, President Barack Obama signed into law the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Among other things, Dodd-Frank established the Consumer Financial Protection Bureau (“CFPB”), an independent government agency under the control of the Federal Reserve and charged with “conduct[ing] rule-making, supervision, and enforcement of Federal consumer protection laws.” Today the problem for the CFPB is that it has been overly effective at that job. There is clear political push back from financial service entities that feel the regulatory environment has become so tight and expensive that normal business operations are unduly constrained. According to a memo that emerged in early February, Jeb Hensarling, the Texas Republic who heads the House Financial Services Committee, has determined to move forward with legislation to weakening the CFPB and its enforcement powers. The basic fact, however, is that the opponents of the CFPB haven’t provided many details about how they envision what comes next. While future rule making could well be curtailed, the rules that are now in place will very likely continue to be aggressively enforced by an existing bureaucratic structure that resents having its powers curtailed.

The 924 page CFPB Supervision and Examination Manual has prompted much hand-wringing within the leadership ranks of those “supervised entities” subject to CFPB enforcement, namely depository institutions and non-depository consumer financial services companies. This article assumes that examination and enforcement will proceed unabated and is intended to illustrate ways to mitigate enforcement risk within those organizations.

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An Overview of the Examination Process

A CFPB examination process generally involves an on-site visit lasting approximately 4 to 6 weeks. An attorney from the CFPB may be present in addition to the examiners.

The examination centers around nine modules: 1) Entity Business Model; 2) Accuracy of Information and Furnisher Relations; 3) Contents of Consumer Reports; 4) Permissible Purposes and Other User Issues; 5) Consumer File and Score Disclosures; 6) Consumer Inquiries, Complaints, and Disputes and the Reinvestigation Process; 7) Consumer Alerts and Identity Theft Provisions; 8) Prescreening, Employment Reports, and Investigative Consumer Reports; and 9) Other Products and Services and Risks to Consumers.





While future rule making could well be curtailed, the rules that are now in place will very likely continue to be aggressively enforced.

Although the CFPB has published an examination manual, one would be wise to focus on the “concepts” or those areas of particular concern to the CFPB.

The stated objectives of the examination are to “evaluate the quality of a supervised entity’s compliance management systems …”, “identify acts or practices that materially increase the risk of violations of federal consumer financial law, in connection with consumer reporting …”, “gather facts that help determine whether a regulated entity engages in acts or practices that violate the requirements of federal consumer financial law …”, and “determine, in accordance with CFPB internal consultation requirements, whether a violation of federal consumer financial law has occurred and whether further supervisory or enforcement actions are appropriate.”

1.) Preparing For The CFPB Audit

Ever wonder why open book tests seem to be the most difficult? Perhaps because there is such a large volume of information but only a few isolated concepts are tested. Although the CFPB has published an examination manual, one would be wise to focus on the “concepts” or those areas of particular concern to the CFPB. For example, consumer protection – not profitability – is a particular concern for the CFPB. If organizational decisions or operations can be viewed as sacrificing consumer protection for profitability, an audit examiner will take notice.

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Generally, CFPB investigations begin with a Civil Investigative Demand (“CID”) addressed to an organization requesting various documentary material, tangible things, written reports, answers to questions, or oral testimony. See CFPB Rules Relating to Investigation, 12 CFR 1080.1, et. seq. (“Rules”). The following checklist is not exhaustive, but can help prepare you for the road ahead.

2.) Take a Deep Breath. You Can Do This.

>>Know that some organizations have done well on CFPB audits. So can your organization with adequate planning and implementation.

>>Assemble a Compliance Team.





In short, organizational and loan compliance begins with the loan application. Time wisely spent on your organization’s policies and loan document systems pays large dividends.

Proactively creating best practices within your organization, supported by knowledgeable professionals, are paramount in mitigating lender risk of non-compliance or adverse findings.

>>Begin to set aside the time, human capital, and financial resources to adequately prepare for an audit. Set aside amounts vary by organization, but are well worth the investment.

>>Internally, identify critical compliance management, operations, and IT personnel. Appoint a project manager (presumably, the Chief Compliance Officer) who will have direct responsibility for the audit process.

>>Externally, identify third party audit companies and attorneys who will provide compliance audits and/or legal advice relating to CFPB requests for documents and overall legal defense. Discuss with an attorney the need for legal representation before, during, and after the audit. Know that examinees also have rights that should be protected and deliverables that can be negotiated with the CFPB.

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>>Ensure that your compliance team does not report to the business unit. This will allow the compliance team to perform independently and avoid any appearance or accusation of undue influence.

>>Stress test and train. Identify strengths and weaknesses. Focus on –and commit to writing—a plan to address and mitigate weaknesses.

>>Prepare critical employees for side-by-side sessions with a CFPB examiner. Use a neutral third party to conduct the training.

3.) Devise a Process to Isolate and Transmit Reliable Data.

>>Work with internal IT to identify Electronically stored information or “ESI” (defined in the Rules as any information stored in any electronic medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form).

>>Understand what data can be converted, stored, and/or transmitted. Address technical issues and move toward the capability to be able to deliver ESI within 30 days of a request.

>>Use sample transmissions to ensure the data will reach and be usable by the end user.

4.) Review and Test Policy and Procedures.

>>Be prepared to provide written policy and procedures for every process in the organization.

>>Evaluate internal controls to ensure that daily operations are in sync with written policy and procedures. If not, revise policy and procedure to coincide with business operations.

5.) Capture and Resolve Consumer Complaints.

>>Develop a method for obtaining and reviewing consumer complaints.

>>Document the handling and resolution of all consumer complaints.

>>Ensure that organizational documentation reflects that consumer complaints are handled timely and efficiently. If not, make necessary changes to correct the problem.

Inconsistency and the lack of organizational cohesion are easy targets for an examiner. With the proper plan and demonstrated action, any organization can avoid these pitfalls.

Penalties For Non-Compliance or Adverse Findings

The CFPB has authority to assess a range of penalties for noncompliance with Federal consumer financial laws. Although they exclude the imposition of punitive and exemplary damages, the remedies available to the CFPB are significant. See Dodd-Frank § 1055, codified in 12

USC § 5565.

1.) Administrative proceedings or court actions. A court (or the CFPB) can bring an action or proceeding to address the violation of any consumer law. Any of the following legal or equitable relief may be imposed, without limitation:

>>rescission or reformation of contracts;

>>refund of moneys or return of real property;


>>disgorgement or compensation for unjust enrichment;

>>payment of damages or other monetary relief;

>>public notification regarding the violation, including the costs of notification;

>>limits on the activities or functions of the person; and

>>civil money penalties.

2.) Recovery of costs. The CFPB, State attorney general, or any State regulator is entitled to reimbursement of its costs after winning an action to enforce any Federal consumer financial law.

3.) Civil Penalties. Monetary penalties issued by the CFPB are assessed according to the following tiers and are adjusted periodically for inflation. See 12 CFR § 1083.1.

>>Tier 1=$5,526 for each day a violation continues or remains unpaid. This applies to any violation of a law, rule, or final order or condition imposed in writing by the Bureau.

>>Tier 2= $27,631 for each day for a person who recklessly violates a Federal consumer financial law.

>>Tier 3= Up to $1,106,241 for each day for any person that knowingly violates a Federal consumer financial law.

4.) Notice and hearing. No civil penalty may be assessed under this subsection with respect to a violation of any Federal consumer financial law, unless i) the CFPB gives notice and an opportunity for a hearing to the person accused of the violation; or ii) the appropriate court has ordered such assessment and entered judgment in favor of the Bureau.

Civil fines obtained from administrative or judicial actions are collected and held in a civil penalty fund that will either distribute payment to victims or fund consumer education and financial literacy programs.

Mitigating Lender Risk Requires Proactive Efforts

In the broadest sense, mortgage compliance takes two forms: organizational compliance and document compliance. The former generally references those policies and procedures implemented by your organization and governing loan officer compensation, scheduled time delays by which your organization issues disclosures and related material upon receipt of a loan application, and loan products marketed to differing locales, to name a few. Document compliance generally refers to inclusion of particular fonts and/or point types as may be required in the loan documents by the particular jurisdiction, inclusion of certain required language defining the borrower’s rights in the loan documents, or other legal mandates governing APR, points and fees, and the like.

While a CFPB examination is intended to address both areas of compliance, loan level data review comes from the compilation and analysis of those hundreds of data points assembled while building the document and/or disclosure package. Make sure the calculations, content, real time updates based upon changes to the law, and internal loan tests (to name a few) are appropriately represented and warranted by the document provider or the law firm preparing the documents.

In short, organizational and loan compliance begins with the loan application. Time wisely spent on your organization’s policies and loan document systems pays large dividends in preparation for the regulator’s arrival.


While news of an impending audit can instantly increase one’s anxiety level, it is important to remember the three main principles that guide the audit process: 1) “we will focus on an institution’s ability to detect, prevent, and correct practices that present a significant risk of violating the law and causing consumer harm;” 2) “the supervision function [of the CFPB] rests firmly on analysis of available data about the activities of entities it supervises, the markets in which they operate, and risks to consumers posed by activities in these markets;” and 3) “In order to fulfill its statutory mandate to consistently enforce Federal consumer financial law, the CFPB will apply consistent standards in its supervision of [depository and non-depository] entities, [using] the same procedures to examine all supervised entities that offer the same types of consumer financial products or services, or conduct similar activities.”

The first word of the Consumer Financial Protection Bureau is Consumer, which is that organization’s first priority. Proactively creating best practices within your organization, supported by knowledgeable professionals, are paramount in mitigating lender risk of non-compliance or adverse findings. At the same time, you are demonstrating a commitment to protect the consumer (and your borrower), which is the resounding principle of Dodd-Frank.

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Consumer Evaluations Could Help Servicers

Recently the CFPB issued a proposed directive to servicers requiring the development of a rating system that would indicate to consumers how efficiently and effectively the servicer addresses complaints. They had suggested a five-star rating system which could be published and available to anyone interested. The response from servicers was quick and extremely negative. This idea to them was an anathema. However, before the issue came to a head, the current administration declared that any new regulations were to be withdrawn.

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However, one must wonder why mortgage servicers were so vehemently opposed to this idea. Was it because they have failed to address complaints appropriately in the past? Did they believe that this requirement would force them to expose negligent or unsatisfactory actions? Were they concerned that by allowing this information to be given out they would somehow diminish the value of their organization? Or is it because they still don’t recognize borrowers as their customer, believing instead that their sole purpose is to serve investors rather than consumers?

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The idea of a consumer rating system is not new. J.D. Powers is well known for its rating programs and awards given to companies who score well on these programs. The fact that a company has received such as award is frequently a central part of their marketing campaigns.   Quicken Loans continuously brags about the number and frequency of their J.D. Powers awards as does Delta Airlines and winners from other industries. What is so abhorrent about such a system for servicers?

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One reason has been the lack of a standardized approach to evaluating responses to consumer complaints and/or inquiries. Unfortunately, developing a taxonomy that would grade responses cannot be developed until there is some standard acceptance of what should happen and in what time frame. After all, the Chinese say “Any road will take you there if you don’t know where you are going.” Right now, there appears to a consistent lack of understanding and/or agreement of what constitutes ‘doing it right”.   Once that is determined, levels of performance can be developed. For example, if it is agreed that satisfactory performance is responding to the consumer within the required timeframe with an answer to a question posed or information provided, then actions that are better and worse can be described and a positive or negative assigned.

Another statement that keeps popping up is the fact that consumers are not going to like what the servicer did or the answer to their question. Since this is bound to happen, the servicer will appear to provide unsatisfactory service when in fact they were just complying to the required servicing standards. Of course, every company expects this to happen. Delta hasn’t flown every airplane on time and without incident and there are ways to deal with one off issues when analyzing the results.

Recognizing that the benefits far outweigh the negatives must happen before any of this can get started. Having data on which consumer activities are beneficial and positive would allow servicers to determine how to duplicate this same approach on those that appear to be a problem. Living in a world where management is blind to the positives and negatives of their organization is ridiculous when an industry devised and properly managed consumer evaluation program can win loyal customers and maybe even impress investors as well as regulators.

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Brace Yourself


In his early days in office President Trump has shown that he is ready to shake up the mortgage industry. He has said that he plans to re-evaluate Dodd-Frank and he also suspended a reduction in the premium rate offered by the Federal Housing Administration to homebuyers. The reduction, relatively small, would have saved homebuyers about $500 a year. So, what do these early moves mean for this industry?

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William Fall, CEO at The William Fall Group, says, “The higher rates that we are starting to see would have happened regardless of the election outcome. I believe the MBA’s outlook in October remains fairly accurate. The fundamentals of the housing market are strong, and while there will be much less refi business going forward, I think we’ll see a very healthy growth in purchase volume. Of course, this shift in the market will impact the appraisal industry. Appraiser capacity in some markets is very high, and I expect regulatory activities will affect AMCs over the coming year. Perhaps it goes without saying that some valuation companies will be better equipped than others to manage these challenges.”

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Curtis R. Knuth, Executive Vice President at NCS (National Credit-reporting System, Inc.), believes that “the new administration will focus on a few obvious things, such as the privatization of the GSEs and what the runway for that will look like. Many solution providers and lenders were aware of the pilot programs Fannie Mae was running prior to the launch of Day 1 Certainty, which provides relief from reps and warrants, among other benefits. Although I don’t think anyone expected the program rollout to progress with a single vendor for each solution of the program. It was conducted as if Fannie were a private rather than a public entity, which is normally very careful not to pick winners or losers. It’s something we’re drawing congressional and administration attention to.”

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Jeff Bradford, President at Bradford Technologies, sees big changes to come. “I believe the Trump Presidency will have a Big Time effect on the financial industry,” he notes. “The first casualty will be the CFPB. In October the United States Court of Appeals for the District of Columbia Circuit handed a major victory to PHH, declaring that the CFPB’s leadership structure is unconstitutional and the director of the CFPB has too much power. The ruling means that a Trump Presidency will surely clip the agency’s wings. It will be interesting to see how much power the CFPB will be left with to enforce compliance and levy fines. It may not even survive.

“The second casualty is Dodd-Frank, the law that of course created the CFPB,” Bradford continued. “Trump’s transition team has recently indicated that it would like to see a full repeal of the law. Does this mean that we will go back to the Wild West that created the Great Recession, or just a milder form of it? The third major change could be GSE reform. The key will be if moderate Republicans and Democrats collaborate to create an economic shock absorber that dampens the effect of the changes the Trump administration will attempt to make.”

“The Trump presidency will have a significant effect on housing,” added Jeff Doyle, Chief Executive Officer at LoyaltyExpress. “We are already witnessing higher interest rates due to anticipated major federal infrastructure spending and stronger economic growth. A bigger economic impact, however, will come from the reversal of banking regulations. As lenders are encouraged to loosen standards (especially for middle-income households), an upswing in residential construction and debt-financed spending will serve to boost economic growth.

“More relaxed CFPB and other major Dodd-Frank regulations will lead to greater lending competition as well as a streamlined mortgage origination process. The downside of deregulation is riskier lending programs and more defaults. Caution must be the central theme so that deregulation does not lead to a recurrence of the 2007 financial crisis. But overall, growth and inflation will both increase,” Doyle pointed out.

But will Trump be a net positive or a net negative for mortgage lending going forward? “There are two different ways the Trump election victory will affect the mortgage market,” answered Josh Friend, CEO at InSellerate. “One is bad, and one is good. On the negative side, we can expect to see higher interest rates, which we’ve already seen happen since the election. Mortgage rates are up more than 50 basis points due to a massive sell-off of U.S. Treasury securities. The fear is that President Trump will be spending a lot of money to cut taxes, create jobs and rebuild our infrastructure. Those are good things, but they will cause inflation, and interest rates will rise as a result, as they already have.

“The second impact from the Trump Presidency will be a positive one for the mortgage industry and a win for both borrowers and lenders, and that is reduced regulatory requirements. Complying with all of the new regulations that have become law over the past several years has increased the time and cost of producing loans for both borrowers and lenders. Trump made a lot of promises during the campaign to reduce regulations and he seems to be moving forward on them during the transition. His appointment of Steven Mnuchin as Secretary of the Treasury, who has a mortgage banking background, should also benefit our industry.”

Rick Sharga, Chief Marketing Officer at Ten-X, theorized that “the Trump Administration will, on balance, be good for the housing and mortgage industries for several reasons. I believe that the new administration will work towards a less burdensome regulatory environment, and more specifically will unwind some of the more problematic and punitive aspects of the Dodd-Frank legislation, which has made lending riskier, more difficult and more expensive. This should encourage more retail lenders to get back into the game, and hopefully bring back some of the smaller, community banks as well, which opted out of the mortgage market due to the overwhelming costs of regulatory compliance. More lenders making more loans to qualified borrowers – people who would have qualified for loans historically but haven’t been able to do so in today’s extraordinarily risk-averse environment – removes one of the major headwinds that has been preventing a full housing market recovery.”

Sam Heskel, CEO at Nadlan Valuation, agrees that Prsident Trump could be good for mortgage lending. He says, “Trump will not do things that make it more difficult for the industry to sell homes and close loans. At the very least, we can expect some rollback or easing of regulations that have added to longer appraisal turn times. In the near term higher rates and the typical slowdown in the winter months will ease appraisers’ workload and appraisal turn times will improve.”

So, what does this all mean? Many are cautiously optimistic even if they hate President Trump. “Regardless of your political bent, let’s first remember that Trump is a real estate magnate – and thus I’d like to believe he is well aware of the dynamics of the real estate market and would be disinclined to step on the hose, so to speak,” said Sue Woodard, President and CEO atVantage Production. “Fears over removing the mortgage interest rate deduction or “MID” are unfounded – he is considering a cap (and by the way, there is a cap already) – but even if the cap was $100K as Mnuchin suggested, it would take an enormous mortgage to generate $100K in mortgage interest.

“Simplification of the tax code could impact the ability of some buyers to deduct mortgage interest at all, but I believe most folks would remain in favor of simplification. I further suspect the CFPB is here to stay, but with the current structure placing direct oversight of the agency under the President – including a right to fire the director. I expect this might mean a more business/industry friendly agency, while still protecting the consumer. Opportunity abounds, as it always does in times of change – and it’s incumbent upon lenders to use technology to consistently and professionally communicate this message so that consumers don’t miss the opportunity to build and advance their financial futures,” concluded Woodard.

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The Fight Of The Century

In 1975 the “fight of the century” took place in Manila. Known as the “Thrilla in Manila”, Joe Frazier and Muhammad Ali took to the boxing ring to determine once and for all who was the heavyweight champion of the world. As any sports fan knows, Ali won that fight by a TKO decision at the start of the15th round. The fight earned its reputation because of the two men involved. They were both well-trained and totally focused on being champion. Everyone who watched that fight, from then until now, is impressed with the grace and dignity these individuals displayed during each round. Both, many said, were champions regardless of the outcome.

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The mortgage industry is now preparing for the next “fight of the century” as two more well-known individuals face off. No, it is not Deontay Wilder or Tyson Fury. Instead this fight will be between Trump and CFPB Director Richard Cordray. We all knew it was coming if there was a republican victory at the polls last fall, but when it will begin is still open to discussion. One thing is certain however, it will not be a graceful or dignified fight but a dirty, drag down, litigious drama with no clear winner and the only losers will be the mortgage industry and consumers.

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The impetus for this fight began several years ago, as the CFPB was created to stop the abuses of lending companies that lead to the Great Recession. The group was charged with creating new regulations for controlling financial organizations as well as monitoring consumer feedback on these company’s actions as viewed by the consumer. Because of its structure the CPFB had no interest or incentive in listening to or acting on the requests or efforts made by lenders to compromise on the details of these new requirements to make them more amenable or less costly. The examinations conducted by the CFPB resulted in tremendous penalties and fines that appeared to be exorbitant for the violations identified. This abuse of power came to a head with the litigation by PHH against the CFPB. In that case the court ruled not only that the CFPB was incorrect in its determination of the problem, but stated that the actual structure, which required no accountability to either legislative or administrative branch of the government, was basically unconstitutional. The call for significant changes in the organization and the new republican victory created an expectation that the Director would be fired immediately after the inauguration. Director Cordray however gave notice that he will not leave until his term is up next July and if necessary will use the courts to ensure his position. And so, the fight began.

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However, this fight is not between two equally strong opponents seeking to show through their training and skills that they deserve to be called champion. This fight is between two egotistical politicians whose interest is focused only in being the destroyer of the other. Although the republicans and their supporters hope that their fighter, Trump, will win, Director Cordray promises to not let that happen. Meanwhile the Trump administration has shown no sign of, or any eagerness to, get into the action. This fight of the century promises to be longer, nastier and much more contentious than the “Thrilla in Manila”. So, hold on to your seats. This is sure to be very entertaining even if it ends up as a draw.

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Automating The Compliant Delivery Of Hard Copy Appraisals To Borrowers

Global DMS, a provider of web-based compliant valuation management software, has launched Global Delivery, an alternative to the traditional way appraisal documents are prepared, packaged and compliantly provided to borrowers by way of printed appraisals sent via U.S. mail.  The result is near removal of human involved tasks, operational disruption, a reduction of costs and a more efficient process for mailing appraisals.

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“What Global Delivery accomplishes is applying the greatest level of automation possible to alleviate an elderly task of yesteryear,” asserted Vladimir Bien-Aime, president and CEO of Global DMS.   “There is still consumer demand in residential mortgage valuations to receive the fully packaged appraisal via the U.S. Postal Service, and of course, to receive it in full CFPB compliance.  Global Delivery is a perfect blend of technology and service that automates the manual and cumbersome process of printing, folding and mailing appraisals to borrowers.”

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The CFPB issued its Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations under the Equal Credit Opportunity Act (Regulation B) rule, sometimes called the ECOA Valuations Rule. The copies of valuations may be delivered to the borrower either on paper or electronically.  Many solutions handle electronic delivery of appraisals; however, unlike Global Delivery, they have not sufficiently addressed the hard-copy delivery of appraisals or other valuations to the borrower via mail.

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Global DMS says that having staff spend time on non-revenue producing activities like packaging and mailing documents is expensive and can be extremely disruptive.  As an example, a staff member can easily spend over 22 hours a month just managing a meager 250 plus files per month, equating to about 14 percent of their time manually addressing the ECOA Regulation B requirement.  The greater the loan volume the worse the problem becomes.

Global Delivery can process appraisal documents and merge a pre-programmed, lender-branded cover letter that then delivers the hard copy to the borrower’s doorstep.  Global Delivery automatically ships appraisals to lenders’ borrowers with one simple click. There is zero printing, folding and stamps involved for the lender.

Using Global DMS’ eTrac Enterprise platform, users simply click and are done. The mailing automatically goes out the next business day, with mailing verification permanently logged in eTrac.  This ensures compliance with ECOA and provides the detailed logs in the event of an audit.

Compliance Can Be Easy


We’ve entered a new paradigm in mortgage lending. Unlike the historical risks to lending like rate fluctuation or other market changes, lenders today know the greatest risk to their business is compliance. Those market-based storms of yester-year were weathered by the most prepared lenders in the space. Now, the compliance-based storms of today bring new risks, which must be properly prepared for in order to stay successful. Fortunately, this seemingly uphill battle is not yours to fight alone. The fast approaching Home Mortgage Disclosure Act (HMDA) Regulation C changes to the Loan Application Report (LAR) bring with it over 30 new data points to collect and report on, and staying compliant can seem hard, but it doesn’t have to be. With proper preparation and technology, even the most complex regulations can become more approachable – almost, dare we say, easy.

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The journey to ‘easy street’ isn’t a simple one. Especially with the new HMDA rule, the time to prepare is now. By taking the appropriate steps today, you will ensure you are ready to collect these new data points well in advance of 2018. This journey isn’t yours to make alone – it involves preparedness from you, your teams, and your technology providers. Here’s how you can make the leap to compliance-made-easy.

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Create Your Own Destiny. While you are hopefully partnering with providers that support and enable your ability to comply with new regulations, at the end of the day, the responsibility falls on your shoulders. If there’s anything to take away from the recent TILA-RESPA Integrated Disclosure Rule (TRID) experience, it’s that having a well-documented way to track your plan to address new regulations, including the expected outcomes, will help ensure everyone is on the same page. To be successful, this step is not optional. Once you have documentation in place, you can begin to design the processes.

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The lowest hanging fruit to tackle is often systematic configuration. As it relates to HMDA, you may be collecting many of the new data points already, but collecting and submitting could still present many challenges. Make sure your system will be able to validate the HMDA LAR data elements prior to LAR submission to ensure completeness. If there are incomplete data elements, the system should message the user regarding the potential need for additional data. This may be done on platform or through an integration with a third party partner that specializes in HMDA data. As was the case with TRID, your loan origination platform partner should be forward-thinking regarding HMDA functionality and integrations. Communicate with them regularly to make sure your needs are aligned with their planned efforts. Additionally, if system logic and/or configuration around HMDA data isn’t in the plans for you or your technology partner, you will, at a minimum, need to document the workflow steps and procedures that your operational staff will perform to comply with the regulation. Not every piece of HMDA can be automated, so completeness and versioning of your compliance policies and procedures is critical. Take control of your own destiny and map out your plan. Everyone will sleep better when you do.

Get to the Data. Heading into these HMDA changes, you will need access to data on various levels – either from the system of record in the form of extracts, or from the database to allow reporting tools to take the information and provide the LAR report on your behalf. There are many approaches to this, and depending on your environment and situation, this might be a bit challenging – especially if you have a home equity-specific system and a separate mortgage production system. At some point, the required HMDA information needs to be available and transparent from all of your lending channels and business lines.

Fortunately, there will be solutions ready for these changes. If you aren’t confident in your ability – or your technology partner’s ability – to support the HMDA changes, now is the time to begin looking for alternatives. With the right technology, the additional data collection can be validated and checked by the appropriate system requirements, and in some cases, automated. In other words, if the data collected is incomplete, based on your policies, procedures, and system configuration, the system can stop a user from progressing the application until the data is complete. While this certainly presents new challenges and training needs for loan officers, ultimately, it ensures compliance with HMDA.

In addition, take time to establish a robust Fair Lending Program that requires quarterly and annual reviews of your HMDA data for accuracy and completeness. At least a few times a year, review LAR outliers. Also, consider having an independent third party conduct such reviews. How much of the Fair Lending review is conducted internally and how much is outsourced is certainly up to you. At the end of the day, establishing and maintaining compliance with HMDA is all about the data. Data is fickle and influenced by a number of factors, so the more checks in place, the less time and money you will have to spend retroactively analyzing, and even correcting, the data.

Questions to Ask Your Technology Partners. While HMDA feels far off, it’s not. Although we’ve talked about your internal plan of action and how to get to the data, the technological side of things is not to be overlooked. Now is the time to begin communicating with your partners. Questions to ask include:

>>What is your interpretation of the HMDA rule?

>>How do you plan to support us?

>>Do you have educational sessions planned that we will be able to participate in?

>>Will you solicit our input as you work through the system changes?

By now, your partners should have a prescribed plan, including how it will affect your business. Your provider should be digesting, documenting, and designing their proposed changes to enable your compliance with the new HMDA requirements. In our new lending world, leveraging technology is essential, and although new regulations often feel like obstacles, after just a few months, your teams will find the new data points second nature.

With the need to collect the additional HMDA data points about a year away (likely beginning in Q3 or Q4 2017 for loans with an action taken date potentially in in 2018), the clock is ticking for documenting action plans. Everyone, by now, should have a start on taking the appropriate steps to prepare for the new HMDA rule. In my experience, while this might seem logical, it’s often hard to fit in the day-to-day business of residential lending operations in our country. If the task seems daunting, seek help. Consult with your partners and peers to identify gaps in your plan. Through teamwork, proper planning, and great technology the HMDA changes might just seem like a walk in the park come 2018.

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