Mortgage Software Solutions Blog

Mastering Regulatory Examination Preparation for Mortgage Businesses

Regulatory-Examination-Preparation.jpgWhen faced with a regulatory examination, many mortgage businesses simply freeze up and ignore what’s coming, often because they’re not sure what to do. But a regulatory compliance audit is not the time to bury your head in the sand. Rather, it’s an opportunity to demonstrate your mortgage business’s commitment to its customers and to regulatory compliance as a whole.

Let's start with a few basics about CFPB regulatory examination preparation for mortgage businesses and what you need to do get ready.

Non-Depository Institution Examinations

The Consumer Financial Protection Bureau (CFPB) identifies non-depository institutions for examination based on asset size, consumer financial transaction volume, and rigorousness of state oversight and state regulators.

Depository Institution Examinations

The CFPB identifies large institutions for examination based on its assessment of consumer risk and consistency with statutory guidelines on coordination of examinations.

What Does a CFPB Examination Look for?

The CFPB searches for evidence of unfair, deceptive, or abusive acts or practices, discrimination, and other legal violations.

  • Examiners review compliance procedures and policies that keep an organization in line with statutory and regulatory policies.
  • Examiners decide whether to take formal enforcement actions or informal corrective actions.
  • Examiners issue a draft compliance report that they share with the organization under review.
  • CFPB encourages self-correction, but more egregious violations will require formal enforcement action.

What is a Targeted Review?

There are times when the CFPB becomes aware of violations through citizens’ complaints of certain problems at a single organization. In this instance, the CFPB will conduct a review of that single organization, focusing on the problems that gave rise to the consumer complaints.

What is a Horizontal Review?

Horizontal reviews examine multiple organizations within the industry to investigate certain practices or even products that violate consumer protections and to decide whether formal enforcement is appropriate.

What Does CFPB Enforcement Mean?

The CFPB may enforce legal actions or civil actions in a Federal district court. The CFPB may seek equitable relief, such as:

  • Rescission/reformation of contracts
  • Refund of money or real property
  • Restitution, disgorgement, or unjust enrichment relief
  • Monetary damages
  • Public Notices issued about violations
  • Limitations on activities and job functions against the person to whom the CFPB brings an action
  • Civil penalties earmarked for victim compensation or education

The CFPB cannot bring criminal enforcement charges. If the CFPB finds evidence of criminal activity, or evidence of discrimination, the law requires that the agency turn over the evidence to the Department of Justice. If the agency finds evidence of tax law violations, the law requires it turn over such information to the IRS. Examples of criminal activity include false data, conducting business with a foreign country with active US sanctions, bank deposits in such sanctioned countries, and false information on applications.

What Can I do to Prepare for a CFPB Audit?

As intimidating as the examination process may sound, there are things you can do to make the process go smoothly.

    • Prepare yourself. The CFPB will send a letter outlining what they intend to review. The CFPB website is full of information on enforcement, recent enforcement actions, and examination guidelines and objectives.

    • Consider pre-examination in-house mock reviews. These practice sessions can help prepare the team's response to audit questions as well as help identify and focus on issues that the legal team should review.

    • Appoint a single person responsible for contact with CFPB examiners. This is the "go-to" person for all examination contact, including setting up meetings, advising stakeholders/legal department of the focus of the audit, gathering the materials for review, and setting up the protocols for handling the examination itself.

    • Give the examiners room (preferably a conference room) with the equipment and tools they need to do their job. Place them close to the legal department or compliance people. Present the documents the audit letter said they require in labeled file folders, all neat and tidy on the conference table. You will appear organized, and they won't go on a fishing expedition for documents.

    • Start engaged, stay engaged. Make a good first impression. Provide background information for examiners on your business model and your enforcement policies. Invite the right people to the meetings.

    • Impress examiners with your information organization skills. Set up websites that contain the examination information you received from the CFPB.

    • Consult with the legal department before self-identifying compliance issues.

    • Don't underestimate the amount of time required to spend with the auditors. It behooves an organization to open the primary contact person's schedule so he or she is free to answer all questions from the examiners. Some examiners are less experienced with your industry. The audit is a great teaching moment for you to leave less experienced examiners with a positive impression of your organization and a great understanding of your industry.

    • Non-bank lender audits differ from depository institution audits. If you service loans, they will review your service processes. If you have affiliates, the CFPB will look at those, too. Remember that the CFPB will do its homework on your company from the past several years (including reviews of any state audits), so you should adequately prepare to answer their questions.

While the process may cause stress, remember that the auditors are not on an expedition against your organization. Throughout the examination, stay hospitable. Examiners often travel to your business from out of town. Let them know where they can find places to eat or to take a nice walk after lunch.

Access Business Technologies is a certified SSAE 16 Type II cloud solution provider (CSP) to over 500 mortgage financial institutions (banks, credit unions, and mortgage companies). Our suite of mortgage-specific cloud solutions enables your organization to move through the audit process with ease. To talk more about CFPB regulations or other mortgage compliance issues, please contact us. We look forward to helping you grow your mortgage business.

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Topics: mortgage regulations examination preparation

Understanding TRID and What it Means for the Mortgage Industry

TRID-and-the-mortgage-industry.jpgYou may know a bit about TRID and what it means for the mortgage industry, but how much do you really know? We've found a few things that everyone should know about it. Let's start with a few basics for better understanding TRID.

What is TRID?

TRID is an acronym for the TILA-RESPA Integrated Disclosure rule. TRID became law as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Sections 1098 and 1100A of Dodd-Frank required the appropriate rulemaking agency to publish revised forms and rules that require the mortgage industry to combine the disclosure information that consumers receive when they apply for and close on a mortgage under the Truth in Lending Act (TILA) with the settlement disclosures under the Real Estate Settlement Procedures Act (RESPA).

What Agency Writes the Rules for TRID?

The Consumer Financial Protection Bureau (known more familiarly as the CFPB) has rulemaking authority over TRID. On November 20, 2013, CFPB released 1,900 pages that comprised the final rule on TRID. The rule was effective for mortgage applications received on and after August 15, 2015.

There's another proposed rule due out in April 2017 that will clarify a few issues. When the CFPB's comment period on the new proposed rule closed in October 2016, they had received 1500 comments.

What Are the New Forms?

The final rule mandates two disclosure forms:

  • The Loan Estimate, which blends the RESPA Good Faith Estimate with TILA provisions
  • The Closing Disclosure, which integrates the TIL and the HUD settlement statement.

The Loan Estimate provides a summary of estimated loan terms, loan and closing costs, and disclosures. As its name implies, the Closing Disclosure provides a summary of the actual loan terms, loan and closing costs, and other disclosures.

Compliance with the TRID rules and CFPB regulations is a major challenge for the mortgage industry. The final rule applies to most closed-end mortgages but does not apply to mobile home mortgages, home equity lines of credit, reverse mortgages, or to creditors who close five or fewer loans in a year. That last is the final rule's only exception for small creditors.  

The final rule also made significant changes to RESPA and TILA, which are outside the scope of this post.

TRID's Biggest Changes

The biggest change for consumers is that, under the new rules, they will receive closing information at least 3 days before their settlement date. That change gives them more time to review and understand the financial disclosures before they go to settlement. If they do not understand something on the disclosure forms, they will have ample opportunity to ask questions before the big event.

The biggest change for the mortgage industry is that the lender now is responsible to prepare the consumer's settlement forms. In the past, the title company completed the HUD forms and gave them to the lender for review, but the responsibility for the disclosure forms was always with the title company. This change disrupts mortgage companies’ internal processes as loan officers struggle to absorb this responsibility into their procedures. The change in rules will require new deadlines for the new forms.

CFPB anticipates that new rules will make settlements run more smoothly and that fewer errors will occur.

Other Changes to the Mortgage Process

The new disclosure forms are not the only changes to the mortgage process. The final rule changes the application definition, tightens the ability to increase costs throughout the mortgage process, and adds the three-day waiting period that runs from the date the consumer receives the disclosure information up until the settlement date. If the lender modifies the disclosure information, then another three-day waiting period applies before the consumer can go to settlement.

As you can imagine, these disruptions and system modifications are expensive, and the consumer will ultimately bear the brunt of these costs.

A Final Word About Fannie Mae and Freddie Mac and HUD

It is unclear how these government entities will address TRID. If they take a conservative approach to their quality procedures, and repurchase and claims procedures, the disruption may cause a sizeable market upheaval.

At Access Business Technologies, we provide mortgage businesses with the tools they need for comprehensive document management, security compliance, and proper regulatory alignment. To learn more about our suite of cloud services, please contact us.


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Topics: mortgage regulations TRID

The History of the CFPB and Its Future Post-Election

History-of-the-CFPB.jpgThe Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) authorized the consumer protection bureau known familiarly as the CFPB. The CFPB was born as a result of the financial abuses that led to the Great Recession of 2007-2008. There are early signs that the consumer protection agency is on the congressional radar for some tinkering, if not outright repeal, so this seems a good time to review the history of the CFPB and what the future holds.

What Is the CFPB and How Was it Born?

The CFPB is the acronym for the Consumer Financial Protection Bureau. The Dodd-Frank law authorized the bureau as an independent agency. However, in 2016 the federal appeals court in PHH Corp. v. Consumer Financial Protection Bureau, 15-1177, U.S. Court of Appeals, District of Columbia Circuit (Washington) determined that the law had unconstitutionally limited the President's power to remove the director, so it is now an executive-level agency.

What is the CFPB's Jurisdiction?

The CFPB has broad jurisdiction over banks, credit unions, securities firms, payday lenders, mortgage services, foreclosure relief, debt collectors, and other US financial companies. Director Cordray lists the agency's priorities as mortgages, credit cards, and student loans.

CFPB writes and enforces regulations for banks and other financial institutions, examines banks and other institutions, reports on markets, and collects and tracks consumer complaints. CFPB also works with state regulators to enforce consumer protection rules.

CFPB Accomplishments

Here are a few of the CFPB’s most prominent accomplishments:

  • In 2013, CFPB set new standards for mortgages that include verifying income, verifying ability to pay back the loan, and preventing exotic loans (such as the low teaser interest rates that bloomed as one of the abuses of the financial crisis when they reset to high rates).
  • In 2015, CFPB changed the disclosures borrowers receive to make it easier to compare mortgage terms. Critics, however, charge that the new mortgage rules accept more risk than many would like to see.

Perhaps the CFPB's most visible accomplishments have come in the enforcement area.

  • The agency's website says that it has levied $11.7 billion in penalties and forgiven debts that it scored for 27 million consumers.
  • The CFPB took on big lenders like Citibank and Bank of America for misleading consumers. CFPB forced Citibank to pay back customers $700 million in misleading add-ons and $720 million from Bank of America.
  • In September of 2016, CFPB levied fines against Wells Fargo to the amount of $100 million for the unauthorized (and illegal) opening of credit accounts, as a result of bank incentives to its employees.

Battles Still Waiting

CFPB scored high-profile victories in the mortgage arena, but there are battles on the to-do list that have not yet been waged.

  • There have been no changes yet in the abusive practices by payday lenders.
  • CFPB has also targeted arbitration clauses that make it hard for consumers to join class action suits.
  • Another area in which the agency wants to take action is limiting bank late fees, which reportedly took $32 billion from consumers in 2015.

A Glimpse Into the Future of the CFPB

Ever since its inception, there have been members of Congress who have wanted to kill the CFPB. Observers split on the outlook for the future of the agency:

  • The worst case scenario: CFPB faces a 50-50 chance of surviving (or of being destroyed).
  • The best case scenario: The agency faces a revamp.

The good news is that the CFPB probably isn't high on the list of changes the new administration wants to work on immediately. So it may take a while before Congress sets its sights on the CFPB, and when it does, it will most likely target the structure of the organization.

Still, consumers are at risk of losing some protections. Issues that Congress could meddle with include ending financial institutions reporting quarterly to CFPB, easing payday lender restrictions, easing truth-in-lending disclosure, or less oversight on pre-paid debit cards.

One thing Congress will have to consider is that the agency has a track record of helping and protecting consumers, which will make it hard politically to dismantle altogether. The high-profile Wells Fargo case was good press for the CFPB and played well with consumers.

To learn more about the Wells Fargo case, read the article entitled "Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unauthorized Accounts".

To talk more about the CFPB or how your mortgage business can more easily maintain compliance with CFPB regulations, please contact us. MortgageWorkSpace® and our suite of cloud hosted services can help protect and grow your business.

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Topics: CFPB mortgage regulations