A report from the Consumer Financial Protection Bureau identified several areas where mortgage firms are violating rules, regulations and laws.
Although loan originators are not allowed to be compensated based on loan terms, the CFPB said it found that some branch managers who were also loan originators have received such compensation.
According to the report, the branch managers owned separate marketing services entities that were paid based on the profitability of retail loans originated by the branch managers.
“Consequently, branch managers, as owners of the marketing services entities, received compensation based on the terms of transactions originated by the branch managers themselves,” the report stated. “Supervision directed that compensation to loan originators based on a term of a transaction, including branch managers, cease.”
The observations, outlined in the CFPB’s Supervisory Highlights
Winter 2015, were based on CFPB examinations conducted from July through December
of last year.
The regulator said that it has required mortgage firms to refund fees
because they had reduced a lender credit on the HUD-1 from what was disclosed on the Good Faith Estimate.
Although the credit reduction was made to eliminate cash back to a borrower on a no-cost refinance, it also wrongly increased the final adjusted origination charge in violation of the Real Estate Settlement Procedures Act’s Regulation X because there was no “changed circumstances.”
The CFPB noted that its examinations uncovered policies and procedures that did not properly identify when an application had been received. As a result, the calculation of the three business day deadline for providing GFEs and required Truth in Lending Act disclosures was wrong, and the disclosures were delivered late.
Under TILA’s Regulation Z, disclosures are required when advertisements use certain trigger terms.
But examiners found that social media ads weren’t subject to monitoring or compliance audits — leaving many loan originator ads on social media in violation of Reg Z.
The regulator said it found that some mortgage lenders have been violating the Equal Credit Opportunity Act because they discriminated against prospective borrowers who relied on public assistance.
“The ECOA forbids a creditor from discriminating against any applicant ‘because all or part of the applicant’s income derives from any public assistance program,” the report said. “Furthermore, Regulation B states that a creditor ‘shall not … exclude from consideration the income of an applicant … because of a prohibited basis or because the income is derived from part-time employment or is an annuity, pension, or other retirement benefit.”
Some lenders’ marketing materials included written statements about the prohibition of protected forms of income. These materials might have discouraged applicants who received such income from applying for credit.
“A blanket practice of denying any applicant who relies on public assistance income, or a specific form of public assistance income, without an assessment of an applicant’s particular situation, violates the ECOA and Regulation B,” the regulator said.
In all, the bureau claims it has recently generated more than $19 million in remediation from all types of financial service providers for more than 92,000 consumers.
