Monthly Archives: October 2018

Discounting Your Mortgage Rates ? BEWARE

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The Many Ways to Be Relieved of Your Timeshare Obligations While it is true that a timeshare contract is a binding legal document, it is often mistakenly thought that such a contract cannot only be cancelled. In fact, most timeshare companies maintain that their contracts are non – cancellable. This misconception is perpetuated by timeshare companies and user groups that are funded, maintained and controlled by the timeshare industry.

Straight Up with Jocelyn Predovich: The Truth about FHA 203k Loans The FHA 203k loan program provides home buyers the opportunity to buy and fix up a property, without exhausting their personal savings.

Citigroup may face sanctions after it failed to offer mortgage discounts to minority customers despite offering the discounts to many other borrowers, a possible breach of fair-lending standards, according to a report by Reuters.

Three people familiar with the regulatory examination told Reuters that the Office of the Comptroller of the Currency (OCC) is mulling a penalty against the company. In case of a finding of wrongdoing, the OCC may impose a fine or place the company under tighter oversight, among other sanctions.

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According to the sources, Citigroup self-reported the “relationship pricing” issues to the OCC after it was uncovered in the company’s review of its compliance with fair-lending standards. Citigroup’s program allows a half-percentage point off the interest rates for customers with $1 million in deposits or investments. Some minority borrowers were not offered those discounts.

Citigroup told the regulator that the pricing discrepancies were inadvertent and that it had acted to resolve the problem, according to Reuters’ sources.

Drew Benson, a spokesman for the company, acknowledged the pricing issues. However, he said Citigroup believes it did not engage in discrimination or violate fair-lending laws.

“In 2014, Citi self-identified errors implementing its relationship pricing program which affected a small percentage of our mortgage customers,” Benson said in a statement provided to Reuters. “We conducted a comprehensive review, reimbursed affected customers, and have strengthened our processes and controls to help ensure correct implementation going forward.”

Source:https://www.mpamag.com/news/regulator-weighs-fairlending-sanctions-against-citigroup-over-mortgage-discounts–sources-113720.aspx

The Latest Developments on the Loan Originator Compensation Rules

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The Many Ways to Be Relieved of Your Timeshare Obligations While it is true that a timeshare contract is a binding legal document, it is often mistakenly thought that such a contract cannot only be cancelled. In fact, most timeshare companies maintain that their contracts are non – cancellable. This misconception is perpetuated by timeshare companies and user groups that are funded, maintained and controlled by the timeshare industry.

Straight Up with Jocelyn Predovich: The Truth about FHA 203k Loans The FHA 203k loan program provides home buyers the opportunity to buy and fix up a property, without exhausting their personal savings.

Trade associations and cooperatives in the mortgage industry have called on the Consumer Financial Protection Bureau to update its Loan Originator Compensation rule, saying changes to the rule should be prioritized to help consumers and reduce regulatory burden.

The rule seeks to protect consumers from harms associated with “steering,” such as when borrowers agree to a loan they do not understand and cannot repay. However, trade groups say steering is now less likely given regulations since the passage of the Dodd-Frank Act. The groups cited the Qualified Mortgage rule and, more recently, the bureau’s TILA-RESPA Integrated Disclosure rule.

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“While these regulatory developments have reduced the risk of steering, the LO Comp rule places strict limits on certain practices that actually would result in lower consumer costs or greater product availability. After more than five years under the rule, a rebalancing is needed,” the groups said in a letter to CFPB Acting Director Mick Mulvaney.

To address problems related to the rule, the groups proposed the following changes:

The bureau should allow loan originators to voluntarily lower their compensation in response to demonstrable competition in order to pass along the savings to the consumer.

he bureau should allow lenders to reduce a loan originator’s compensation when the originator makes an error.

Lenders should be allowed to alter loan compensation in order to offer loans made under state and local housing finance agency (HFA) programs.

The groups further called on the bureau to explore ways to generally simplify the rule.

“The bureau should add clarity to the regulation, including specifying a clear ‘bright line’ list of impermissible compensation factors rather than the current approach of providing a short list of permissible factors and a vague and complicated ‘proxy for a term’ analysis that serves to discourage everything else,” the group said.

The letter was signed by American Bankers Association, America’s Mortgage Cooperative, Capital Markets Cooperative, Community Home Lenders Association, Community Mortgage Lenders of America, Consumer Mortgage Coalition, Independent Community Bankers of America, Mortgage Bankers Association, The Mortgage Collaborative, National Association of Federally Insured Credit Unions, The Realty Alliance, and Real Estate Service Providers Council.

Source: https://www.mpamag.com/news/trade-groups-call-on-cfpb-to-update-loan-originator-compensation-rule-112855.aspx

Loan Pricing and Compliance Considerations

If there’s one issue that can slip you up, it’s loan pricing discretion unmanaged, which naturally increases fair lending risk. In 2011, the Truth in Lending Act was amended with the MLO compensation rule, which prohibits financial institutions from providing financial incentives to an MLO based on the terms and conditions of a loan.

In July 2018, the Federal Reserve issued a new publication, Consumer Compliance Supervision Bulletin. In this publication, the issue of mortgage target pricing was briefly discussed. While the publication acknowledges that the MLO compensation rule has reduced fair lending risk, it has done so only at the mortgage loan originator level, and that risk still exists for mortgage pricing.

According to the publication, some financial institutions “that originate mortgage loans for the secondary market now set a “target price” for each mortgage loan originator. This means that the bank sets a specific profit margin target for the mortgage loan originator. This target price can be achieved with any combination of a higher interest rate and/or discretionary fees charged to the borrower. These target prices are based solely on discretion and not on the risk-related credit characteristics of the borrower. This arrangement may comply with Regulation Z as long as the bank does not vary the loan originator’s compensation based on different prices for borrowers. That is, the bank still complies with Regulation Z if it sets one compensation arrangement with one target price for each loan originator.”

Where the fair lending risk increases is when a financial institution’s MLOs have different target prices and the MLOs that have higher target prices serve minority areas. The publication mentions two such cases which were referred to the Department of Justice; one resulted in an enforcement action.

So, even though your financial institution may have a loan pricing policy, now might be a good time to review fair lending risks. The publication provides key steps in managing risk:

Check for compliance with Regulation Z with respect to financial incentives

Implement policies and procedures to control the risk that discretion could lead to a fair lending violation

Evaluate and managing the risk when the mortgage loan originators with the higher target prices tend to serve minority neighborhoods

Monitor pricing by race/ethnicity across mortgage loan originators, including the APR, interest rate, fees, and overages, using statistical analysis if there is sufficient volume

Consider mapping loans by target price

In addition, keep in mind that prudential regulators also provide clues as to how they will assess and measure fair lending and its risks. For instance, the FDIC in its Compliance Manual, covers pricing. Here are some of the questions asked:

Does the bank have a written loan policy that addresses pricing?

Does a review of the bank’s policies raise any overt or other potential fair lending concerns with respect to pricing?

Does the bank provide loan officers with a rate sheet, matrix, or written guidance for pricing loans?

Does the bank allow discretion in the setting of loan terms and conditions (including interest rates or fees) for residential real estate lending?

Does the bank track and monitor loan and pricing exceptions?

Are loan officers compensated based on pricing of loans?

Are controls in place to ensure consistency in pricing practices?

Do credit pricing systems or processes vary by product or lending channel?

Does the bank’s pricing vary by region, office, or branch?

Has the pricing process for any loan product changed since the previous compliance examination?

Or, if the FDIC is not your prudential regulator, do you know where to look online for examination procedures or guidance regarding pricing discretion? Take the time to review your financial institution’s policies and procedures, monitoring, documentation, range of discretion, and board of director/senior management oversight.

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The Office of National Drug Control Policy announced the designation of ten new areas across Kentucky, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, and West Virginia as High Intensity Drug Trafficking Areas (HIDTAs). This designation enables the 10 areas to receive Federal resources to further the coordination and development of drug control efforts among Federal, State, local, and tribal law enforcement officers, and allows local agencies to benefit from ongoing HIDTA initiatives that are working to reduce drug trafficking across the U.S.

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Wanting to learn more about utilizing blockchain effectively and maintain compliance? Check out this article from the March issue.

Source:http://www.mortgagecompliancemagazine.com/weekly-newsline/loan-pricing-discretion-assess-your-compliance/

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