Lets Talk Compliance

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As we see a shift towards a more conservative attitude towards mortgage lending, not to mention a greater involvement of federal agencies, I thought today would be a good time to talk compliance. For those of us who grew up originating, processing and underwriting for banks and thrifts, compliance is second nature, something you handle when requesting a 2nd pay stub from the borrower. For others who came into the business via the way of mortgage broker and lender, the concept is not so familiar.

It has always seemed to me that compliance has never been a big issue for brokers and lenders who are regulated by state agencies, however for institutions that have federal oversight, these concepts are a major consideration on a day to day basis.

Most underwriters underwriting for federally monitored institutions underwrite for compliance due to such oversight as opposed to a lighter approach to these things in lender shops. Recently, I have had quite a few underwriters who have moved from lender shops to banks call me with lots of questions regarding compliance because the banks and thrifts they are working for take it so seriously.

Quite frankly I have never met a Compliance Officer who couldn’t find at least 1 thing wrong.

So in this spirit, I thought I would give those of you who could use a little help in this area a few tips or insight into the more important things to look for when you are underwriting your cases.

First and most important because this will drive how you look at all of your disclosures is to determine that the loan officer has appropriately checked how he or she has taken the application. There seems to be a lot of confusion between mail applications and applications taken over the phone. For the record, if the loan officer has taken enough information from the application to pull credit, then the application is a phone application. Just because he or she mailed it for signature does not mean it was by mail. In order for an application to be a mail application, the application must be mailed blank to the borrower for completion.

Next, check the date of your credit report, because this is the day that your three day clock starts to tick. Again, if the loan officer pulled credit, then he or she now has sufficient information to make a credit decision so you know have an application. At this point either the borrower must be disclosed within 3 business days or the case must be rejected in order to comply with any non disclosure rules. Make sure the date on your GFE, TIL and Servicing Transfer Disclosure is within the 3 business day mark of the credit report and make sure that the loan officer has dated the 1003 correctly. If it is a FHA or VA case then the addendum to the application must also be dated the same date. In other words the application can be dated before the credit report where the loan officer signature is concerned but not after.

Remember also where the GFE and TIL is concerned, anytime there is a change to the terms of the loan application, the borrower must be provided revised disclosure. This does not mean that they need to be signed but the revisions must state clearly that they have at least been mailed to the borrower and on what date. Check the terms of the initial application to that of the submission forms to determine that you have evidence of appropriate re disclosure.

If you are underwriting for a lender, it is also important that all lender fees be disclosed to your borrowers. If you must have your brokers issue revised disclosures indicating all of these fees along with any earned YSP. Do not forget standard federally required disclosures such as ECOA, Privacy, Patriot Act and so on. In addition to these you want any program specific disclosures say for Adjustable rate mortgages as well as FHA and VA disclosures as applicable.

As with anything you are unsure of, compliance issues can be a little daunting when getting used to the concepts but the more you review the information, the comfortable you become with it. Keep in mind it is important, even at a state level if your company would be audited. There are several other rules that you might need to brush up on, things like when a commitment fee is acceptable under FHA guidelines and so on, so do what ever research you can to make sure you are underwriting so that your cases are compliant.

No one wants to refund fees to the borrower due to simple errors that could be easily avoided. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.