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Question:

What were some recent enforcement issues pertinent to mortgage lenders as set forth in the CFPB’s Spring 2022 Supervisory Highlights?

Answer:

The CFPB detailed that they assessed the mortgage origination operations of several supervised entities for compliance with applicable federal consumer financial laws and found numerous violations of Regulation Z. Two of those violations are set forth below.

Compensating loan originators differently based on product type 

In the preamble to the 2013 Loan Originator Final Rule, the CFPB explained that it is not permissible to differentiate compensation based on credit product type since products are simply a bundle of particular terms. Examiners found that certain lenders’ loan originator compensation agreements provided for higher loan originator compensation where Fannie Mae conforming fixed-rate loans surpassed a designated threshold percentage of the total loans closed by the loan originator. The CFPB determined that paying higher commissions under these circumstances constitutes paying compensation based on credit product type, which, in turn, violates the Loan Originator Rule. 

Insufficient documentation for changed circumstance 

The CFPB noted that Regulation Z requires a creditor to provide the consumer with good faith estimates on the Loan Estimate for certain transactions. The closing cost estimates are generally considered to be in good faith if the amount paid by or imposed on the consumer does not exceed the amount originally disclosed. A creditor is permitted to use a revised estimate of a charge instead of the estimate of the charge originally disclosed to reset tolerances when there is a valid changed circumstance permitted by Regulation Z that resulted in the increased costs. One such valid changed circumstance is where the consumer requests revisions to the credit terms. For a creditor to successfully reset tolerances as permitted by Regulation Z, it must, among other things, maintain documentation explaining the reason for revision. Examiners found that certain lenders failed to retain sufficient documentation to establish the validity of the changed circumstance. Specifically, the lenders disclosed an appraisal fee on initial Loan Estimates and subsequently disclosed appraisal rush fees, in higher amounts, on revised Loan Estimates. The lenders claimed the consumers requested the rush appraisals. However, in each instance, the lender failed to maintain sufficient documentation evidencing the consumer’s request; in fact, the documentation maintained reflected that either the appraisal management company notified the lenders that a rush appraisal would be needed or the lenders’ loan officers requested the rush appraisal.