fair lending in the mortgage industry how you will …...tammy butler, master cmb and director of...
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Fair Lending In The Mortgage Industry How You will do Business in 2014?
Presenter: Tammy Butler, Master CMB and
Director of Fair lending and Compliance, Optimal Blue
Time to Prepare for January 2014
2013 Was the year of change.
2014 Will be the year of implementation and reconfiguration of what we once thought was our business model.
CFPB
CFPB Mission
The CFPB is consumer based. They care little about:
How your recruiting is affected.
How your originator’s income is affected.
Or, your profit margins.
What they do care about is the consumer and the consumer experience. Anything that harms the consumer (in their opinion) will harm you.
Think of them as the consumer’s Momma! You do not mess with Momma’s children!
Tammy Butler, Master CMB Optimal Blue LLC. All Rights Reserved.
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Regulators Are
Combining Their Efforts!
Prohibited Basis ECOA (Equal Credit Opportunity Act) Regulation B
Fair Housing Act
Race Color Religion National Origin Sex Gender Identity Handicap Familial Status Marital Status
Age
Receipt of Public Assistance
Exercise of Rights Under The Consumer Credit Protection Act
Under Authority Of CFPB HUD
Purpose All Credit Types Housing & Residential Finance
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The Laws
Mortgage lenders are severely under-equipped to handle these changes
An ideology shift
A Business Model Shift
Slimmer Profit Margins which will equate to Higher Efficiency if you are to survive and thrive.
Monitoring & Controls
To Do This:
You will need to add professional compliance managers, counsel and auditing (in house or outsourced)
Put systems in place to monitor everything you do and provide statistical results.
Train your staff more than ever before.
Self-Audit
Truly make the Customer King and Prove that you have. (complaint analysis, remediation)
Develop new recruiting techniques and new ways to pay people.
Employ Fair Lending Techniques that you never considered before. (MSA Diversity)
Monitor Pricing Exceptions
Improve Data Flow and Integrity
Create policies, procedures and workflow diagrams that describe and monitor your work from start to finish (no more boiler plates)
Where Does Fair Lending Start?
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First Contact With Prospective Client! Marketing Outreach •Your Material -Audience Appropriate? •Represented Neutrally? •Unintentionally or Intentionally Excluding on Prohibited Basis? Phone Call •Not Returning Phone Calls •Screening Calls Based on Voice Mail Email •Not Returning Email Visit •Stereotyping or Generalizing •Not Offering All Program Options
WHY?
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Case Settlement Amount U.S. v. Countrywide Financial Corporation (2012)
$335 million
U.S. v. Wells Fargo Bank, N.A. (2012) $175 million for wholesale, plus potential liability for retail
U.S. v. SunTrust Mortgage, Inc. (2012) $21 million U.S. v. GFI Mortgage Bankers Inc. (2012) $3.555 million U.S. v. PrimeLending (2011) $2 million FTC v. Gateway Funding (2009) $2 million (deferred) FTC v. Golden Empire Mortgage (2010) $1.5 million
U.S. v. Texas Champion Bank (2013) $700,000
U.S. v. C&F Mortgage Corp. (2011) $140,000 U.S. v. Nixon State Bank (2011) $100,000
Tammy Butler, Master CMB Optimal Blue LLC. All Rights Reserved.
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If the CFPB Finds Problems, Very
Broad Remedies: •Rescission or reformation of contracts
•Refund of moneys
•Return of real property
•Restitution
•Disgorgement of profits
•Compensation for unjust enrichment
•Damages
•Public notification of violations (with costs
to be borne by the violator)
•Limits on activities or functions, including
suspension & termination
•Civil money penalties •Up to $5,000/day (any violation)
•Up to $25,000/day (reckless)
•Up to $1 million/day (knowing)
Where HMDA & Fair Lending Software Fail
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HMDA Data and Fair Lending Software Misses: •Pricing/Rate Trace (Memorialize each step for each loan) •Pricing/Rate Start to LO •Pricing Adjustments (Each loan level price adjustment defined) •Pricing/Rate Final Results to consumer •Re-Lock Audit Trail and Notation Trace as to Reason for Re-lock. •Credits (Memorialize fees and credits and show the net affect) •Seller Credits •Lender Fees •Grant/Subsidy credits •Pricing Concession/Exception (Resolve with notation as to why) •APR •More definition on Property type (i.e. Condo, Coop, etc.) •Income Type (Certain types of income require specialty investors or guidelines)
Developing Policy
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•Is policy well thought-out and workflow diagrammed? •Is policy applied consistently? •How do you monitor policy? •What happens when an employee doesn’t follow company policy? •No program should roll without compliance overview as well. •Look at the CFPB exam manual! Follow it to the “T”.
3 Rules for Every Process! Policy & Procedure
Training Monitoring
Policy needs to be thorough and very tight with red flags for deviation!
Fair Lending Trigger Points!
1. Pricing Disparity: Similar borrowers receive different rates/closing costs.
2. Pricing Exceptions: Given to some but not others.
3. Underwriting Disparity: Conditions or denials not consistent.
4. Underwriting Exceptions: Given to some but not others similarly situated.
5. Marketing Disparity & UDAAP Violations
6. Redlining
7. Steering
8. Disparate Impact
9. Data Integrity
10. Client Interaction & Client Parity
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Is This Your Current Marketing/SM Compliance Plan?
Tammy Butler, Master CMB Optimal Blue LLC. All Rights Reserved.
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The Problem With That Plan is That CFPB Sees It All… BEFORE They Even Contact You!
Marketing & UDAAP-The Unknown!
Tammy Butler, Master CMB Optimal Blue LLC. All Rights Reserved.
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Websites Facebook, Twitter, LinkedIn, et al Print Advertising and Marketing Lead Acquisition
What is Your Compliance Management System? What is Your Policy? How is it Monitored?
FTC Guidelines: http://ftc.gov/os/fedreg/2011/07/110719mortgagead-finalrule.pdf
Pump The Brakes!
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Production Staff Compliance
Compliance Staff Production
Old Way
New Way
Embrace Change!
Tammy Butler, Master CMB Optimal Blue LLC. All Rights Reserved.
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Policy & Best Practices Prevent This!
Proper Prior Planning Prevents Poor Performance!
Free Resource Center
https://www2.optimalblue.com/fair-lending-advantage/resource-materials/
Thank You!
Tammy Butler, Master CMB
Director of Fair Lending & Compliance
847-276-0399
Join in the Discussion on Linked In @ Group “Optimal Blue Fair Lending & Compliance or www.optimalbluefairlending.com