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Just days after Richard Cordray slipped into the director’s chair, the agency said it was ready to start cracking down on those much-maligned nonbank mortgage lenders. Now we know exactly how they plan to do that.
The CFPB just released the guidelines that its field supervisors will use on the ground as they review originating mortgage lenders to decide whether they’re in violation of any consumer protection laws. (See what you need to know about the CFPB’s new mortgage rules.)
From the look of the 20-plus page guidebook, they’re leaving no stone unturned.
As to be expected, there’s a lot of paperwork involved. Examiners are charged with combing through brokers and lenders’ organizational charts, board minutes, annual reports, policies, loan applications and just about anything covered in ink that’s tied to a loan document.
In addition, they’ll examine computer systems, audit reports, training programs, advertisements and, most importantly, complaints from consumers.
In fact, if the CFPB smells starts to smell a rat, they’ll invite customers in for interviews to hear any complaints in-person.
“The mortgage market cannot work well for consumers if the spotlight shines only on one part of it, while the rest is left in darkness,” said Cordray. “Our supervision program will illuminate the entire marketplace by making nonbanks play by the same rules as the banks.”
That the CFPB can now go after nonbanking mortgage lenders is a big win for consumers. Until now, any lenders that weren’t directly affiliated with banks (pawn shops, payday lenders, mortgage originators, etc.) were basically left to their own devices.
Here are the questions they’ll be asking lenders:
Company Business Model: What is the company, what’s it offering to consumers and how is it funded?
Advertising and Marketing: Are they selling and advertising services they can actually deliver? False advertising is one of three red flags to watch out for when it comes to mortgage fraud.
Loan Disclosures and Terms: Are the terms of the loans transparent and clear to consumers? The CFPB’s Know Before You Owe campaign is working to combine federal mortgage disclosure documents in a single, easier-to-use form.
Underwriting, Appraisals, and Originator Compensation: How are borrowers approved for loans and what qualifications are taken into consideration? Are workers driven to sign up borrowers due to incentive programs or commission? BOA and Countrywide paid billions in a recent settlement over their shady mortgage lending practices.
Closing: Have there been any suspicious errors in the closing of mortgage loans? A common mortgage scam is a False Payoff. That’s when a title closing agent pockets your payments rather than sending them to your lender.
Fair Lending: Have brokers and lenders engaged in discriminatory lending practices based on race, gender, income or other factors? A recent study study showed a staggering chasm in foreclosure rates for minorities versus white homeowners, presenting evidence of just how prevalently minorities were targeted by brokers for high-risk loans.
Privacy: Are they in compliance with privacy laws by maintaining all customers’ personal information secure?
Have a mortgage horror story to tell? Let the CFPB know.