[1]The Consumer Finance Protection Bureau (CFPB) released its Supervisory Highlights [2] report today, which examined compliance to Title XIV of the Dodd Frank Act. In January 2013, the CFPB [3] issued the Title XIV rules related to mortgage origination activities. The rules cover the ability-to-repay and qualified mortgage standards, escrow requirements, high-cost mortgage and homeownership counseling requirements, appraisal requirements for higher-priced mortgage loans, and loan originator compensation.
Regulation Z prohibits a loan originator from receiving compensation based, directly or indirectly, on the terms of a consumer credit transaction secured by a dwelling. The CFPB found in one or more institutions that branch managers were also loan originators and owners of related marketing services entities and as branch managers allocated compensation for themselves through terms of transaction they originated.
The report also found improper use of lender credit and failure to provide Goof Faith Estimate (GFE) in a timely manner as other violations. Supervision found instances where lender amounts disclosed to HUD exceeded the GFE, due to inadequate training and policies. GFEs were delayed beyond the three-business day requirement at some institutions due to policies and procedures that did not properly define when an application was received. The CFPB also found social media advertising was not monitored by institutions, a violation of Regulation Z which requires disclosures to be posted with any advertisements.
CFPB examiners found one or more supervised entities failed to provide the requisite information in denial notices as set forth in Regulation B and failed to notify an applicant of action taken within 30 days after receiving the completed application. These errors were attributed to weaknesses in the compliance audit programs and the monitoring and corrective action component of the compliance programs.
At one or more institutions, examiners concluded that a weak compliance management system allowed numerous violations of Regulations B, X, and Z to occur. Some institutions hired compliance officers and adopted compliances programs shortly after new regulations were released and were unable to effectively implement new compliance programs. Training was either not comprehensive enough or nonexistent at some institutions. Examiners also found that third party audits completed at some institutions were limited in scope and results were not reported to directors.
Examiners directed the institutions to take appropriate action to address the weaknesses in order to implement effective compliance management systems. Title XIV compliance finding will be discussed more in a future issue of Supervisory Highlights. The results cited above are focused largely on examinations and findings from July 2014 to December 2014.