Nearly every aspect of lending from the first contact with a borrower through loan payoff is regulated, and compliance with these regulations is an arduous task. One that requires an in-depth knowledge of the law, robust processes, and detailed records to prove that responsibilities are met.
When a lender fails to implement appropriate compliance or recordkeeping procedures, they put their reputation at stake and could be faced with fines or legal action. Avoid these unfortunate outcomes by understanding compliance obligations and partnering with the right loan servicer.
Compliance Obligations for Lenders
Lender compliance obligations start with ensuring that each applicant is given a fair chance to obtain credit. Then, borrowers must be informed about the cost of their loan and their responsibilities as a borrower. A detailed set of rules is in place governing the content and timing of disclosures necessary during the application and closing process. Finally, lenders must generally report information about their activities to the public.
Fair Lending Laws
The Equal Credit Opportunity Act [ECOA] and Fair Housing Act [FHA] both aim to prevent credit discrimination. They do this by prohibiting lenders from considering certain factors when evaluating an application. These factors include race, color, religion, national origin, sex, marital or family status, age, disability, receiving of public assistance, and exercising rights under the Consumer Protection Act.
To comply with these regulations, lenders must develop clear lending standards and apply them equally to all applicants without considering prohibited information. Approvals and denials should be carefully recorded – including the rationale for the decision to prove compliance with the regulations. To further promote fairness, lenders should also provide training for all employees who are involved with credit decisions. Finally, lenders should monitor their decisions to identify disparities and conduct self-assessments to address the risk of unfair lending practices.
Truth In Lending Act
The Truth in Lending Act [TILA] is a federal law that requires lenders to disclose pertinent information about charges and fees associated with a loan. It created a standardized framework for calculating and disclosing borrower costs to help applicants easily compare loans from different lenders.
Compliance with this regulation requires lenders to provide clear, concise disclosures that meet the TILA standards. These disclosures must be given to borrowers on the appropriate schedule and include the Right to Rescission.
The act also identifies information that must be disclosed in certain marketing material. For this reason, lenders should take care to ensure that their advertisements don’t misrepresent loan products or costs.
Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act [RESPA] requires disclosures of settlement costs to be delivered to applicants in a timely manner. It also establishes fair escrow accounting practices and prohibits kickbacks.
To comply with RESPA, disclosures to the borrower must include pertinent information about the settlement costs associated with a loan. This information should be made available in a Good Faith Estimate during the application process and prior to closing.
Lenders should also avoid professional relationships that could be considered paid referral programs. This includes the receipt of money or anything of value in exchange for referrals.
RESPA also governs the appropriate uses of escrow accounts, so lenders should consult this regulation when crafting their procedures. Some of the factors that should be considered include the amount of money to be held in escrow, procedures for repaying overage balances, and itemized annual disclosures for borrowers.
Home Mortgage Disclosure Act
The Home Mortgage Disclosure Act [HMDA] requires lenders to gather, report, and publicly disclose loan-level information. This data serves several purposes including identifying discrimination, helping public officials allocate funds to areas in need, and helping the public determine if lending needs are met.
Lenders should ensure that their processes collect and store relevant data about loan applications, originations, purchases, and borrower demographics so that they can easily meet their reporting requirements. Where required, this information should be filed annually using the HMDA Platform between January 1st and March 1st.
Compliance Obligations for Loan Servicers
The Consumer Financial Protection Bureau [CFPB] has issued numerous guidelines that explain how loan servicers can comply with regulations like the TILA and RESPA. The future of the CFPB is now in question, but the guidance they provide helps loan servicers meet their compliance requirements in areas such as escrow accounting, error resolution, disclosure requirements, payment processing, and the issuance of periodic statements.
Loan servicers are also responsible for collecting past-due balances according to the Fair Debt Collection Practices Act [FDCPA]. This regulation sets guidelines for how borrowers can be contacted and what agents can and can’t say when attempting to collect past-due balances.
To comply with the regulations, it is important that loan servicers provide accurate information to borrowers, process payments correctly, and resolve errors in a timely manner. They should also create their debt collections procedures to account for the lender’s goals and applicable regulations. Finally, loan servicers need to keep detailed records and complete regular audits of their procedures to check for risk and improve their processes.
An Experienced Loan Servicer Simplifies Compliance
Lenders can place a high value on finding a loan servicing partner that adheres to the same or better standards for regulatory compliance that they set internally. To identify this ideal partner, focus on two things: experience and a robust compliance platform.
The right loan servicer will have decades of experience in meeting changing compliance requirements and will have proven tools to adapt to new regulations as they are passed. This company should also be able to articulate how they meet current regulations through a comprehensive compliance program.
Partner With AmeriNat for Compliant Loan Servicing
At AmeriNat, we have been servicing loans for 50 years and have crafted our compliance procedures to meet state and federal regulations.
We maintain compliant loan servicing operations in three ways. First, our company adheres to a rigorous audit program that operates under the jurisdiction of an independent audit committee. Second, a compliance committee that includes servicing-line leadership meets regularly to keep abreast of regulatory hot topics and regulation changes and updates. Third, we maintain a broad package of insurance coverage that satisfies applicable servicing requirements along with a standard Mortgage Banker’s Blanket Bond. Finally, our collections efforts are conducted according to the client’s guidelines, pertinent regulations, GSE / insurer requirements, and industry standard practices.
For more details on how we comply with regulatory requirements or to get started with loan servicing, contact a member of our team today.
