Examiner guidelines for the consistent implementation of the Federal Reserve Bank’s final rules for closed-end credit under Regulation Z were recently released by the Multi-State Mortgage Committee, a ten-state representative body created by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR).
The rule includes loan originator restrictions that were set in place to protect consumers against the “unfairness, deception, and abuse” that can occur from certain origination compensation practices, and prohibits payments to loan originators based on loan terms and conditions, dual compensation to originators by consumers and any other person, and “steering” consumers to certain loans that would net them greater compensation.
“The guidelines developed by the MMC provide examiners in the field with a standardized set of procedures for evaluating basic compliance with the rule,” said Darin Domingue, Deputy Chief Examiner of the Louisiana Office of Financial Institutions and President of AARMR, in a statement. “Utilization of these guidelines will facilitate more consistency among state regulators when implementing their own policies and procedures to ensure compliance with the rule.”
The MMC conducted extensive industry outreach for feedback as it developed the guidelines, in an effort to increase the transparency of mortgage supervision, said John Ryan, President and CEO of CSBS.
The guidelines include three modules, two of which are completed by the institution, with the third filled out by the examiner, who assesses the institution’s answers in addition to conducting transaction level reviews and staff interviews.
Examiners are advised to test for dual compensation by checking to see whether borrowers paid any fees to brokers, and if those brokers also received payment from any other person.
The modules also provide tests to detect “steering.” In cases were steering is suspected, the examiner must check it against similar loans made by the loan originator, to find out if the LO gets more compensation on certain loans, and to determine if the loans were not in the borrower’s interest.
Download the MMC guidelines here.
Written by Alyssa Gerace