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   ARTICLE   |   From Scotsman Guide Residential Edition   |   January 2004

Why Do I Need a Consumer Compliance Program?

Last month we discussed the merits of a consumer compliance program and briefly mentioned the five phases (Policies, Procedures, Training, Quality Control, Audit) of a sound program.  Additionally, we discussed Consumer Compliance Policies (Phase 1) of an overall program.

This month we will discuss Procedures (Phase 2) of the program.  This is the 2nd of a 3-part series on compliance programs.

Phase 2:  What are Compliance Procedures?

Procedures are detailed instructions to help the user properly perform a task.  Procedures are typically more specific than policies.

Taking and Responding to Applications

Procedures need to be developed to provide guidance to loan officers on how to take and respond to applications.  Procedures should be provided on issues such as:

  1. Where a loan officer can take applications,
  2. The prohibition against discouraging applicants based on a prohibited basis,
  3. The requirement to request monitoring information on applicants,
  4. The prohibition against certain inquiries about age, income sources, spouses, former spouses, marital status, gender, childbearing plans, etc., unless certain requirements are met,
  5. The requirement to provide notices regarding denied, withdrawn, and incomplete applications, and
  6. The requirement to log applications on the loan application register, pipeline report, or other listing of applications.

Evidence of Delivery

A procedure that needs addressing is the method(s) of delivering disclosures to the customers.  Our catch phrase (and that of the regulators) is “evidence of delivery”.  As an originator, your files must reflect the evidence of delivery of the various required disclosures. Twenty years ago a mortgage applicant usually sat down with the loan officer at three or more meetings to discuss the progress of the loan, the applicant’s financial condition, the disclosures, etc.  

This was a very formal process.  The advent and availability of the fax machine and internet have blurred the ability to provide regulators with evidence of delivery.  And, even if face-to-face meetings are held, the informality of today’s process has led to a consumer’s laxness with regard to signing forms, returning forms, and acknowledging receipt of forms.  As a result, the regulator is often miffed when there is no evidence of delivery.  We encourage one of several methods to show the regulators evidence of delivery such as:

  1. Signature and date on the form,
  2. Checklist in the file reflecting the date that each disclosure was given with the loan officer’s or processor’s initials,
  3. Dated cover letter indicating “Please see the enclosed Good Faith Estimate, Truth in Lending Statement, Settlement Cost Booklet, …”,
  4. Copy of the overnight or other mail receipt with the copies of the disclosure stapled to the receipt,
  5. “Date Mailed” stamp on a hard copy of each disclosure,
  6. Written or electronic conversation/activity log which specifically mentions the delivery date and method of delivery of each disclosure, or
  7. Email indicating “Please see the attached Good Faith Estimate, Truth in Lending Statement, Settlement Cost Booklet, …” (only valid after consumer has proven the ability to receive emails).

And, of course, all of the methods to evidence delivery require a copy of the disclosure to be included in the applicant’s file. (Hard copies are preferable; however, electronic copies can be accepted in some circumstances.)

Future Articles in this Series

Next month we will continue the discussion on establishing a consumer compliance program with a discussion on Training, Quality Control, and Audit.


 


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