Deposits and Regulation E
Examiners found financial institutions violated the stop payment requirements of Regulation E by failing to honor stop payment requests for preauthorized transfers tied to debit cards. The institutions’ systems did not enable stopping a payment tied to a debit card.
Mortgage Origination Compensation
Regulation Z generally prohibits compensating mortgage loan originators in an amount based on the terms of a transaction. It is not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms. According to the CFPB, permitting different compensation based on different product types would create“ precisely the type of risk of steering” that the statutory provisions implemented through the 2013 Loan Originator Final Rule sought to avoid. Examiners found the following Regulation Z violation for mortgage originations:
• Certain lenders’ loan originator compensation agreements provided for higher loan originator compensation where Federal National Mortgage Association( Fannie Mae) conforming fixed rate loans surpassed a designated threshold percentage of the total loans closed by the loan originator. This compensation was higher than the compensation paid when such loans did not surpass the designated threshold percentage. Paying higher commissions under these circumstances constitutes paying compensation based on credit product type, which, in turn, violates the Loan Originator Rule as compensation based on the term of a transaction, since products are simply a bundle of particular terms.
Mortgage Origination Changed Circumstance
Regulation Z requires a creditor to provide consumers with good faith estimates on the loan estimate for certain transactions. The closing cost estimates are generally considered to be in good faith if the amount paid by or imposed on the consumer does not exceed the amount originally disclosed. A creditor is permitted to use a revised estimate of a charge instead of the estimate of the charge originally disclosed to reset tolerances when there is a valid changed circumstance permitted by Regulation Z that resulted in the increased costs. One such valid changed circumstance is where the consumer requests revisions to the credit terms. For a creditor to successfully reset tolerances as permitted by Regulation Z, it must, among other things, maintain documentation explaining the reason for revision. Examiners found the following Regulation Z violation:
• Lenders failed to retain sufficient documentation to establish the changed circumstance’ s validity. Specifically, the lenders disclosed an appraisal fee on initial loan estimates and subsequently disclosed appraisal rush fees, in a higher amount, on revised loan estimates. The lenders claimed the rush appraisals, which led to the appraisal rush fees, were requested by consumers. However, in each instance, the lender failed to maintain sufficient documentation evidencing the consumer’ s request of the rush appraisals; in fact, the documentation maintained reflected that either the appraisal management company notified the lenders that a rush appraisal would be needed, or the lenders’ loan officers requested the rush appraisal. In certain instances, the lenders’ documentation included only a checked box indicating the consumer requested the rush appraisal, but there was no other evidence retained reflecting this occurred.
Mortgage Origination and Disclosures Reflecting the Terms of the Legal Obligation
Regulation Z requires closed-end disclosures, including the mortgage closing disclosure, must reflect the terms of the legal obligation between the parties. Examiners found the following violation of Regulation Z:
• Items on closing disclosures did not reflect the legal obligation between the parties. Specifically, examiners identified instances where lenders’ closing disclosures failed to reflect the fully-indexed-rate as required by the promissory note because the lenders’ software miscalculated the disclosed rates. The software used a rounding method different from the method used in the corresponding promissory notes. The software automatically rounded up to the nearest one-eighth percent, despite the promissory note’ s instruction to round to the nearest one-eighth percent – up or down. This practice resulted in closing disclosures that do not reflect the terms of the legal obligation between the parties, and likely affected files and loans transferred to other loan servicers. •••
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