Why Haven’t Loan Officers Been Told These Facts?
MLO’s may face a quandary in determining whether an adverse action takes place or not. First, note that Adverse Action is a refusal to grant credit in substantially the amount or on substantially the terms requested in an application. Under Regulation B, there is no such thing as an adverse action on a prequalification. Therefore, if the MLO takes an adverse action, that inquiry becomes an application. In the case of counteroffers, the lender does not take adverse action if the applicant accepts the lenders’ counteroffer. However, if the applicant refuses the lender’s counteroffer, then the lender’s counteroffer is an adverse action.
At what point does an inquiry morph into an application? Here is an example of an inquiry-turned application. Suppose a prospect telephones an MLO to ask about a purchase mortgage first. The MLO evaluates the information provided by the prospect. The MLO informs the consumer that they would not approve an application for a mortgage because of a bankruptcy in the consumer’s record. The MLO has denied a credit application. The MLO treated a request for information as an application. Because of the MLO’s treatment of the inquiry, the inquiry is an application under Regulation B. The lender is now subject to the adverse action notice requirements.
Again, whether a creditor must provide a notice of the action taken for a prequalification request depends on the creditor’s response to the request. For instance, a creditor may treat the request as an inquiry if the creditor evaluates specific information about the consumer and tells the consumer the loan amount, rate, and other terms of credit the consumer could qualify for under various loan programs, explaining the process the consumer must follow to submit a mortgage application and the information the creditor will analyze in reaching a credit decision. These actions likely constitute a prequalification.
Let’s discuss another example of prequalification. A consumer asks about terms for a loan to purchase a home and provides the MLO with their income and intended downpayment. The loan officer explains the loan-to-value ratio policy and other basic lending policies without telling the consumer whether she qualifies for the loan. In this case, the exchange falls under the rubric of prequalification.
The notice requirement for prequalifications revolves around whether or not the MLO removes the prospect from the path of assistance, effectively ending the prospect’s credit options with the lender. What is the difference between discouraging an application on a non-prohibited basis and providing general information about credit policy that might disincline the prospect from applying? Not much. MLO’s should be quick to point out to prospects that MLOs do not approve or decline loans for any lenders – only those authorized by the lender to make credit decisions can approve or decline loans. That assertion by itself does not mean the MLO is not otherwise violating Regulation B. But by providing more clarity to the prospect on the disposition of their inquiry or application, the MLO may improve the chances that the inquiry or application goes forward more compliantly.
Regulation B 12 CFR 1002
See the following official commentary
Comment 2 (F) – 4.iii
Comment 9 – 5
Comment 2 (f)-3
Behind the Scenes
Loan Servicing, An MLO Wasteland?
Avoid the Appearance of Abandoning Borrowers at Closing
Get Familiar with Regulation X Error Resolution Requirements
Last week, the Journal brought to attention the grand opportunity for MLOs to educate their customers about RESPA requirements concerning loan servicing error resolution. The RESPA Mortgage Servicing Bill of Rights (our moniker for Reg X error resolution and loss mitigation rules) also covers specific Regulation Z Regulations related to mortgage servicing.
Servicing is one thousand times more efficient than in years past. Nevertheless, the recent spike in servicing challenges means Servicers are stretched thin these days. Even with the high servicing accuracy and compliance levels, it is probable that loan servicing failures may increase now and in the months to come.
Generally, borrowers handle dustups with Servicers ineffectively or at least inefficiently. First, they contact the Call Center. The Call Center may be the worst place to go when there is a substantive problem. The borrower is almost guaranteed to speak with the persons least likely to resolve the error when they do this. There is no texting in loan servicing. Absent phone calls or texts, the borrower may not know where to turn next.
The fallout from mishandled servicing errors can be extreme, including the Servicer reporting derogatory information about the borrower’s payment history, costly fees, penalties, and even default or foreclosure. Hence, RESPA requires Servicers to promptly act on a “qualified written request” for error resolution.
In light of the mortgage industry’s past servicing failures, Congress determined that specific rights, remedies, and processes should be available if consumers believe a servicing error occurred. When consumers make a qualified written request to address a covered complaint, RESPA forces Servicers to respond more appropriately to borrower’s servicing issues. The statute does not require the written notice to follow proper legal service, certified mail, or anything similar to these delivery methods. However, certified mail is likely a good practice.
Regulation X also requires error resolution on certain Regulation Z servicing requirements. For example, concerning the furnishing of payoff statements, Regulation Z states that a person acting on behalf of the consumer may include the consumer’s representative, such as an attorney representing the individual, a non-profit consumer counseling or similar organization, or a creditor with which the consumer is refinancing and which requires the payoff statement to complete the refinancing. Regulation Z payoff statement requirements apply to requests from settlement agents working on behalf of consumers. 12 CFR 1026.36(c)3
RESPA 12 USC 2605(e)(1)(B) Qualified written request
The RESPA states, “a qualified written request shall be a written correspondence, other than notice on a payment coupon or other payment medium supplied by the Servicer that includes or otherwise enables the Servicer to identify the name and account of the borrower; and includes a statement of the reasons for the borrower’s belief, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.”
Paraphrased – The Servicer shall make appropriate corrections in the account of the borrower, including the crediting of any late charges or penalties, and transmit to the borrower a written notification of such correction (which shall include the name and telephone number of a representative of the Servicer who can assist the borrower) no later than 30 days (excluding legal public holidays, Saturdays and Sundays) after receipt from any borrower of a qualified written request and, if applicable, before taking any action concerning the inquiry of the borrower.
Alternatively, the lender must provide an appropriate response as enumerated below:
- After investigating, provide the borrower with a written explanation or clarification that includes, to the extent applicable, a statement of the reasons for which the servicer believes the account of the borrower is correct as determined by the Servicer.
- After investigating, provide the borrower with a written explanation or clarification that includes information requested by the borrower or why the information requested is unavailable or cannot be obtained by the Servicer.
- In any event, the Servicer must provide the name and telephone number of an individual employed by or the office or department of the Servicer who can assist the borrower.
Regulation X implements the granular requirements of RESPA. Regulation X states, a Servicer should not rely on the borrower’s characterization of the letter as a “Notice of Error.” Still, the Servicer must evaluate whether the letter fulfills the substantive requirements of a notice of error, information request, or both.
A Servicer is not required to designate a specific address that a borrower must use to assert an error. Given that the Servicer does not designate a specific address that a borrower must use to assert an error, a Servicer must respond to a notice of error received by any of its offices.
Next week the Journal will continue to unpack borrower servicing rights and, better yet, how you can provide this critical information simply and effectively to your customers.
Tip of the Week
The Prospect Buying Processes
Getting to Third Base
Recapping last week’s, Tip of the Week, we focused on Second Base, not harm. It’s tough to score from First Base (rapport). Achieving a better scoring opportunity means moving to Second Base. Advancing to Second happens when the prospect believes you will not harm them. Advancing to Second generally requires the MLO to manifest trust behaviors through demonstrations of professionalism, including the skillful management of stakeholder expectations. MLOs build trust and rapport by fulfilling the image of professionalism that stakeholders need and expect. You say what you mean, mean what you say, and have the power to get the job done. MLOs are the applicant’s champions. If the MLO successfully builds on their rapport with the prospect, they will likely get to Second Base.
The third Base is the MLOs value proposition. Why would a prospect choose you for their mortgage needs? Why should the real estate agent give you a referral? Why is now the time to act?
The prospect’s kicking the buying decision down the road demonstrates little value perception. So how is working with you different from working with your competitors?
First, bear in mind; value propositions may be highly perceptual. Second, MLOs often miss the gist of the presentation by over-weighting the more apparent concerns. For example, the monthly payment, APR, rates, fees, lock period, relock, closing date, and the other tangible benefits of the mortgage solution.
With this laser-like focus, the MLO could miss what is holding up the buying decision – the buyer is in a terrible mood. The buyer is having a bad day. The buyer is unusually negative at the moment – herein lies the bigger problem. Consequently, your ability to identify your prospect’s emotional state and to act to positively influence the buyer’s emotional state is key to getting home.
For example, you ask for the order on Monday. The prospect is putting out fires from the weekend and is already having a crummy day. Would you think the likelihood of an affirmative response is higher or lower than on better days? Part of the value proposition missed by many professionals is the significance of timing and the ability to impact the buyer’s emotional state positively. Next week, the Tip of the Week looks at building and maintaining positive emotions.
2021 CE – Sneak Preview
The ESIGN Act is one of the more overlooked areas in mortgage compliance. Do you know how to use the ESIGN Act disclosure to address the prospect’s data security concerns? Might you be losing business because of stakeholder hacking worries? Then, come on by for our 2021 CE! Learn how to deliver and leverage mandatory ESIGN disclosures.