Why Haven’t Loan Officers Been Told These Facts?
Sex Education from the Consumer Financial Protection Bureau and HUD
President Biden’s executive order 13988 extends the applicability of sex discrimination to the LGBTQ community.
Last week, the Journal reviewed executive order 13988, which requires federal agencies responsible for regulations to promulgate the new federal definition of “sex discrimination.” Violations of the Equal Credit Opportunity Act (ECOA) or Fair Housing Act (FHA – Title VIII of the Civil Rights Act of 1968) are grave matters with serious repercussions under fair lending laws. For truly impenitent offenders demonstrating a pattern of illegal discrimination, federal law requires that functional supervisors/regulators make a referral to the Justice Department.
The Executive Order addresses the Supreme Court’s recent decision in Bostock v Clayton County, which held that the prohibitions against sex discrimination in the workplace contained in Title VII of the Civil Rights Act of 1964 extend to and include discrimination on the basis of sexual orientation and gender identity.
From President Biden’s EO 13988:
“It is the policy of my Administration to prevent and combat discrimination on the basis of gender identity or sexual orientation and to fully enforce Title VII and other laws that prohibit discrimination on the basis of gender identity or sexual orientation. It is also the policy of my Administration to address overlapping forms of discrimination.”
With that executive order, the administrators of the ECOA (the Consumer Financial Protection Bureau – CFPB) and the Fair Housing Act responded to the new Presidential policy by promulgating the new definition of sex discrimination as related to rules or policy within their jurisdiction.
From Jeanine Worden, Acting Assistant Secretary for Fair Housing and Equal Opportunity at the U.S. Department of Housing and Urban Development:
“Housing discrimination on the basis of sexual orientation and gender identity demands urgent enforcement action. That is why HUD, under the Biden Administration, will fully enforce the Fair Housing Act to prohibit discrimination on the basis of gender identity or sexual orientation. Every person should be able to secure a roof over their head free from discrimination, and the action we are taking today will move us closer to that goal.”
And from Damon Y. Smith, Principal Deputy General Counsel at HUD:
“Enforcing the Fair Housing Act to combat housing discrimination based on sexual orientation and gender identity isn’t just the right thing to do-it’s the correct reading of the law after Bostock,” “We are simply saying that the same discrimination that the Supreme Court has said is illegal in the workplace is also illegal in the housing market.”
Worden’s memorandum directs actions by HUD’s Office of Fair Housing and Equal Opportunity and HUD-funded fair housing partners to enforce the Fair Housing Act to prohibit discrimination based on gender identity or sexual orientation.
Specifically, the memorandum directs the following:
- HUD will accept and investigate all jurisdictional complaints of sex discrimination, including discrimination because of gender identity or sexual orientation, and enforce the Fair Housing Act where it finds such discrimination occurred.
- HUD will conduct all activities involving the application, interpretation, and enforcement of the Fair Housing Act’s prohibition on sex discrimination consistent with its conclusion that such discrimination includes discrimination because of sexual orientation and gender identity.
- State and local jurisdictions funded by HUD’s Fair Housing Assistance Program (FHAP) that enforce the Fair Housing Act through their HUD-certified substantially equivalent laws will be required to administer those laws to prohibit discrimination because of gender identity and sexual orientation.
- Organizations and agencies that receive grants through the Department’s Fair Housing Initiative Program (FHIP) must carry out their funded activities to also prevent and combat discrimination because of sexual orientation and gender identity.
Next week, the Journal looks at the CFPB’s novel class distinction under sex discrimination and the current implementation under its recent Regulation B interpretive rule.
Behind the Scenes
The Taper Tantrum
Watch Those Refinances, No On and Off Switch for Rate Changes
Leveraging a Blue Ocean Strategy to Grow Your Business
To Explore Strange New Worlds, to Seek Out New Life and New Civilizations, to Boldly go Where no Person has Gone Before :).
Leveraging Adverse Actions and Unqualified Prospects
Okay, so you need to give the prospect/applicant the bad news. But, before we talk about building a farm team of failed applicants, we have to tackle the challenge of delivering bad news and managing stakeholder expectations.
Your ability to effectively manage stakeholder expectations is foundational to your global success. Just as it is with your farm team.
Your ability to manage stakeholder expectations in the face of extreme challenges is key to an effective recovery from a failed application – yours and theirs. Several different circumstances may lead to adverse actions. Therefore, managing stakeholder expectations may require slightly different approaches depending on the adverse action circumstances.
In some instances, the adverse action comes on the heels of a long and arduous process—the ultimate unfavorable decision, a known uncertainty from the beginning of the manufacture. At other times, emergent mid or downstream developments have added uncertainty to the credit decision well after application.
First, get your priorities in order. Of course, the prospect’s well-being is the paramount concern. Stakeholder mismanagement can lead to harmful applicant impacts. The list of applicant damages due to failed applications or unskillful loan manufacture includes financial losses, embarrassment, psychological stress, emotional turmoil, and housing instability, just to name a few.
If assisting the applicant means facilitating a lateral to another lender, that’s fine. However, whatever form your assistance takes, prominent is your role in helping the prospect recover from the failed application.
The second priority is to ensure the referral source does not regret sending you the loan. More on that later.
If the adverse action is no surprise, you should be laying a recovery groundwork from day one. However, if the adverse action is a surprise, you must reestablish rapport and redevelop your value proposition.
The marginal applicant with a high probability of denial
The loan application is a failure with the automated underwriting system. As a result, the applicant’s application requires manual underwriting. Once it is clear that the manual underwriting path is necessary, the MLO must be prepping stakeholders for the uncertainty inherent in underwriting. The clear message that stakeholders need is that the underwriting outcome is uncertain until the underwriter decides the loan application response.
The stakeholders will bombard you with “what-ifs,” hoping each new what-if moves the ball closer to the goal line. They want gratification and hope. You can do this not by making odds, guessing at percentages, or commenting on all the hypothetical scenarios the stakeholders drum up. Avoid prognostications. The MLO must demonstrate command of the situation. The more you guess, the less commanding or compelling you appear. Effective communication is essential. Keep the message clear. Stakeholders often hear what they want to hear. If your message is vague, their takeaway may differ from what you wanted to communicate. Less is more.
Reassure the stakeholders that you know what you are doing. That is often a concern when resetting expectations due to mid or downstream surprise. If you make a mistake – own the mistake (see the Asoh Approach from last week’s Journal!). Then, explain how you are ensuring that no other mistakes occur. Keep the focus on the financing objectives.
During the loan manufacture is the time to introduce the stakeholders to the farm program when uncertainty surrounds the underwriting decision. For example, “Mr. & Mrs. Prospect, homeownership affords a foundational building block for wealth, happiness, and security. You are on the right path. But, if we hit a bump in the road, know that homeownership is not a question of “if.” Homeownership is a question of when and how. If we are unsuccessful in getting this loan through, we will make a plan B that includes the how and when solution.”
In your mind, be clear on what you are doing with these people. You are establishing yourself as a trusted, highly competent professional. In the face of setbacks and disappointment, your ability to encourage, affirm and motivate the applicant will enable your farm team recruitment efforts.
Next week the Journal unpacks mortgage applicant rehab 101.
Tip of the Week
Scope refers to the efforts necessary to manufacture the mortgage and the mortgage itself. There are two types of scope; product scope and project scope.
The product scope refers to the key deliverable. In other words, the product scope can describe the mortgage attributes and compliance with the transaction timing requirements.
For example, typical mortgage product scope includes:
- 30 year fixed rate loan
- 2.875 Rate
- 1 % Origination Fee
- 80% LTV/CLTV
- $587,000 loan amount
- Closing 03.25.22
The project scope refers to the loan manufacture – all the necessary tasks to close the loan on a given date.
Your ability to control the project scope is significant. Rework, defects, warranty work (addressing defects and complaints post-closing), and other forms of unnecessary or wasted effort are somewhat within the loan officer’s control.
A common defect in loan manufacture arises from superfluous and distracting discussions. One defect that is easy to slip into is distracting conversations about the applicant’s credit report and scores.
Describing unnecessary credit conversations as a defect hardly suggests that credit report discussion is unnecessary. It’s the appropriateness of the conversation. Is the conversation needed, and is it needed at this time?
Applicants have finite bandwidth for information and can become overwhelmed by the loan officer’s avalanche of talking and forms. Furthermore, loan officers should be aware. There may be vendor restrictions on giving copies of credit reports to applicants. Aside from the improper use of a credit report concern, giving the applicant a copy of their credit report at application is generally an unnecessary distraction. If you need to discuss credit or tradelines, do so as necessary.
Most originators will discuss the impact of credit activity on the loan manufacture with the applicants. That is a prudent and necessary discourse. However, in addition to conversations regarding credit, ensure you warn the applicant against disputing anything with the CRAs during the loan manufacture unless expressly advised to do so.
Which by the way, the CFPB’s special information booklet “Your home loan toolkit” page 6, Section #2, provides some dangerous comments in this area (see the snippet at the bottom of the article). The CFPB suggests “If you find mistakes (on your credit report), submit a request to each of the credit bureaus asking them to fix the mistake.” While this is good advice in general, this is not good advice for a consumer in the middle of a mortgage application.
Aside from wasted mental capital talking about immaterial things, some dangerous impacts can occur when the applicant becomes distracted or confused. For example, suppose the applicant disputes something with a CRA based on your credit report. As noted, when the consumer disputes the credit data, there could be underwriting complications. These avoidable problems could leave you with significant downstream challenges, including but not limited to the inability to use credit scores or automated underwriting.
Furthermore, the applicant is up to their eyeballs in information, decisions, and challenges. So why distract them with needless discussions or tasks?
Instead, use the opportunity during the loan interview to set a better expectation. Educating consumers about credit reporting and identity theft are valuable propositions. The question is one of timing.
The Fair Credit Reporting Act promotes accurate reporting on consumer trade lines. The consumer is the last line of defense against inaccurate credit reporting and identity theft. During the application, or before, get in front of the credit report distraction. At the appropriate time, let the applicant know that you will talk to them about their credit and use of credit as an additional service after they settle into the new home. Let them know you have a post-closing packet covering mortgage servicing and general credit management.
The applicant’s understanding of their servicing rights under the RESPA and TILA is invaluable. See the Journals article on servicing rights, Volume 1 Issues 7 & 8.
Be sure to limit conversations and tasks during the loan manufacture to what is necessary to deliver the product scope.
2022 CE – Sneak Preview
A shot across the bow of the good ship SS Loan Officer
Influential stakeholders give fair warning to individual mortgage loan originators:
“Individual Mortgage Loan Originators are and will be held accountable by State Regulators for violations found during examinations.”
Oy vey and ay caramba all at once! Don’t get caught with your pants down – stay tuned for our series – what’s got your regulator so pissed off?