Why Haven’t Loan Officers Been Told These Facts?
Sex Education from the Consumer Financial Protection Bureau and HUD
January 20, 2021, President Biden’s executive order 13988 extends the applicability of sex discrimination to the LGBTQ community.
Words of Caution and Words of Promise
The novel interpretation of sex discrimination includes matters pertaining to gender identification, orientation, sexual preferences, and associations related to the LGBTQ community. But perhaps one of the more conspicuous forms of institutionalized discrimination between non-LGTBQ and LGTBQ persons arises in matters pertaining to marriage.
In the residential mortgage manufacture, discriminatory treatment could include anything from document requests to oral explanations and questions from loan originators. For example, should the MLO, the processor, or underwriter attempt to determine the marriage state to establish that the applicants are lawfully wed that would be discriminatory treatment. Do lenders ask in what state heterosexual couples were wed? Do lenders ask for marriage certificates from heterosexual married couples? Treat same-sex married couples precisely as you treat heterosexual married couples.
Do ask applicants about their marital status. Do not ask the applicants if they are LEGALLY married or request a marriage certificate. Instead, use the language from the URLA marriage data field descriptions just as written. The applicants attest to their marital status on the URLA. The VA provides guidance on marriage qualifications in the HUD/VA Addendum (see the snippet at the top of the article).
Don’t be a dope and ask people if they have plans to start a family or get married. It does not matter how comfortable the conversation or relationship is. Don’t ever ask applicants if they are considering In Vitro Fertilization, surrogate mothers, or adoption.
Asking applicants if they anticipate any changes to their housing needs in the next five years is okay. If the applicants volunteer their future marital or family plans to you, fine. Professionalism first. Be friendly, helpful, and understanding. Never folksy or presumptuous.
Regarding the VA mortgage guarantee, be aware that the applicants must be wed in a jurisdiction that recognizes their marriage to claim married status. Otherwise, the marriage might not meet the VA marriage parameters. Whether same-sex or heterosexual, the marriage must otherwise satisfy VA marriage requirements. All applicants must carefully answer the URLA and HUD/VA Addendum questions.
Be circumspect with the facts or you could land your applicants in some hot water. Any misstatement of facts in relation to marital status on the URLA or HUD/VA Addendum may constitute a material misrepresentation leading to a mortgage fraud complaint.
The CFPB and HUD prosecute lenders for racial discrimination more often than any other protected class. Race discrimination and sex discrimination share some commonalities. Therefore, the industry might anticipate enforcement modeling similar to that used for prosecuting racial discrimination.
Although studies claim to surmise that applicants might be identified as belonging to the LGBTQ community using HMDA and Fed data, it is doubtful Regulators would rely on novel data analytics to bring LGTBQ related sex discrimination enforcement actions. Therefore, at present, it is unlikely that the CFPB could leverage analysis of statistical disparities from the HMDA data such as those used in racial discrimination cases to scrutinize lenders for sex discrimination related to the LGBTQ community.
With statistical disparities off the table, this means the Regulators are likely relying on complaints, referrals, shoppers, and anecdotal evidence to commence investigations and enforcement action.
Yet, once busted, the consequences of sex discrimination could be similar to racial discrimination remediation. Typically, enforcement actions include particular redress such as requirements for special oversight, changes to advertising models, community needs assessment, community involvement, hiring practices, training, monitoring, benchmarking, and the services of expensive consultants. These types of changes are better for all concerned when voluntarily integrated into a lenders’ risk management system before violations or complaints arise. Lenders don’t have to wait until investigated or sued to address problems in the loan manufacture.
Leveraging Opportunities in the LGBTQ Mortgage Market
But instead of viewing compliance from the negative risk management perspective, is there not a grand opportunity to figure out how to serve the LGBTQ market before the competition gets there? When businesses should be scrambling for new customers during the mortgage market contraction, here lies a golden opportunity.
There is ample evidence that the LGBTQ community represents an under-served market. Additionally, data indicates a significant wealth gap between LGBTQ and non-LGBTQ communities. Furthermore, LGBTQ households tail non-LGBTQ households in homeownership rates. Importantly, research indicates that like people of color, the LGBTQ community experiences higher rates of adverse actions than non-LGBTQ communities.
Lenders and loan officers might seize the opportunity to develop this market while championing homeownership opportunities for ALL underserved communities. But, like pretty much everything in life, if you want answers, if you want to get things done, follow the money. Senior management is under tremendous pressure to manage the brand and make money quickly. The sooner the better. Like individual loan officers, these managers focus on opportunities derived from the wants and needs of markets representing the “best” profit models. Senior managers need support for more strategic changes that might promote greater equity in the loan manufacture and more opportunities for persons of the LGBTQ community. Be part of the solution. Help create the balance necessary to equalize the pressure that enables successful strategic shifts.
First, lenders might profit by recognizing the community they seek to serve. The successful shift will occur at the macro (community) and the micro (individual) levels. Therefore, hiring loan people within the targeted community is a solid first step in exploiting the market.
There is not any great mystery to effective outreach. Workable solutions include sponsorships and partnering with stakeholders possessing the know-how for effective outreach. In addition, lenders could better comprehend LGTBQ demographics and the community-specific challenges at the macro and micro levels. Finally, explore novel lending opportunities within the target market. Proceed with understanding, respect, and incremental action. Think big, act with urgency, take small steps.
Have fun and build your business while making the world a better place to live.
Freddie Mac offers some insights here:
NAR report here: https://cdn.nar.realtor/sites/default/files/documents/2021-profile-of-lgbtq-home-buyers-and-sellers-06-09-2021.pdf
Love thy neighbor. Obey righteous laws.
Behind the Scenes
Closing the Communications Gap
Five Reasons to Expand your Customer Base
Lenders generally do not originate prime mortgage loans in languages other than English. There are state and federal legal concerns in this area. However, there are opportunities to lessen the communication gap with folks who may prefer another language without reinventing the loan manufacture.
Imagine you went to France and fell in love with the place. So you decide to buy a second home there. You get by okay with French, enough to impress your non-french-speaking friends. But when tackling the technical language involved in home buying, even language surrounding a topic for which you may be a subject matter expert, your French falls short. The real estate agent speaks English okay, but cannot relate the mortgage terms, agreements, or loan options to anything comprehensible in English.
No worries, surely the loan officer will speak English. However, when discussing the financing with the mortgage lender, she refuses to speak English to you, not even a hello or congratulations. You start to wonder if she does not like you. Doesn’t everyone know how to say “Hi, congratulations on your new home?” Maybe it’s the ugly American thing or some parochial prejudice. You feel like an idiot as you fumble through your concerns in French. Now you’re afraid she thinks you are a rube. After all, if you want to buy a home in France, speak French – or else.
What would you do? Sign away and hope for the best. Wouldn’t you wonder, what’s so hard about providing something in English? Might rapport suffer as you are forced to go all-in, trust or bail, and hope you’re not getting screwed?
Sounds crazy, doesn’t it? Besides, what part about salesmanship and meeting the customer’s needs is missing here?
From the Federal Housing Finance Agency
The number of LEP individuals and their share of the population in the United States has increased considerably over the past few decades. According to the most recent American Community Survey, nine percent of the U.S. population (over 25 million individuals) are considered Limited English Proficiency (LEP).
Five Reasons to Expand Your Customer Base
Among LEP persons in the U.S., 64 percent speak Spanish, 7 percent speak Chinese, 3 percent speak Vietnamese, 2 percent speak Korean, 2 percent speak Tagalog, 2 percent speak Russian, and fewer speak dozens of other languages.
The FHFA Mortgage Translations Clearinghouse
The creation of the Mortgage Translations clearinghouse is part of a Language Access Multi-Year Plan that FHFA, Fannie Mae, and Freddie Mac are undertaking to improve the ability of mortgage-ready borrowers with limited English proficiency (LEP) to help understand and participate in all facets of the mortgage life cycle.
Important Note: There are many legal issues involved in originating mortgage loans in a language other than English, including federal, state, and local laws (such as those for California, Illinois, Massachusetts, Oregon, Texas, and the District of Columbia) that address marketing, negotiating, and conducting lending activities. You should consult legal counsel about which requirements may apply to your business and the use of these materials.
Helen Kanovsky, former General Counsel at HUD and, up until recently, General Counsel for the MBA seems to think lenders could do more. Not French lenders of course, lenders here in the USA.
Here are a few of her comments from back in 2016 while HUD GC regarding compliance with the Federal Housing Act.
“The Fair Housing Act (or Act) prohibits discrimination in the sale, rental or financing of dwellings, and in other housing-related transactions, because of race, color, religion, sex, disability, familial status or national origin.
LEP refers to a person’s limited ability to read, write, speak, or understand English. Individuals who are LEP are not a protected class under the Fair Housing Act. The Act nonetheless prohibits housing providers from using LEP selectively based on a protected class or as a pretext for discrimination because of a protected class. The Act also prohibits housing providers from using LEP in a way that causes an unjustified discriminatory effect.
Courts have recognized that “an individual’s primary language skill generally flows from his or her national origin,” and “persons of different nationalities are often distinguished by a foreign language.
Because of the close link between LEP and certain racial and national origin groups, restrictions on access to housing based on LEP are likely disproportionately to burden certain protected classes and, if not legally justified, may violate the Act under a discriminatory effects theory.
The third step of the discriminatory effects analysis is applicable only if a housing provider successfully proves that its language-related policy or practice is necessary to achieve its substantial, legitimate, nondiscriminatory interest. In the third step, the burden shifts back to the plaintiff (or HUD in an administrative proceeding) to prove that such interest could be served by another practice that has a less discriminatory effect. The identification of a less discriminatory alternative will depend on the particulars of the policy or practice under challenge, as well as specifics about the housing at issue and affected population.
Allowing a tenant (or home-buyer, mortgage-borrower, etc.) a reasonable amount of time to take a document, such as a lease, to be translated, could be a less discriminatory alternative. Other less discriminatory alternatives in an LEP case might include obtaining written or oral translation services or drawing upon the language skills of staff members. Similarly, if the family has a member who speaks English or brings another person along to interpret, agreeing to communicate through these individuals could be an alternative to refusing to deal with anyone who does not speak English.”
The CFPB Speaks
Then CFPB Director Kathy Kraninger also chimed in approving the CFPB LEP statement, “Statement Regarding the Provision of Financial Products and Services to Consumers with Limited English Proficiency.” She enumerated three objectives with the CFPB LEP focus:
(1) promote access to financial products for all consumers, (2) facilitate compliance by providing clear rules of the road, and (3) educate and empower consumers to make better informed financial decisions.
Kraninger asserted that “approximately 22 percent of the U.S. population over the age of 5 (in all, 67.8 million people) speak a language other than English at home and, of these, 37.6 percent are LEP.”
The CFPB enumerated several concerns, this one touching on the matter of disclosure:
“Financial institutions may mitigate certain compliance risks by providing LEP consumers with clear and timely disclosures in non-English languages describing the extent and limits of any language services provided throughout the product lifecycle.
In determining when during the product lifecycle financial institutions can offer services in non-English languages and the extent of those services, financial institutions may consider activities and communications—whether verbal or written—that most significantly impact consumers. To determine whether a verbal or written communication is one that significantly impacts consumers, financial institutions may consider whether the communication conveys essential information about credit terms and conditions (e.g., loan pricing), or about borrower obligations and rights, including those related to delinquency and default servicing, loss mitigation, and debt collection.”
What does all this mean to you? What it could mean is starting with small steps. Provide both the English and Spanish versions of the Toolkit to native Spanish speakers.
Provide the additional documents relevant to expressed applicant preferences.
Learn to speak your customer’s language. Isn’t that what good salespeople do? You don’t need a command of the language. How hard is it to say mucho gusto or gracias para su negocio? Introducing yourself in their language and thanking them for their business might be all it takes to help put non-native English speakers at ease and demonstrate appropriate respect commensurate with the interaction.
Remember the French banker. Don’t be like that.
Tip of the Week
Efficiency – Creating a Sense of Urgency
WORDS OF DOOM – AS SOON AS POSSIBLE and other leadership failures
Years ago, as a new loan officer, I developed a terrible condition that many loan officers suffer. Unfortunately, many never overcome this deadly condition—the fatal inability or unwillingness to lead the loan manufacture effectively.
Do the words leader, authority, and leadership make you uncomfortable? If so, or if that describes someone you know, read on.
As a new LO, I lacked confidence in my abilities and industry know-how. I was easily intimidated by applicants, especially those that looked or acted like my father. The loan manufacture demands leadership. The LO is the one that provides or fails to provide that leadership.
I viewed leadership as telling people what to do or lording authority over others. Like many folks, I had a skewed understanding of leadership and what it means to lead.
Leading and orchestrating the loan manufacture means effective communications, setting expectations, assigning tasks, and ensuring people do what needs to get done. However, as the late management and leadership guru Peter Drucker advocated, overreaching the efficient management of the process must be a sense of strategy. The leader must examine if we are doing the right things, not just doing things right. For the MLO, that means ensuring the customer’s well-being is our guiding North Star. Sometimes, despite what the customer wants. But importantly, the loan officer must also appreciate and embrace a team mentality. Loan officers must lead both inside (internal stakeholders) and outside (external stakeholders).
When I started my origination career, most applicants were older than me. Much older. I was also the youngest person in the office. As far as my perceived leadership responsibilities surrounding the loan manufacture, I often felt like a child telling my parents or teachers what to do. As a result, I felt the need to communicate in a subordinate or differential fashion. Significantly, I felt a need to soft-peddle document requests. At all costs, I set expectations in a way that avoided appearing bossy, impertinent, or aggressive. I found myself tip-toeing around. I did not want to burden or upset people. I was afraid I would offend them, and then they would go to a nicer lender.
After all, these customers were already overwhelmed with everything else they were doing to buy a house. I still see faces. Vacant stares. Big-eyed sighs, silent, misgiving glances. Head wags. You’d think I kicked them in the crotch because I asked for a signed tax return. If I were demanding, maybe they would complain to the builder or real estate agent. I needed to make it “easy” for them.
To be friendly and respectful and make it easy, I’d suggest to the applicant that they get essential documents or information to me “as soon as you can” or “when you get a chance.” Consequently, I spent much of my time chasing after signature pages, W2s, bank statements, and other artifacts. I spent the rest of the time deflecting blows from my co-workers, who were disappointed in my incomplete applications. Chiefly the boss and processors were aggravated by wasting their time with re-work and defects on my loans.
That ASAP thing was not working out for me. What ASAP was in my thinking was the next day or so. I found out that ASAP meant different things to different people. For many, ASAP means take it easy or no rush whenever you get around to it. I thought it was a nice way to convey importance, without overly pressuring the applicant by communicating urgency.
I recall how one applicant stands out as an example of this failed leadership. I’d given them the usual written document list of things I needed ASAP.
As it happened, in this instance, after delivering my usual “I need this as soon as possible,” this applicant went on vacation. A little context. Before cell phones, when your customer left town, that was it. They were gone. Unless they called you, you were waiting until they checked voicemail or showed up at your office.
He returned just in time for the closing. Naturally, he had failed to provide anything on my needs list. He probably figured he could bring it to closing – who knows?
Well, to make a long story short. When the applicant returned from vacation to find half-a-dozen panicked calls from me, they were not too happy. He said to me, “Why didn’t you tell me how important these documents were to the loan process? To which I replied, “What part of this is really important and as soon as possible were unclear to you?” I used to have to get upset to find my voice. In hindsight, for a guy trying to tip-toe around, it was odd how quickly I’d go Wolverine on folks when angered! Instead of the voice of reason, my defensive and angry voice, like many folks, is more like something from The Exorcist.
Surprise! That deal did not close. Who gets a mortgage from a demon? But I did get a complaint against me and another failure.
But this time, I pledged to myself that I would clarify what I meant by as soon as possible.
Meanwhile, and unbeknownst to me, my co-workers had reached a breaking point with my loan hackery. At the time, I perceived that processors were generally demanding, unfair and prickly. However, I failed to connect my perception of processors with my behaviors. I thought my job was hard before this point, but soon, I opened a new chapter of pain. Like a scene from the Hobbit, my boss and her hellish legion of processors began tag-teaming me like a hoard of vengeful wraiths. My job was getting daily beatings like a worn-out welcome mat. I did not like the work anymore.
Processors were rough back then. So I figured it might be time to reassess things. Pain is a powerful tutor. But, truthfully, too many loan officers have developed such thick hides that the lashes have lost relevance.
There are not any magic business formulas. But there are touches of magic to be had for those with ears to hear.
Next week I’ll share how the good Lord intervened and sent me an angel named Jerry.
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?