Thursday, April 23, 2020

ADA Website Compliance: Mortgage Lenders the Target

Mortgage Lenders Targeted for ADA Website Compliance

Even without a real complainant, the petitioner succeeds in obtaining a judgment

You may have your loan-level compliance nailed; it's the rest of your operation that puts you at risk.

A recent demand letter a client received shows an excellent example of this. The law firm wanted a $25,000 settlement. ADA website compliance legal actions have risen over 300% from 2018 to 2019. Compliance blogs are abuzz with these actions. Because the mortgage industry offers Federally related financing, we represent an ideal target, too. With the threat of any legal action representing a risk to your ongoing business, you have to respond because of the waterfall effect on your license.

A client of ours just did that. He corrected his website at a substantial cost and time investment - $10,000 and six weeks. But he still had to go to an ADA compliance consultant and get a certificate of compliance and, even after that, there were still problems. The issue is incredibly complex because of the vast array of disabilities you have to accommodate, not just blind individuals, but color blind, learning disabled, input impaired, and so on.

This urgent crisis prompted me to investigate possible solutions for our clients. It's not just about finding your website's problems (there are plenty of scare tactics out there); it's really about minimizing the investment required to fix problems today and going forward.

Here's a solution which, after installing one line of code in your website header, on the fly renders an ADA compliant site and provides you with a compliance certificate. Problem solved.

Thursday, March 5, 2020

Where's my Privacy Policy?

Most Important - The first form you should give to a customer

In this era of wholesalers taking applications in your name at the point of sale, it's important to note the timing of the Privacy Policy. It should be delivered BEFORE you share the information with a vendor (credit bureau, appraiser, WHOLESALER/INVESTOR, etc.)

Where's my Privacy Policy?

Gramm-Leach-Bliley (GLB) Privacy rules received an inordinate amount of attention in the pre-crisis compliance era. This is due to corporate structures that share consumer information, often without the customer's knowledge. To protect consumers against unauthorized sharing so that affiliates and other firms can market to your consumer, the Opt-Out Provisions of the Gramm-Leach-Bliley privacy rules require that companies tell consumers how they treat consumers' private information. In addition, the company must give the consumer the option to elect NOT to share that information. This results in the form the consumer receives and the instructions they use to opt out. 

We still see MANY questions regarding this form and its proper completion, so we have provided this simple guide to correctly populating the form fields. 

When a Regulator Asks for your Privacy Policy

We get the question, "where is my Privacy Policy?" in the policies and procedures we provide. It's natural to ask us because of how the question is phrased. But this one does not come in a formulaic narrative manual. It's embodied in your disclosures and (hopefully) on your website. The "Model Privacy Notice" is your "Privacy Policy" as far as GLB is concerned. 

How to Correctly Complete the Form

  1. Add income/employment, asset, credit history, and property information as necessary.
  2. YES - you send to investors, underwriters, secondary market partners, title companies, etc. 
  3. NO - they can't limit it because they wouldn't get a loan if you didn't share it.
  4. Depends on your marketing - do you market to your customers - past or present? (e.g., email blasts) If yes, then yes, and your customer must be able to opt out, and you have to have a toll-free number.

Many States Require Specific Disclosures on the Form, Such as Vermont

Not Every Privacy Policy is a GLB Privacy Policy

Often, a regulator will ask for a Privacy Policy, referring to a policy or procedure describing how you will keep your customer's information private. In other words, "Information Security" and not "Privacy."

Tuesday, March 3, 2020

North Carolina Mortgage Licensing and Examinations - What have we learned?

It should surprise no one that NCCOB - the nation's FIRST state regulator to initiate anti-predatory lending laws, and one of the first to initiate robust pre-licensing training, AND was a leader in pre-Dodd-Frank regulation - has now taken the flag as one of the most detail-oriented examiners. 

Expect an initial examination within the first 12 months of licensing. Existing licensees who have never been examined should expect one, and this normally coincides with a complaint or other inconsistency.

For those licensed in the state, NCCOB (North Carolina Commissioner of Banks) has clearly and transparently posted its expectations. Yet over and over we see brokers and lenders alike responding with surprise to examination findings and questionnaires. When we review the findings to help licensees comply we aren't surprised, just a little disappointed at what some might call willful blindness.

We have a great deal of respect for the rational approach that the regulator has taken. Nothing in the findings represent anything that brokers or lenders shouldn't be responsible for. If anything, our concern is that these problems exist elsewhere and propagate because of a lack of oversight.

Broker Fee Agreements

It's illegal to collect a fee without the customer's explicit agreement. These files show missing or incorrect broker fee agreements, or incorrectly completed lender financing agreements. The common response or argument is that the LE or CD provides the customer's tacit agreement. However, it's usually too late at that point; the information on the LE/CD should come from the financing or broker agreement.

For our customers, we devote a section of our quality control plan for correct completion and retention of financing or fee agreements.

BSA/Anti-Money Laundering Plans

We sell both stand-alone anti-money laundering plans, or better yet, QC (Quality Control) plans that identify the full set of FinCEN (FINancial Crimes Enforcement Network) identified Red Flags. Our BSA/AML (Bank Secrecy Act/Anti-Money Laundering) plans use these to identify potential SARs (Suspicious Activity Reports) for reporting.

Most people don't read them.

Otherwise, they would know that they include:

  • A SAR Reporting Workflow
  • A Compliance Officer (You have to put the person's name where it says "Insert Compliance Officer here")
  • Initial and Periodic Training (We give this away here, or provide a checklist to ensure you have taken AML specific training as part of your Continuing Education)
  • Both FinCEN and Industry Specific Red Flags

When we see a finding related to "deficient AML plans" these all fall under that category.

Missing Documents in Audit Files

Inexcusably, many files reflect missing exhibits or data reflected in reporting doesn't match loan files. THIS IS JOB ONE of a quality control plan! Time spent retrieving documents from investors, closing agents or even borrowers represents lost loan production time; wouldn't you rather spend time originating than chasing old loan file exhibits? 

This is the reason our QC Plan has a closed loan checklist. Click to download NCCOB's version here. We find it interesting that the checklist they provide bears some resemblance to the one in your plan:

1099's - Beware EVERYONE

We recently wrote an article on 1099 compensation of originators. NCCOB takes the position that originators are employees. Unless you follow the recommendations in our article, expect an issue with 1099 payments. Further, BRANCH MANAGERS ARE EMPLOYEES by definition; you can't be a contract manager. No Branch Manager 1099s. Also, you can't have branches in homes.

Contract Processors and other unlicensed entities

As above, compensating 3rd parties for work normally done by employees, such as processing, should automatically prompt you to require licensing of that individual or service.

Monday, January 27, 2020

Can I pay a Loan Originator by 1099?

As we roll into tax season, we return again and again to the topic of originator compensation; it remains the most ambiguous topic in compliance. Varying comp, broker company compensation, borrower-paid or lender-paid, all represent areas of confusion. But nothing confounds more, with multiple layers of regulations, than whether you can pay a loan originator as a contractor by 1099.

Conflicting Interests

Ironically, originators WANT this, while other industries experience the opposite with employees decrying the "gig economy" and its loss of employment benefits. But mortgage brokers want to minimize costs and payroll taxes represent a high margin expense. Originators also may benefit from treatment as self-employed with a much wider latitude to expense business development costs than employees. 

On the other side, state and Federal governments have taken aim at the contract labor movement because of the loss in payroll taxes. The IRS has taken steps to formalize the delineation between formal W-2 employees and 1099 contractors.

The IRS guidelines basically say, “If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.” The IRS focuses on three main areas when determining employment status:

  • How much control the employer has over the worker’s behavior and work results. (Who controls training, where and when the person works, what equipment they use?)
  • How much control does the employer have on finances? (Does the employer have primary control over the person’s profit or loss?)
  • What is the relationship between parties? (Does the worker receive benefits and is it a long-term relationship?)

Here is the 20-point checklist from the IRS, which may be used as guidelines in determining if a worker can be legally paid as a contractor:

  • Must the individual take instructions from your management staff regarding when, where, and how work is to be done?
  • Does the individual receive training from your company?
  • Is the success or continuation of your business somewhat dependent on the type of service provided by the individual?
  • Must the individual personally perform the contracted services?
  • Have you hired, supervised, or paid individuals to assist the worker in completing the project stated in the contract?
  • Is there a continuing relationship between your company and the individual?
  • Must the individual work set hours?
  • Is the individual required to work full time at your company?
  • Is the work performed on company premises?
  • Is the individual required to follow a set sequence or routine in the performance of his work?
  • Must the individual give you reports regarding his/her work?
  • Is the individual paid by the hour, week, or month?
  • Do you reimburse the individual for business/travel expenses? 
  • Do you supply the individual with needed tools or materials?
  • Have you made a significant investment in facilities used by the individual to perform services?
  • Is the individual free from suffering a loss or realizing a profit based on his work?
  • Does the individual only perform services for your company?
  • Does the individual limit the availability of his services to the general public?
  • Do you have the right to discharge the individual?
  • May the individual terminate his services at any time?

Further, fair labor laws stipulate minimum wages, safe working conditions, and benefits. 

Draw a Bright Line

We may never get closure on this matter; too many variable circumstances exist for a regulator to draw a definitive line. This exposes the mortgage industry to individual legal or regulatory actions such as those we have already seen; lawsuits for minimum wage claims and licensing censure for incorrect classification of marketers as contractors. 

There's Only ONE Legitimate Solution

In our estimation, the ONLY legitimate solution lies in having the employee/contractor affirmatively claiming self-employment. For mortgage brokers, this means licensing as a company as well as an individual. In other words, instead of just an MU-4, the loan originator will also file an MU-1 and MU-2 in his or her natural name. In this way, the mortgage originator can insist on payment as a contractor with no risk to the employer for misclassification or wage-hour claims.

The state, then, will ensure that there is an EXCLUSIVE agreement between the company and the loan originator firm, that will ensure that all business gets conducted through the company, and not through multiple other firms. In other words, you are an exclusive wholesaler for the loan originator. 

But Everyone's Doing It

Yes. We hear of this all the time. The fact that other companies pay via 1099, and even advertise it,  does not mean you've missed something. Structures like this take advantage of the ambiguity in the rules, hoping to "fly below the radar" of lax oversight. Many states don't validate compensation plans by drilling down into W-2 employees versus contract employees. It's likely that this is what you are seeing. You take a chance when offering non-standard plans. 


  • HUD requires that lenders participating in its programs affirmatively eschew conflicts of interest created by outside employment. Lenders offering FHA financing must compensate employees by W-2. 

You Cannot EVER Pay a Branch Manager as 1099

This is a contradiction in terms. A manager, by definition, is an employee responsible for ensuring employees perform their duties according to company policy. 

SAFE Act Update

Transitional Licensing Update - We updated the SAFE Act Licensing Policy to iterate the requirements of Transitional Licensing for LOs. Remember that you MUST have an existing license to transition. Registration does not count. Also, the company has to be licensed before you can transition to the company.

Licensing Processors - It should be obvious that processors or other employees don't need to be licensed. It should be equally obvious that processors who aren't employees MUST be licensed. Among other things, besides a license, that your contract processor must have:

  • Processing Policies and Procedures
  • Information Security
  • Fair Lending
  • Anti-Money Laundering
  • Anti-Predatory Lending

Consult your Vendor Management plan.