What items MUST a Broker retain independently in each loan file

Don't let your wholesaler tell you they've got everything you need. They don't. Important lessons in regulatory audits and examinations. 

"If you only do ONE THING - post close your loan files."

Brokers - ALWAYS Retain All Loan Documents

I cannot overstate the importance of meticulous record-keeping. Regulatory requirements and best practices require brokers to maintain comprehensive records of all loan transactions, including disclosure events and closing documents. 

I hear people saying, "I don't see anything in the regulations that says I have to keep certain documents..." but your regulator will require copies of all documents on all the loans you handle. In this article, we provide an explanation of what documents regulators hold brokers accountable for. 

I also hear people saying "My wholesaler will give me copies of everything if I ask for it. So I don't need to post-close my loan files..." While the wholesaler will retain copies, and may also provide a copy of a file a long time after loan closing, we see a lot of inconsistency in the condition of those document stacks from the lender. They can look like a jumble, which will require you to reprocess the file. Furthermore, what happens if the lender shuts down, gets merged or otherwise doesn't have the ability to provide what you need? 

Record Retention Requirements

As a broker, your record retention involves both the disclosures you issue and those provided by the lender. While federal and state regulations may not explicitly mandate the retention of all documents from the lender, best practices and regulatory expectations strongly advise maintaining a complete set of records. 

Also, your loans progress in stages and may not complete or get submitted to the lender. Our system suggests what you must retain at various stages of the process. 

We provide a checklist of this here:

Key Practices and Checklists

1. Retain All Broker-Issued Disclosures:

   • Initial Loan Application Form (1003): Ensure that the signed initial application is on file.
   • Loan Estimate and Required Providers Disclosure: These should be issued within three days of application.
   • Notice of Intent to Proceed: Must be signed by all borrowers.
   • Changed Circumstances Re-issued: Include any tolerance adjustments.
   • E-SIGN Acceptance/Agreement and Delivery Transcript: Keep records of acceptance and delivery audit trails.
   • Signed Initial and Final Broker Fee Agreement: Must match the closing disclosure or settlement statement.

2. Obtain and Retain Lender-Issued Documents:

   • Final Loan Application (1003) and Transmittal Summary (1008): Essential for compliance.
   • Executed Closing Disclosure (CD): Include all attachments.
   • Final Mortgage Loan Lock-in/Financing Agreement: Required at least five days prior to closing.
   • Appraisal and Related Notices: Keep copies of the appraisal order, the appraisal itself, and the right to appraisal notice.
   • Final Sales Contract and Earnest Money Deposit: Ensure these are part of your records.
   • Loan Commitment/Approval Notification: Document the lender's commitment to the loan.

3. Comprehensive Documentation:

   • Fee/Cost Reconciliation: Maintain copies of all application fees, appraisal fees, credit report fees, and other relevant costs.
   • Affiliated Business Arrangement Disclosure: If applicable, retain this disclosure.
   • Compliance Disclosures: Include ARM disclosures, CHARM Booklet Notice, Anti-Steering Notice, ECOA Rights, Fair Credit Reporting Act Notice, and others.
   • State-Specific Disclosures: Ensure all state-required disclosures are documented and retained.

Why Complete Record Retention Matters

State regulators, such as those in Washington and Texas, expect brokers to maintain records similar to those required from lenders. During examinations, brokers are often asked to produce detailed records of all disclosure events, closing documents, and other pertinent paperwork.

Texas, North Carolina, and Maryland Loan File Checklists

Adhering to the checklists from different states can help ensure comprehensive compliance:

• Texas Checklist: Includes initial and final disclosures, funding checks, appraisal reports, and title insurance.
• North Carolina Loan File Checklist: Similar to the Texas checklist, emphasizing the importance of complete documentation.
• Maryland Loan File Checklist: Focuses on detailed retention of all application and closing documents.

Updated Practices and Client Advice

In light of experiences and state examinations, brokers should update their practices to require copies of all signed disclosures and final closing packages from the lender. This proactive approach not only ensures compliance but also protects brokers in the event of an audit. You do not want to have to stop producing and getting new business to have to reprocess loan files to submit to a regulator. 

Advice for Broker Clients: Always obtain a complete disclosure package from the lender, and ensure you send out the required broker disclosures independently. This comprehensive approach to record retention is crucial for compliance and to avoid citations for missing lender documents. If the lender does not cooperate, document your efforts to obtain the necessary records.