MReport February 2021

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30 | M R EP O RT FEATURE Another area where new administration policies may have an impact is with respect to the potential new down payment tax credit applicable to first-time homebuyers. The new admin- istration may look to increase homeownership for first-time homeowners through this new policy, which may emulate prior policies under previous adminis- trations—or it may go beyond a one-time tax credit and possibly allow a percentage of a borrower's down payment to be forgiven up to a certain dollar amount. If changes are made to encour- age first-time buyer programs, lenders will need new poli- cies and procedures in place to identify the specific criteria that must be met to qualify as a first-time buyer. However, this definition is often difficult to test and it may differ from guideline definitions. Lenders will need to be able to document the rationale that a buyer qualifies and provide evidence in the loan file or it will not hold up under regulatory scrutiny. There could also be greater enforcement of fair lending rules and the Home Mortgage Disclosure Act (HMDA) com- pared to the past four years. Enforcement under Biden's nominated CFPB Director Rohit Chopra may be more aggres- sive than it was under former Director Kathy Kraninger, but it is yet to be seen whether it will be as aggressive as it was under the Obama administration. Because of the booming refinance market, for instance, there have been instances in which borrow- ers pursuing lower balance loans who have poor credit may be neglected by lenders unwilling to spend the extra time to close their loans. From a regulatory standpoint, Canceled, Denied, or Withdrawn (CDW) loans can be early red flags that there has been a difference. The Biden Administration is likely to be more focused on pro- viding a more equitable lending landscape, in which borrowers are treated the same regardless of ethnicity, age, race and gender. Lenders must monitor to ensure borrowers under a protected class are not receiving less favorable loan terms than non-protected class borrowers. Lenders could run into fair lending issues if a lender lowers one borrower's rate because the borrower observed a lower rate from a competitor, but another borrower had to jump through hoops to obtain the same rate reduction. Additional Challenges Coming This Year T here are some good things happening this year. One major change will be the intro- duction of the new Uniform Residential Loan Application (URLA). While implementation of the new form and explaining it to borrowers may create some issues, it is not likely to create compliance risk. Rather, it allows for greater visibility as it enables originators to capture more infor- mation from borrowers. With the new URLA, lend- ers will no longer need to issue a separate taxpayer consent disclosure to the consumer. Prior to the new URLA, in addition to the 4506-T form to authorize the lender to obtain the borrower's transcript from the IRS, the lender was required to have the consumer execute another form for the borrower to give consent to permit the lender to share the IRS issued tax transcript. The URLA now has the borrower's consent language built into the form to permit the sharing of their tax transcripts. This will benefit lenders and subsequent purchasers or assignees of mort- gage loans using the new URLA. In the last 12 to 18 months, originators hired significant numbers of loan officers, under- writers, loan processors and other key roles. While the additional staff was needed to get through the period of significantly high volumes, at some point—either later this year or a couple of years from now—lenders will have to reduce staff again. This creates a potential risk of having a dis- gruntled former employee acting as a whistleblower and calling out perceived or actual issues with the originator. To use one hypothetical exam- ple, like any business, originators need to remain compliant when compensating staff for overtime. A lender may have the expecta- tion that underwriters are able to get through 8 to10 files per day. If one of their underwriters is only able to get through 5 to 7 loans a day, they may feel obligated to work a few extra hours per day to meet the originator's produc- tion targets. This would result in the underwriter appearing to meet the productivity goals, but they are working overtime with- out compensation. The under- writer may be working the extra hours to avoid scrutiny for their productivity, but if the originator is not compensating the employee for the extra hours, this would present an issue. Why New Tools Are Needed B ecause originators face a plethora of compliance chal- lenges, it is important to establish policies and procedures as early as possible to ensure their processes remain compliant and potential whistleblowers do not have any- thing they can blow their whistle on. For example, if lenders are having a certain number of CDW loans fall out every month, they'll need to perform analysis to ascer- tain what transpired. If a certain number of loans were withdrawn because the borrower did not submit the required information, how aggressively did the lender or loan officer follow up? Preparing to answer such questions is not an easy chore when lenders are at their busiest. However, they can get help. For example, there are automated compliance engines that are avail- able that can help lenders follow the rules and identify positive trends that signal the lender is on the right path or spot negative trends that require a closer look for potential systemic issues. Lenders will also need fair lending tools that capable of look- ing at peer HMDA data going back five to 10 years to conduct a cross-section analysis of how they compare to other lenders with similar product offerings. Of course, they must also be aware that discrepancies will exist, but they should examine the dis- Lenders will need to be able to document the rationale that a buyer qualifies and provide evidence in the loan file or it will not hold up under regulatory scrutiny.

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