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NAMB West 2011
Rapid Rescore Compliance Infractions
Presented by:Terry W. ClemansExecutive Director National Credit Reporting Association, Inc.
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About NCRA:The National Credit Reporting Association, Inc.
NCRA is a non-profit trade association founded in 1992 thatrepresents the Consumer Reporting Industry and specifically“Mortgage Credit Reporting Agencies”.
NCRA represents approximately 80% of the Credit ReportingAgencies in the United States and Puerto Rico that producespecialized Mortgage Credit Reports as required by theDepartment of Housing and Urban Development, Fannie Maeand Freddie Mac for mortgage loan underwriting.
NCRA members provide the mortgage lending community inexcess of 2,000,000 mortgage credit reports per month.
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This Rescore Compliance issue was created April 2011 due to conflicts between:
Dodd – Frank Wall Street Reform The LO Compensation Rule The Federal Reserve Commentary on the “Rule” CROA – The Credit Repair Organization Act National Credit Repository Guidelines
Just what we need –Another Dodd-Frank and LO Comp Issue!
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Meaning of Compensation. While the Rule does not provide an express definition of “compensation,” it does provide guidance and give examples of what is and is not compensation and what is permissible and impermissible compensation for the purposes of the loan originator compensation and anti-steering provisions in the Rule at §226.36(d) and (e).
Generally, under the Rule “Compensation” means all amounts a loan originator retains or keeps in connection with a loan. Compensation is either permissible or impermissible under the Rule.
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The Rule makes a specific distinction between:
(i) amounts the loan originator receives to pay bona fide and reasonable third party charges such as title insurance or appraisals which is allowable compensation; while
(ii) the amounts the loan originator retains or keeps by “upcharging” third party charges (i.e. retaining the difference between the actual charge and the marked-up charge) would not be allowable. See page 58521 and 58522 of the Rule final commentary. Similarly, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank) takes the same position in regard to bona fide and reasonable third party charges which would be allowable. (See pages 764 and 765 of Dodd-Frank).
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Reason for Concern.
The Federal Reserve has put forward some information on this topic verbally and in writing. Apparently what was expressed verbally was a confirmation that so long as the third party fee did not contain an “upcharge” it would not be considered compensation to the loan officer. This makes logical sense and is consistent with what has gone on before.
However the Federal Reserve responded differently in a question that was put to them as follows:
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MBA’s Q&A with The Fed –
Question 30.
Loan originator payment of third party fees. May a loan originator pay some or all of the third party fees of a consumer or otherwise credit the consumer out of his own pocket?
No. An originator may not pay third party fees out of his or her own pocket. This amounts to varying the loan originator’s compensation based on the terms or conditions of the loan. The Commentary accompanying the rule at section 226.36(d)(1)-5 prohibits such action by loan originators.
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This response is troubling:(i) it is inconsistent with the Federal Reserve’s verbal response; (ii) how it would relate to the “terms and conditions” of the loan
is unknown.
And the worst part – the Credit Repair Conflict
The Credit Repair Organization Act (CROA)
Prohibits upfront payment for credit services so broadly defined to potentially include rescoring as a “credit repair” tool if the fees are charged to the consumer.
Credit Rescoring has to be charged to the mortgage originator to avoid compliance issues under CROA
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Credit Repair Organizations Act – CROA Title IV of the Consumer Credit Protection Act (Public Law 90-321, 82 Stat. 164)
Signed into Law 9/30/1996
(1) To ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services; and
(2) to protect the public from unfair or deceptive advertising and business … practices by credit repair organizations.
Available on the FTC website at http://www.ftc.gov/os/statutes/croa/croa.shtm
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Credit repair organization. The term 'credit repair organization'-- (A) means any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of--
(i) improving any consumer's credit record, credit history, or credit rating; or
(ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i)…
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CROA does not apply to –
Any nonprofit organization which is exempt from taxation under section 501(c) of the Internal Revenue Code of 1986;
Any creditor (as defined in section 103 of the Truth in Lending Act), with respect to any consumer, to the extent the creditor is assisting the consumer to restructure any debt owed by the consumer to the creditor; or Any depository institution (as that term is defined in section 3 of the Federal Deposit Insurance Act) or any Federal or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such a depository institution or credit union.
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CROA SEC. 404. PROHIBITED PRACTICES
In addition to written disclosure, contract, 72 hour right of rescission and record retention requirements –CROA prohibits any up-front payments…
Payment in Advance.—
No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed
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No disclaimer or “work arounds”…
Some companies try the use of a waiver or disclaimer to protect them…
CROA SEC. 408. NONCOMPLIANCE
(b) Attempt To Obtain Waiver.—
Any attempt by any person to obtain a waiver from any consumer of any protection provided by or any right of the consumer under this title shall be treated as a violation of this title.
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Even if you could comply with all the provisions of CROA -- There is another problem
You now have a contractual ―Catch-22‖ With your credit provider and the national credit repositories
Review your credit reporting contracts –Mortgage Originators are prohibited from charging consumers “directly or indirectly” for credit rescoring services by all companies.
This is a policy of all three national credit repositories that require it to be passed down to the end user of the credit reports .
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The Big Question…
How do we comply???
NCRA has been advised by multiple attorneysThat there is no possible compliance to this issue currently.
Another Big Question…
Who is, or is going to enforce this ruling and when???
Very good question – TBD
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The Better Question…What can we do?
Fight for a correction as this is a horrible by-product of poorly drafted legislation.
Legislative Fix? With Frank leaving Congress perhapsa technical amendment to correct?
CFPB’s Rulemaking correction?
NCRA has been looking at all angles.
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Speaking of Credit Repair and CROA
The three national credit repositories are not fond of credit repair firms or mortgage originators that refer consumers to them.
Many mortgage originators have lost access to credit reports for promoting credit repair companies. If you loose access to one, you will be barred from access to all via the ―Do not sell list‖
Associating with credit repair firms is playing Russian Roulette with your mortgage origination business!
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Speaking about Credit Repair Enforcement…
“Its like playing “Whack-a-Mole”……You close one down and another
pops right back up”.
Tony Rodriguez – Asst. Director FTC Speaking at NCRA’s 19th Annual National Conference November 11, 2011 in New Orleans
Despite that we were assured that enforcement was ongoing and would be into the future.
Other state Attorney Generals have taken action too!
