State regulators are continuing to address a variety of issues, including remote work, social media advertising, overcharging third-party fees and tolerance violations. At the American Association of Residential Mortgage Regulators (AARMR) 2022 annual conference last week, regulators went into detail about many of these topics. They discussed how states are taking a hard look at their remote work guidance and are beginning to codify permissions to work remotely that may have been originally granted on a temporary basis due to COVID-19 restrictions. They also noted that overcharging for third-party fees and tolerance violations are the most common citations issued by state regulators. Also, citations will continue to be issued if lenders do not get a better grip on their staff utilizing social media as an advertising channel and doing so compliantly.
Remote work has been a topic of discussion since the start of pandemic-related restrictions, and it does not seem to be slowing down anytime soon. State regulators are taking a closer look at their remote work policies and guidance, which poses a new dilemma for lenders grappling with ways to monitor these employees. The most vocalized concern for industry professionals is the very lack of consistency amongst the state regulators and the vagueness of existing guidance. While it is no surprise that states have different guidelines for this issue, many lenders represented at the conference were adamant that actionable decisions made by regulators should have a more uniform stance.
People are gravitating to more flexibility with how and where their work is done. Remote work allows for that flexibility and continues to be a trend for industries outside of consumer finance. For many lenders, there is a strong, over-arching opinion that restrictions around remote work slows business and profitability. In a time where liquidity is hard to come by with margin compressions, allowing flexibility around a relevant and modern form of work needs to come soon, or else more lenders will be shutting their doors. In terms of fair lending, there was a point made that these restrictions may result in more mortgage professionals leaving the industry, which would have adverse effects on underserved communities.
Remote work was a topic that was incorporated into nearly every discussion amongst regulators and industry members. Both the AARMR and the ABA (American Bankers Association) have recently issued guidance on best practices for permitting employees to work remotely. Though these best practices are somewhat vague, financial institutions may begin to build out their remote employee monitoring program with these key requirements in mind.
Third-Party Fees and Tolerance Violations
Third-party fees are charges assessed by entities other than the lender for services related to the mortgage transaction. These fees include, but are not limited to, appraisal fees, title insurance premiums, and home inspections.
Under the Real Estate Settlement Procedures Act (RESPA), lenders are required to provide borrowers with a Good Faith Estimate (GFE) of third-party settlement service fees within three days of receiving a loan application, supported currently through the Loan Estimate (LE) and later the Closing Disclosure (CD). At the AARMR conference, keynote regulators named this item as one of the most citable offenses. Often, lender lists of 3rd-party providers were out of date – some providers no longer existed, other providers did not do business in the state where the list had been offered to consumers, etc. Examiners from states like Texas and Colorado agreed that this finding appeared on “roughly 90-95% of exams”.
The purpose of RESPA is to protect consumers by ensuring they receive adequate disclosures about settlement service fees and tolerances. Lenders need to be mindful of settlement service fees charged in order to comply with RESPA. When shopping for third-party settlement services, it is important for consumers to compare not only the cost of the services, but also the quality of the services being offered.
Social Media Advertising
Loan officers are using technology that is relevant today, even though it is putting their license and their company’s license at risk. State regulators are actively searching social media platforms for loan officer-managed social media and corporately managed social media. At the ARRMR conference, a Texas regulator confirmed that their team regularly utilizes social media not only during their examinations but also to investigate unlicensed activity. While it can be a time-consuming task for lenders to search for employee social media, regulators confirmed that social media is a breeding ground for multiple types of violations. Loan officers should use social media cautiously and avoid posting anything that could be construed as a compliance violation because examiners are in fact taking a deep dive into their accounts.
While Facebook has been the focus of much regulatory inspection, other social media platforms like Yelp, Alignable, and TikTok are also coming under increased scrutiny. These platforms offer unique opportunities for lenders to reach consumers, but they also pose new risks that need to be carefully managed. As social media usage continues to grow and evolve, state regulators are paying close attention to these developments to protect consumers and promote stability in consumer finance.
Many loan officers find social media compliance difficult to understand. There are several complex rules and regulations that can be difficult to keep track of. However, compliance is important in order to avoid enforcement action from state regulators. By taking the time to understand the requirements, loan officers can help ensure that their social media activities are carried out in a compliant manner. At the end of the day, most of the liability falls on the lender. It is important that more education and internal policy are put in place to ensure compliance.
The American Association of Residential Mortgage Regulators (AARMR) conference was a terrific opportunity for lenders to mingle informally with their examiners to gain insight into common concerns and enforcement actions being taken by state regulators across the country. If you are a mortgage lender, it is important to be aware of these focuses from state regulators and make sure your institution remains compliant.
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