“There’s two aspects to (the new rules),” said David Elliott, partner at Burr & Forman LLP. “On the front end you’ve got the new origination rules that lenders and brokers have to comply with. Then you’ve got the servicing rules afterward.
“As for the front end, I think the key there is that the lenders have to be sure to document everything they consider in underwriting the loans, because if it’s challenged down the road they’ve got to be able to show that they considered every factor,” Elliott said. “They should be over-inclusive in what they consider – and many brokers probably already do this. I would consider as many sources of income as possible to support the loan. That way if it’s challenged, you can show all the sources of income you considered.
“It’s just basic good underwriting and record-maintenance policies and procedures. They’ve got to have policies and procedures in place so that if a loan is ever challenged, they can show, ‘This is what we considered and this is what we did.’”
Elliott also advised caution in the face of the CFPB’s strict new compensation rules.
“(The CFPB rules) can get kind of complicated as how you can compensate the originator. That’s something they need to be very aware of, that they’re in compliance with those originator compensation rules,” he said. “Really the advice here is to keep it simple, and make sure it doesn’t vary according to the loan terms except for the amount.”
He also had some advice for servicers – particularly in areas where they’re legally required to provide a quick response to borrowers.
“The borrowers can send in notices of error or requests for information. Those have to be acknowledged within five days, so that’s a very quick turn-around,” Elliott said. “Servicers are allowed to designate a specific address where those request can be sent, and I think it’s an absolute must that they do that on their website. … If they don’t, any address they have could qualify and notices could come in to all kinds of places. That makes it easy to get lost in the shuffle.”
Keeping a tight lid on compliance is important with the new rules in effect, Elliott said – especially because he predicts a spike in borrower lawsuits in the near future.
“A lot of these rules do have attorney’s fees provisions, which means the borrower’s counsel is allowed to recover attorney’s fees if they’re successful,” he said. “I foresee a good bit of litigation coming out of these rules, if for no other reason because of those attorney’s fees provisions.”
The Consumer Financial Protection Bureau’s new mortgage rules are in effect, and many originators worry that the guidelines will stifle business. While compliance will require strict attention to detail, one attorney has a few tips to make life easier under the new regime.