Lack of clarity surrounds CFPB exam procedures

With the CFPB due to start originator exams in January 2014, questions remain as to how the process will unfold

Lack of clarity surrounds CFPB exam procedures

Individual mortgage loan originators will be examined by the Consumer Financial Protection Bureau starting January 2014. The question that still remains, however, is how?

States are currently the regulators of mortgage loan origination companies and issue licenses for both companies and individual loan originators. States are able to revoke licenses of either at any time and do some audits of loan origination companies, but its nothing regular and looks nothing like what CFPB intends beginning January 2014.

According to Mark Leyes, spokesperson for the California Department of Corporations, individual mortgage loan originators only have to apply and pass a mortgage licensing test once a year. Licensed mortgage originators can lose their license due to specific consumer complaints or lawsuits, but for the most part are left unexamined, Leyes said.

For a state that has over 18,000 MLOs, it will be quite difficult to carry out such subjective terms that the CFPB outlined in their examination procedures, Leyes said.

For example, CFPB’s examination procedures for individual MLOs said:

“A loan originator must be ethical and knowledgeable and meet character, fitness, and financial responsibility requirements; pass criminal background checks; and complete appropriate training.”

It is still uncertain how, when or how often the CFPB will execute examinations for individual loan officers. The CFPB did not return requests for comment on the matter.

It did state, however, in a press release that these “exam procedures will help financial institutions and mortgage companies understand how they will be examined,” for when CFPB puts major rules into effect January 2014.

It appears the CFPB will be taking the lead in this effort, even though states are currently the primary regulators of originators.  

Leyes said that the Department of Corporations has had multiple conversations with the CFPB and plans on coordinating any new efforts to examine mortgage loan originators.

Likewise, Florida’s regulator submitted the following statement to MPA in regards to CFPB’s new examinations:

“The Florida Office of Financial Regulation has a good working relationship with the Consumer Financial Protection Bureau (CFPB), as well as other federal entities that also regulate similar industries.  As such, Florida and other states are working with the CFPB to coordinate multi-jurisdiction examinations over the course of the year. The states and federal agencies will work together to have thorough examinations and not to over-burden the companies.”