Improper Lending Activity Reported by Multistate Mortgage Committee

By Sari R. Updated on 8/20/2012

In 2011, a Multistate Mortgage Committee examination covering twenty-three states revealed that many mortgage brokers are collecting fees in error and are becoming involved with unlicensed activity.

The Multistate Mortgage Committee is made up of state regulatory members from ten states.  These members were chosen by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators.  This examination revealed many cases of unlicensed activity.  These instances were not easy to differentiate, due to the fact that some licensees made several layers of employees and management, and didn’t see any need to license every employee who originated a loan.

Incorrect Federal Housing Administration and Veterans Administration fees were seen throughout several states; this indicates a severe internal routine and control issue.  Because these fees exist, reimbursement is now necessary for borrowers.  This could potentially be a threat for the safe operation of lenders.  Fees were also collected that didn’t fit the standards of the Real Estate Settlement Procedures Act – this included the collection of incorrect amounts, unallowable fees and unearned fees.

Last week, the Consumer Financial Protection Bureau suggested that loan officers should have compensation rules in order to simplify mortgage costs for consumers and to hold loan officers accountable. The committee also stated that many good faith estimates were incorrect and loan officers frequently failed to prove that consumers were given the Truth-in-Lending disclosure within three days.

The Truth in Lending Act requires that key terms and all costs of the lending arrangement are disclosed.  It specifically requires that the finance charge can’t be understated by more than $100 in order to be held accurate.  The Multistate Mortgage Committee found many cases where the difference between the actual and disclosed finance charge was more than $100.  These examinations require the brokers to refund borrowers the difference.