By Kerry Hatzenbuehler, Pinion Financial Institutions Advisor
Recent regulatory compliance testing conducted by Pinion’s financial institutions advisory team continues to uncover recurring loan compliance issues, many tied to inconsistent procedures, incomplete documentation, inaccurate disclosures, or timing errors. While these findings may seem minor, they may still expose financial institutions to regulatory criticism.
Following are common issues to watch for in several regulations.
Loan Estimates
Rate Lock Disclosures- Regulation Z, [12 CFR 1026.37]
We continue to see institutions incorrectly disclose the Rate Lock section of the Loan Estimate.
If the interest rate is locked, the Loan Estimate must include the expiration date and time of the rate lock and the applicable time zone. The time zone should reflect the location and time zone in effect when the rate lock expires [i.e. Daylight savings time (CST) vs. standard time (CDT)].
In that same section, the estimated closing costs expiration must also include the date, time, and applicable time zone, and expire at least 10 business days after the disclosures are originally provided to the applicant.
For revised Loan Estimates: If the consumer has already indicated their intent to proceed within the time specified by the creditor, the date and time at which estimated closing costs expire are left blank on any subsequent revised disclosures.
Title-Related Fees- Regulation Z [12 CFR 1026.37(f)]
Title-related fees are another recurring area of concern. When a fee is associated with title insurance services, the description must begin with the word “Title.”
Service Provider Lists- Regulation Z [12 CFR 1026.19(e)(1)(vi)(C)]
Each “Service You Can Shop For” listed on the Loan Estimate must have a corresponding service provider identified on the Service Provider List. Make sure to compare Loan Estimates with Service Provider Lists to confirm each applicable service has a corresponding provider.
Closing Disclosures- Regulation Z [12 CFR 1026.38]
Closing Information
We frequently identify issues with the Closing Information at the top of page 1 of the Closing Disclosure. Common problem areas include the File # assigned by the settlement agent, the sale price (or appraised property value), and the property address. Make sure fields are accurately and consistently completed prior to finalizing the Closing Disclosure.
Services and Service Providers
Errors also tend to occur on page 2 “Services Borrower Did Not Shop For” and “Services Borrower Did Shop For” (Loan Costs Items B & C).
Pertaining to “Services You Can Shop For”, if the borrower “shops” and selects a provider from the Service Provider List, the service and related fee should appear under “Services Borrower Did Not Shop For” on the Closing Disclosure. [12 CFR 1026.38(f)]
Institutions should also make sure the party ultimately receiving payment is properly identified for each fee (under the Services Borrower Did Not and Did Shop For).
For example: Appraisal Fee to John Smith Appraisal, Inc.
We have recently seen several instances where the party receiving payment was left blank.
Appraisal Notice Requirements- Regulation B [12 CFR 1002.14]
Financial institutions must provide applicants with notice of their right to receive a copy of an appraisal within three business days of receiving an application for credit (first lien loans, closed end and open-end, secured by a dwelling). This requirement applies to both consumer and business-purpose loans secured by a dwelling, regardless of purpose.
The appraisal language is typically included on page 3 of the Loan Estimate, but this requirement is often missed in two specific situations.
- Denied or withdrawn applications: When the loan application is denied or withdrawn within three business days and the Loan Estimate is not provided, the Appraisal Notice is still required.
- Commercial-purpose loans: Because commercial purpose loans secured by one- to four-family residential property do not receive a Loan Estimate, institutions often overlook providing the disclosure or fail to provide it timely.
Adverse Action Notices- Regulation V [12 CFR 1022.73]
Regulation V, Fair Credit Reporting, compliance issues frequently stem from incomplete or inaccurate adverse action notices.
Common mistakes include failing to indicate whether a credit score was used, omitting key factors that adversely affected the consumer’s credit score, and inconsistent completion practices among lenders or branches.
RESPA Homeownership Counseling Notices- Regulation X [12 CFR 1024.20]
The notice of housing counseling organizations must be generated within 30 days of delivery and provided within three business days of receiving an application. The 10 counseling organizations included on the list must be based on the loan applicants’ location, not the location of the property securing the credit.
Strong Compliance Starts with Consistency
The most common compliance findings are rarely caused by a lack of regulatory knowledge. More often, they typically result from inconsistent processes, incomplete documentation, missed deadlines, and insufficient quality control.
As regulatory expectations continue to evolve, maintaining consistency between policy, procedure, and actual practice remains one of the most important components of an effective compliance management system.
Reach out to Pinion’s Financial Institutions team to review your lending compliance processes and identify potential gaps and areas for improvement.
