In a previous article, we discussed the importance of establishing a strong line of defense against regulatory violations. Maintaining sufficient policies and procedures, plus a well-trained staff, are the backbone to any effective compliance management program. However, keeping regulatory penalties at bay isn’t just the responsibility of the compliance officer. It’s a team effort, and the responsibility of every employee every day! If one player doesn’t perform his job correctly, then your line of defense becomes weak.
We all know a weak line of defense will create the opportunity for errors that could be costly to the team. For instance, your mortgage lenders must provide clear documentation at each stage of the application process, such as documenting the consumer’s intent to proceed with the transaction. Unless you require the consumer to provide his or her intent to proceed with the transaction in a particular manner, such as in writing, then the consumer may indicate an intent to proceed in any manner the consumer chooses.
The ability for the consumer to indicate his or her intent to proceed with the transaction verbally does provide a convenience factor to the consumer, but it also puts more responsibility on the lender to ensure the consumer’s intent to proceed is accurately documented to reflect the date in which the verbal intent to proceed was received. As a result, the risk of failure to accurately document this event by the lender increases.
Accurate documentation of the date the consumer gave her intent to proceed is important for two reasons:
- You may not charge or impose a fee on the consumer in connection with the transaction (other than a reasonable fee for the credit report) until after the consumer receives the initial Loan Estimate and has provided you with an intent to proceed with the transaction.
Accurately documenting this date will prevent you from imposing a fee or charge on the consumer too early in the application process. Requiring the consumer to provide his or her intent to proceed in writing will reduce the risk of the lender failing to document this event.
Thorough documentation is also necessary to demonstrate compliance if the loan file is selected for a post-closing internal audit or regulatory examination. Without correct documentation, you simply cannot demonstrate compliance.
- If the consumer does not provide his or her intent to proceed with the transaction prior to the “expiration date” reflected at the top of page one of the LE, then the LE is considered to have “expired.” If this occurs, you may provide a revised LE with the ability to make changes at your discretion.
Again, if the lender fails to record the consumer’s verbal intent to proceed with the transaction, then you will not be able to determine if such intent was obtained prior to expiration of the initial LE. While a revised LE is not required, you certainly do not want to lose the ability to provide a revised LE in the event the initial LE has “expired” if one is necessary due to poor documentation.You may not charge or impose a fee on the consumer in connection with the transaction (other than a reasonable fee for the credit report) until after the consumer receives the initial Loan Estimate and has provided you with an intent to proceed with the transaction.
Again, requiring the consumer to provide his or her intent to proceed in writing ensures that your financial institution has accurate documentation of the date you received the consumer’s intent as well as how that date is maintained in the file.
Either practice of receiving the consumer’s intent to proceed in writing or verbally is compliant with the requirements of the regulation, but, as always, clear and accurate documentation is the key to compliance.