Can you expand on why a live transfer is one to stay away from?

Online lead generation companies where the lead generation company has spoken directly with the consumer and then transfers the “Live Handoff” over to the Lender or Loan Officer (especially if the Lead Generation company is not licensed under the Safe Act in their respective state) is a huge concern for regulators in today’s regulatory environment. The regulators have indicated many of these companies are nothing more than unlicensed “mortgage brokers” who are operating in violation of the Loan Officer Compensation Rule that went into effect on Jan. 1, 2014 because the lead generation company is soliciting consumer information for loan products without a license. The CFPB has publicly stated they are concerned with this type of lead generation marketing tactic because consumers are prone to give out sensitive personal and financial information. Additionally the CFPB has stated that “live transfers” confuse consumers into thinking they are dealing directly with a lender when in fact they are not. In addition to Loan Officer Compensation issues there are a myriad of other compliance headaches (Fair Lending Act, UDAAP, Fair Housing Act, Telephone Consumer Protection Act, Telemarketing Sales Rule, privacy issues, CAN Spam Act, etc.) which make these types of “Live transfer” lead generation companies fertile grounds for regulatory enforcement action.

Note: This transcript has been edited from the March 2015 RESPA Section 8 webinar for clarity and completeness.

Answered By: Marx Sterbcow

In your opinion, will the CFPB be going after the lead providers or also the company that bought the lead?

In my opinion the CFPB/FTC will target both the lead providers and the company that bought the lead. The CFPB has expanded UDAAP recently to include those who provided “Substantial Assistance” to a settlement service provider in connection with a mortgage transaction.

Note: This transcript has been edited from the March 2015 RESPA Section 8 webinar for clarity and completeness.

Answered By: Marx Sterbcow

Are marketing materials the only place you should look for UDAAP violations?

No. There’s operational issues that you can have in UDAAP, how you process something, how you service something, all of that can be subject to UDAAP. There’s only so much that I can talk about in one presentation but UDAAP is much broader than just your marketing.

Answered By: Brian Levy

We’ve heard that some lenders are providing the CD earlier in the process when they don’t have the final numbers, effectively preparing it immediately upon receiving the title insurance binder. Is this meeting the intent of the rule? What are the repercussions of doing this?

That’s a great question and I think this is one that touches upon the black hole because under the most common reading of comment 19(e)(4)(ii)-1, a lender can only use changed circumstances disclosed on the CD for tolerance purposes if they learned of those changed circumstances 6 business days or fewer before consummation, closing.

If the lender then provides the CD too early, let’s say 2 weeks before closing, they could result, in about a week, (the time period before that 6 business day window under comment 19(e)(4)(ii)-1) that period, falling into the black hole where any changed circumstances that come up they wouldn’t be able to then use for tolerance purposes. So basically by providing the CD too early they are creating their own black hole.

I think that’s one of the reasons why that comment creates that disincentive, to prevent providing the CD too early. The CD is meant to be a final disclosure, it actually says that on the top of page 1, it says this is a final statement. And by providing it too early, it really could confuse the borrower because it says its the final numbers, and then there would be a significant amount of changes from let’s say two weeks before closing, and so that’s one of the reasons why I think that comment does create that disincentive because it doesn’t want the CD provided too early.

So, aside from a tolerance issue, I think there could be potential UDAAP issues because it could also be confusing and unfair to borrowers to tell them that this is going to be the actual number, and then at closing essentially is when the next corrected CD technically has to be provided to the consumer, give them a cash to close that’s much greater, so there could be some real UDAAP issues there as well to be concerned about.

Answered By: Richard Horn

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