Less Than 4 Percent of Lenders 'Acceptable' According To New Risk Assessment Tool

Risk profiling of mortgage license holders was one of thernfocuses of 2012 activity by the Multi-State Mortgage Committee (MMC) of the Conferencernof State Bank Supervisors andrnthe American Association of Residential Mortgage Regulators.  The committee issued a report on Fridayrndetailing its 2012 activities which also included participation in work leadingrnup to the $25 billion National Mortgage Servicing Settlement.  </p

CommitteernChairman Charlie Fields, Director of Non-Depository Entities at the NorthrnCarolina Office of the Commissioner of Banks said the MMC’s Risk ProfilingrnGroup (RPG) has been working on a risk profiling tool designed to assess anrninstitution’s risk against its peer group based on an analysis of Mortgage CallrnReport (MCR) data.  A risk analysis ofrn281 companies holding licenses in more than 15 states resulted in an unexpectedrnresult.  Only 10 of the 281 companies hadrndata integrity high enough to be considered acceptable for profiling purposes.  These data quality concerns warranted noticernto those companies informing them that they needed to rectify their filings, asrnthey were in violation of state laws implementing the federal SAFE Act. The MMCrnalso sent a letter to each mortgage regulator informing them of the issue.  The majority of the companies immediately respondedrnand ultimately filed amended call reports of improved quality.  The RPG also concluded that the metric schemernit developed to identify effective risk weights appears to be quiternaccurate.  </p

Thisrntool will assist in the scheduling of mortgage companies identified as havingrnan elevated level of lending risk.  Currentrnplans are for the tool to be available to state regulators in 2013.</p

FifteenrnLimited Scope Electronic Examinations were conducted during the year.  These focused on using compliance software torndetermine what degree of compliance violations exist within a loanrnportfolio.  Nine of the 15 examinationsrnwere completed; six were closed satisfactorily; one was closed satisfactorilyrnpending compliance with violations of state law, one company elected tornsurrender its licenses and dissolve and a third was recommended for a fullrnscope examination.  Resolution of thernremaining six examinations are pending, delayed for multiple reasons butrnexaminers concluded that many companies do not follow through with accuraterndata input after the loan is closed and that some data was inaccurate, .  </p

Thernexaminations found that finance charges tended to be an area that hadrnsubstantive inaccuracies.   The LSErnroutinely exposed mistakes in this area and refunds were quite substantial forrnmany borrowers, ranging from several hundred dollars to several thousand, up torn$6500.00 at one mortgage company. rnCharging prohibited fees was another area that showed significantrnviolations, resulting in one company refunding many borrowers on average overrn$500.00.  Other typical operationalrndeficiencies and violations identified in this group of examinations werernexcessive credit reporting fees and the failure to itemize HUD 1 charges,rnre-disclose the APR, meet minimum records requirements, provide rate lock agreementsrnor RESPA disclosures within the legal timeframe</p

Somernof the LSE examinations have or will move to full scope examinations where itrnis anticipated examiners will depend on technology to assist them inrndetermining the compliance posture of the companies they review.  The MMC feels strongly that the samplingrntechniques used in the past are insufficient to examine large loan portfolios andrnthat through technological advancements a complete review of a lender’s loanrnportfolio is the most effective way to ensure a strong and vibrant lendingrnindustry.</p

Thernreport says that MMC devoted a considerable amount of time and resources to thernmortgage loan servicing area including participation in the examinations andrnnotifications that led to the National Mortgage Settlement.  Now several additional loan servicingrncompanies have been examined by state regulators and found to have essentiallyrnthe same degree of operational deficiencies as the large servicers involved inrnthe national settlement.  These companiesrndo not have the same financial size or scope of the larger servicers, and sornany plan to correct their deficiencies will need to be substantively different.  Currently the MMC is leading negotiationsrnthat will attempt to incorporate most of the servicing standards included inrnthe National settlement, while attempting to bring relief to as many borrowersrnas possible.  </p

Otherrnactivities of the MCC over the course of 2012 include:</p<ul class="unIndentedList"