Early Warning Concerning Compliance Issues Under The Consumer Protection Act.
Early Warning Concerning Compliance Issues Under The Consumer Protection Act.
Loan origination is the process of making a new loan from marketing to closing
The new lending regulations for mortgage brokers under the Consumer Protection Act will soon affect relationships between lenders and auto dealers as well. The reasoning for making this statement is simple, take a look at how you submit a loan application through a mortgage broker or through an auto dealer; both processes basically involves the same type of transactions: For example a loan application means the submission of a borrowers financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall include the borrower’s name, the borrower’s monthly income, the borrower’s social security number to obtain a credit report, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any other information deemed necessary by the loan originator. An application may either be in writing or electronically submitted, including a written record of an oral application.
It will not take long for a sharp attorney to introduce the Consumer Protection Act argument into any legal action they bring against an auto dealer and/or lender that was involved in financing a vehicle for their client(s). The first case that prevails in this argument will throw the auto dealer lending process at the dealership in a total tail spin with most lenders stopping their financing.
This is a huge problem for both dealers and lenders lurking in the shadows
The lending policies of brokers or in the very near future auto dealers (third-party originators) could place a financial institution in the middle of a class action lawsuit for disparate treatment or at the very least dramatically increase the lender’s risk for unfair lending allegations. A lender’s liability when they originate loans from third-party originators exists for any type of loan under the new regulations.
For a lender to counter unfair lending allegations it would take a comprehensive and documented fair lending program that allows a lender to quickly and definitively respond to negative claims. Usually a lender receives only a small number of loans each year from each third-party originator and because of that the lender has too few loans from those individual providers to run a statistically, valid regression analysis.
E-net’s Lender Selection System provides lenders the opportunity to rate their risk models and lending practices against a group of third-party originators with thousands of loan packages all using the same testing procedure and data. E-net has the ability to monitor all their third-party originators and keep electronic records of their lending transactions without overburdening the lenders or dealers internal resources during the origination process. It could help the lender to identify third parties that may be charging higher rates to protected classes or denying loans on an unfair basis. It could help provides lenders the information they need to effectively monitor, analyze, and manage third-party lending.
E-net allows the lender to focus on closing loans with confidence that their-third party originators are treating customers equally and fairly.
Anti-Predatory Lending Solutions
Anti-predatory lending compliance is more difficult than ever. The task is exacerbated by ever-changing and increasingly complex federal, state and municipal regulations. Coping with this tangled web of legislation is a formidable task.
There is simply too much at stake to risk non-compliance. Every loan in production or in a pool of closed loans must comply with all applicable anti-predatory lending laws. Lenders with diverse portfolios must contend with the additional risks posed by third-party originators like mortgage brokers or auto dealers. Non-compliance leaves the lending institution liable for statutory and punitive damages plus license non-renewal. Lenders can even be personally liable for civil penalties.
Increase productivity while lowering compliance costs
Now lenders can have a neutral third-party deliver a fully customized loan package in all tier levels that helps protect the lender from predatory lending risk. E-net’s Lender Selection System automatically reviews every loan against a lender’s risk models at the source to make sure that all loans are compliant to their funding guidelines before a loan decision is approved. And because it’s fully automated, E-net’s Lenders Selection System increases productivity and lowers lender compliance costs.
E-net integrates regulatory compliance right into the loan approval process
Stricter lending regulations demand that compliance be built into the approval process from the beginning. E-net changes a lender’s compliance process from a post-closing function to an integral part of their lending approval process. By embedding their risk model criteria into the loan approval process directly at the source, E-net ensures the lender that every loan in production or in a pool of closed loans is in compliance with their applicable lending rules and regulations. E-net gives a lender real-time oversight at the source which is exactly what is needed to manage compliance, increase productivity and reduce costs.
Integrating E-net’s Lender Selection System with a Lender’s Origination System
Changes in the regulatory and control environment within the financial industry including Basel II and Sarbanes-Oxley are focused on moving the assessment and management of risk from the center of the institution out to the operating units and teams in the front line of business.
Working with secondary loan originators is no easy task. Lender concerns about regulatory compliance are rising because laws in many jurisdictions hold assignees of loans liable for violations by the originating institution. A lender is caught between the constantly changing lending laws and increasing investors due diligence requirements. Every loan they close must be in full regulatory compliance to keep their portfolio from deteriorating.
Non-compliance can result in civil and criminal fines plus penalties in multiples of the original principal balance. Compliance problems can lead to significant financial loss and damage to an institution’s reputation. Even one non-compliant loan casts a pall over a lender’s entire portfolio for the secondary market.
Loans originated through E-net’s SaaS web base system offers lenders a process to prevent portfolio deterioration and financial loss by providing a fair consistent lending solution. Each transaction leaves an electronic trail that can be accessed and documented from the credit bureau pull by the loan originator to the final approval, and funding of the loan by the lender. E-net’s loan origination process and documentation truly helps lenders meet all federal, state and local lending laws.
Bill Fowler
President E-Net Financial Services, Inc.
1-360-437-5098 Fax 1-360-637-1777
