Third-party originators (TPOs) crave access to lending technologies that make them more productive and keep them compliant. Reverse mortgage lenders are competing for the best TPOs by providing services that permit ease of use through technology that promotes quality and efficiencies, while providing compliance guidance and control throughout the origination process. While all parties to a transaction have an interest in quickly turning a prospect into a borrower, TPOs are mainly concerned with four things:
1. Getting borrower(s) the proper counseling, an essential and differentiating element in reverse mortgage transactions
2. Getting the loan submission approved through the proper disclosure of fees, including proper payees, payors, dollar values and naming conventions (although not unique to reverse lending, meeting today’s disclosure requirements takes extra diligence)
3. Collecting all of the necessary documentation, including supporting documentation, into a single location in a timely manner
4. Ensuring that all of the necessary federal and state disclosures have the proper content, rates, fees and program disclosures and have been provided to the applicant in a timely fashion
Lenders share all of these concerns and also add:
5. Streamlining the process for maximum efficiency, enabling their TPOs to provide as much of the origination work as possible while reducing the risks and avoiding the need to compromise loan quality
The goal of both parties, after all, is assuring borrowers qualify for the loan program that best fits their particular needs.
According to the “CFPB Supervisory Highlights: Fall 2012,” there will be considerable focus on the ability of “residential mortgage lenders to provide consumers with clear and timely disclosures regarding the nature and costs of the real estate settlement process,” as the CFPB has found “significant non-compliance with these statutes [RESPA and TILA].”
Lenders must control more of the process because they are ultimately held responsible for not only the loan submitted by the TPOs, but all of the activities throughout the process of the TPO, as if the lender itself were providing the service. Lenders need to guarantee that the TPO is meeting all of its compliance obligations, as the lender is ultimately responsible for the quality of all loans—ones they closed, rejected or denied. Regulatory scrutiny of lenders has never been greater. Strident attention to every detail when managing TPOs and assets sourced from TPOs in not only essential, it is mandatory.
The FDIC Examination Manual clearly identifies risk associated with third-party relationships and that “[e]xaminers should evaluate all applicable activities conducted through third-party relationships as though the activities were performed by the institution itself. It must be emphasized that while an institution may properly seek to mitigate the risks of third-party relationships through the use of indemnity agreements with third parties, such agreements do not insulate the institution from its ultimate responsibility to conduct banking-related activities in a safe and sound manner and in compliance with applicable consumer protection laws and regulations, including fair lending laws and regulations (for example, the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act).”
And there’s the rub. On one hand, lenders must keep the process simple and efficient for their TPOs to maximize their prospecting time. On the other hand, creating a loan submission process that enforces all of the rules and obligations that the lender is subject to can create an overly complicated and time-consuming process for the TPO, which may eventually scare away the TPOs.
TPOs should expect the following six features/services from the lenders with which they work, including:
-Accurate Disclosures: This means not only the ability to create program and material disclosures with accurate information, but a clear understanding of the proper and acceptable fee types, amounts and permissible naming conventions. Lenders and TPOs should both be named on the relevant disclosures to reduce redundant disclosures that are traditionally provided by both the TPO and lender individually. This will ensure clear, accurate and compliant disclosure content for both the TPO and lender. TPOs need to be able to leverage the in-house legal and compliance expertise of lenders to stay ahead of the evolving regulatory landscape.
-Accurate Reflection of Product and Compensation Model: TPOs should have access to broker disclosures, loan commitments and/or financing agreements that accurately reflect the actual compensation model under which the TPO is paid, and compensation elements as they apply to the specific product.
-Proper Counseling Agencies: Accurate identification of the appropriate approved counseling agencies, including the proper number of agencies required to be disclosed, is absolutely essential. This step is unique to the reverse process and vital to the education of the consumer. Creating an efficient process that streamlines the consumer’s ability to get the appropriate counseling also benefits the TPO and the lender by having the consumer make an educated determination of whether a reverse mortgage is appropriate for them, thereby reducing potential instances of borrower default.
-Service Providers: TPOs must educate borrowers about the services they are able to shop for, as well as which services the lender requires from specific providers.
-Advertisements and Marketing Materials: TPOs should expect that lenders will periodically request and review all TPO marketing materials. TPOs and lenders must work together to ensure accuracy and effectiveness of mailings, TV/radio announcements and social media efforts in order to protect all parties involved in the transaction, as the lender may face liability for flagrant TPO advertising violations.
-Access Diverse Product Offering and Education Training: To avoid steering claims, TPOs need to establish that they offered and educated applicants on various products with various program elements to permit the applicant the opportunity to make an informed choice as to the most suitable product for their specific circumstances.
At the end of the day, TPOs crave efficiency and lenders demand control and compliance. Balancing these variables is easily accomplished when TPOs originate from within the lender’s system of record. Lenders that enable their TPOs to price, lock and disclose from within their systems yield numerous mutual benefits, including the reflection of accurate compensation in disclosures, accurate fees, the knowledge of the proper services that can and cannot be shopped for by the borrower, and the ability to continually create disclosure packages that contain compliant content (for the TPO and the lender), without having to take on the responsibility or cost of monitoring compliance changes independently.
Multiple instances of manual data entry and use of disparate systems breed opportunity for errors, plain and simple. One system, the lender’s system of record, used by both the lender and the TPO results in greater data integrity, efficiency and compliance. It also results in greater lender confidence since, when it’s all said and done, the lender is subject to significant risk and bears significant responsibility to ensure that all lending transactions are conducted in a compliant manner and result in a compliant product.
The bottom line is this: Lenders must control the process, and TPOs need to work with lenders that permit them to be both “efficient and compliant.” The solution is within the technology: One system used by both TPO and lender satisfies everyone’s needs.