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Lender Held Accountable for Broker’s Conduct

CFPB DOJ lenders Responsible for brokers
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CFPB DOJ lenders Responsible for brokersProvident Funding Associates, a major California-based wholesale lender, recently settled with the Consumer Financial Protection Bureau and the Department of Justice to the tune of $9 million.

The settlement was not for any violations made by Provident, but for lending discrimination by Brokers who originated loans for Provident. The discrimination came about in the form of higher rates being charged to minority buyers by the Brokers, not Provident (Settlement).

The discrimination resulted from Provident allowing their Brokers certain pricing discretions on the rates and fees offered on their products. It turns out that the Brokers were charging higher rates and fees to more minority borrowers than non-minority borrowers.

When the Broker was able to deliver the higher rate, they shared in the additional marketing gains they generated. This was common practice prior to the SAFE Act compensation rules of 2011. Since this settlement was the result of higher rates being provided to minorities by Provident’s Brokers between 2006 and 2011, how many other wholesale lenders may be found liable for this same practice?

Provident says it had no knowledge or any intentional discrimination and did nothing wrong. The CFPB and DOJ didn’t agree, nor care. Provident was held responsible and accountable for the actions of their Brokers. In essence, it was up to Provident to police the activities of their Brokers. When a Broker breaks the rules, the wholesale lender must pay. And Provident did; $9 million worth.

Should Provident be held accountable for their brokers violations?

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One important factor is that the CFPB and the DOJ teamed up to go after Provident as a result of a referral from the Federal Trade Commission. This shows that these federal agencies are working together to weed out the bad actors in the name of consumer protection.

It also validates that as far as their concerned, the prime players are the Banks and Independent Mortgage Bankers. They are the ones that close the loans and will be held accountable for any violations. If they choose to do business with Brokers they had better do their homework.

Every Broker with whom a Lender does business becomes a lending partner. Such partnerships may prove to be very profitable or costly. You do the math.

It all comes back to quality and compliance. Lenders must have the technology and processes in place to monitor all Broker activity, including loan pricing. Systems should be in place to analyze a Broker’s loan activity to determine any discrepancies in loans being priced to certain buyers, areas or markets. In the end, it’s the Lender who will be on the hook for any violations, and who will end up paying the piper.

Make sure your Brokers dance to your tune and don’t march to the beat of a different drummer.

 

Michael Vitali

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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Michael Vitali

About Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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