--- description: Validate mortgage workflows against RESPA, TRID, HMDA, QM/ATR, ECOA, and FCRA requirements. Use when designing a new mortgage workflow for compliance review or auditing an existing process for regulatory gaps. model: sonnet allowed-tools: - Read - Grep - Bash --- # Federal Mortgage Compliance Checklist Validate a mortgage workflow or operation against the major federal consumer mortgage regulations. For each regulation, the checklist identifies specific operational requirements, documentation standards, and common failure points. --- ## Section 1: RESPA (Real Estate Settlement Procedures Act) **Regulation:** 12 CFR Part 1024 (Regulation X) — administered by CFPB **Applicability:** Federally related mortgage loans — virtually all 1-4 family residential mortgage loans made by federally insured lenders or loans intended for sale to Fannie/Freddie ### Section 8 — Kickback/Fee-Splitting Prohibition - [ ] No referral fees paid to any person for referring settlement service business - [ ] No fee splitting where no services are actually performed (e.g., "desk fees," "access fees") - [ ] AfBA (Affiliated Business Arrangement) disclosure provided when referring borrowers to an affiliated settlement service provider (title company under common ownership, etc.) - [ ] AfBA disclosure is provided at or before time of referral (not at closing) - [ ] AfBA disclosure meets required format: describes the arrangement, states the estimated charge, states borrower is not required to use the affiliated provider (with narrow exceptions) - [ ] Marketing services agreements (MSA) reviewed by legal counsel: many are viewed as unlawful kickback arrangements by CFPB **Common Section 8 violations to flag in workflow review:** - Real estate agents receiving "marketing fees" from title companies, lenders, or other settlement service providers in exchange for referrals - Builder or developer requiring use of affiliated settlement service providers as condition of purchase ### Section 9 — Seller-Required Title Insurance - [ ] Seller is not requiring buyer to purchase title insurance from a specific company as a condition of the sale - [ ] Buyer is free to shop for title insurance and settlement services ### Section 10 — Escrow Account Requirements - [ ] Initial escrow deposit at closing does not exceed 2 months of escrow payments for any category - [ ] Annual escrow analysis performed - [ ] Annual escrow account statement provided to borrower within 30 days of analysis - [ ] Escrow surplus refunded or credited if balance exceeds 2 months cushion - [ ] Escrow shortage paid in 12-month catch-up if balance is deficient **Citation:** 12 CFR 1024.17 ### Servicing Transfer Notice - [ ] Borrower notified of transfer of servicing at least 15 days before effective date (exception: RESPA allows 3 days for FHA) - [ ] Notice includes: new servicer name, address, phone; effective date; statement that transfer does not affect loan terms; 60-day grace period for payments to wrong servicer --- ## Section 2: TRID (TILA-RESPA Integrated Disclosure) **Regulation:** 12 CFR 1026.37-38 (Regulation Z) and 12 CFR 1024 (Regulation X) — CFPB See the `disclosure-generator` skill for complete TRID workflow specification. Summary checklist: - [ ] Loan Estimate issued within 3 business days of receiving 6-piece application - [ ] No fees collected before LE issuance except bona fide credit report fee - [ ] Zero-tolerance fees on LE do not increase on CD (unless valid changed circumstance) - [ ] 10% tolerance bucket not exceeded in aggregate on CD vs. LE - [ ] Changed circumstances documented within 3 business days of discovery; revised LE issued within 3 business days - [ ] CD received by borrower at least 3 business days before consummation - [ ] Any re-disclosure triggers (APR change, product change, prepayment penalty addition) result in new 3-business-day wait - [ ] Tolerance cures paid within required timeframe if violations identified - [ ] LE retained 3 years; CD retained 5 years post-consummation --- ## Section 3: HMDA (Home Mortgage Disclosure Act) **Regulation:** 12 CFR 1003 (Regulation C) — administered by CFPB **Applicability (2018 and later thresholds):** - Depository institutions: ≥100 closed-end originations OR ≥200 open-end originations in each of 2 prior years - Non-depository institutions: ≥100 closed-end originations OR ≥200 open-end originations in prior year ### Data Collection - [ ] HMDA data fields collected for every covered transaction (see LAR field list below) - [ ] Monitoring information collected: ethnicity, race, sex of borrower (using standard GMI form or equivalent) - [ ] Monitoring information collection occurs at application (not at closing) - [ ] Borrowers informed of right not to provide GMI; if not provided, note method of visual observation or surname - [ ] HMDA data entered in LOS at point of collection; not reconstructed post-close **Required LAR data points (key fields):** | Category | Fields | |---------|--------| | Loan identifiers | ULI (Universal Loan Identifier), application date, action taken, action taken date | | Property | Property type, occupancy type, manufactured home indicators, property address (census tract) | | Applicant | Ethnicity, race, sex, age, credit score type, credit score | | Income | Gross annual income | | Loan terms | Loan amount, loan purpose, loan type, lien status, interest rate, rate spread, HOEPA status, QM status | | Costs | Total origination charges, points, lender credits, total loan costs | | Underwriting | DTI ratio, combined LTV, property value, AUS name and result | | Denial reasons | If denied: up to 4 denial reasons | ### LAR Submission - [ ] LAR submitted to CFPB HMDA filing platform by March 1 following the calendar year - [ ] LAR tested for validity errors before submission - [ ] Resubmission process defined if CFPB identifies errors after submission - [ ] LAR publicly available upon request after submission **Citation:** 12 CFR 1003.5 --- ## Section 4: QM/ATR (Qualified Mortgage / Ability to Repay) **Regulation:** 12 CFR 1026.43 (Regulation Z) — Dodd-Frank § 1412-1413 — CFPB **Applicability:** All closed-end consumer mortgage loans; excludes open-end credit (HELOCs), reverse mortgages, timeshare loans, certain temporary bridge loans ### Ability to Repay (General Standard) For any mortgage loan, creditor must make a reasonable, good-faith determination that the borrower can repay: - [ ] Income or assets verified and documented (pay stubs, W-2s, tax returns, bank statements) - [ ] Employment status verified - [ ] Monthly mortgage payment calculated using fully-amortizing rate (not teaser rate) - [ ] All monthly mortgage payments considered (all loans on the property) - [ ] All non-mortgage debt obligations considered (from credit report) - [ ] Debt-to-income ratio calculated and documented - [ ] Credit history reviewed - [ ] Simultaneous loan (if any) considered in repayment analysis **Documentation retained:** All ATR documentation retained for 3 years post-consummation ### Qualified Mortgage Safe Harbor / Rebuttable Presumption A QM provides a legal safe harbor (or rebuttable presumption for higher-priced QMs) that ATR has been met. **General QM requirements (effective March 2021 rule):** - [ ] No negative amortization - [ ] No interest-only period - [ ] No balloon payment (exceptions: small creditor balloon QM) - [ ] Loan term does not exceed 30 years - [ ] Points and fees do not exceed 3% for loans ≥$114,847 (2023 threshold; adjust annually) - [ ] For rate-spread QM: APR does not exceed APOR by more than 2.25% (first lien, loan ≥$114,847) **GSE/Agency QM (temporary patch expired October 1, 2022):** As of October 2022, GSE eligible loans no longer automatically qualify as QM under the GSE patch. Loans must meet General QM criteria. **FHA QM:** FHA loans meeting FHA guidelines generally qualify as QM per HUD rule. **VA QM:** VA loans meeting VA guidelines generally qualify under CFPB rule. **USDA QM:** USDA guaranteed loans generally qualify under CFPB rule. --- ## Section 5: ECOA (Equal Credit Opportunity Act) **Regulation:** 12 CFR 1002 (Regulation B) — administered by CFPB and DOJ **Applicability:** All creditors who regularly extend credit ### Fair Lending (Anti-Discrimination) - [ ] No discrimination based on: race, color, religion, national origin, sex, marital status, age (provided applicant has capacity to contract), receipt of public assistance income, or exercise of any right under the Consumer Credit Protection Act - [ ] Pricing policies applied consistently across all borrowers (no steering to higher-cost products based on protected class) - [ ] Fair lending monitoring program in place (pricing analysis, denial rate analysis by protected class) ### Adverse Action Notices - [ ] Written notice of adverse action provided within 30 days of receiving completed application (for denial, counteroffers not accepted, withdrawal after file was complete) - [ ] Notice content: - Statement that credit was denied, or specific action taken - Name and address of creditor - Statement of ECOA provisions (right not to be discriminated against) - Name and address of federal agency that administers compliance - **Principal reason(s) for adverse action** — specific to the applicant (not generic) - [ ] If credit score was a factor: FCRA credit score disclosure included (see Section 6) - [ ] Notice delivered within required timeframe (30 days from completed application; 30 days from withdrawal if file was complete) **Citation:** 12 CFR 1002.9 ### Appraisal Copy Delivery - [ ] Copy of appraisal, other written valuations, and AVM reports provided to applicant promptly upon completion (or at least 3 business days before consummation, whichever is earlier) - [ ] This right applies even if application is denied or withdrawn - [ ] Applicant waiver: applicant may waive the timing requirement (but still must receive the appraisal before consummation) - [ ] Waiver form used and retained if applicable **Citation:** 12 CFR 1002.14 ### GMI Collection - [ ] Ethnicity, race, and sex of applicant collected on applications for purchase/refi of 1-4 family dwellings - [ ] Applicant informed of right not to provide this information - [ ] Information obtained from visual observation or surname if not provided voluntarily - [ ] GMI used only for fair lending monitoring; not used in credit decision --- ## Section 6: FCRA (Fair Credit Reporting Act) **Regulation:** 15 USC § 1681 et seq. — administered by FTC and CFPB **Applicability:** Any creditor who uses a consumer report in connection with a credit decision ### Permissible Purpose - [ ] Credit report pulled only for a permissible purpose: credit transaction initiated by consumer (application for mortgage) - [ ] Credit report not pulled without borrower's written authorization - [ ] Authorization obtained before or at time of application (typically included in loan application signature page) - [ ] Re-pull authorization: if credit is re-pulled later in the process (e.g., refresh before closing), authorization covers this or new authorization obtained ### Adverse Action — FCRA Credit Score Disclosure When credit report or credit score is a factor in an adverse action: - [ ] Credit score disclosure notice provided as part of or with the adverse action notice - [ ] Disclosure includes: - Credit score obtained - Range of possible scores under the model used - Key factors that adversely affected the score (up to 4) - Date the score was obtained - Name and address of CRA that provided the report ### FACTA Red Flags Rule (Identity Theft) - [ ] Written Identity Theft Prevention Program (ITPP) in place - [ ] ITPP identifies red flags applicable to mortgage origination (e.g., alerts on credit report, suspicious activity on accounts, suspicious documents, suspicious personal information) - [ ] Staff trained to identify and respond to red flags - [ ] Program reviewed and updated periodically - [ ] Oversight by senior management or board **Citation:** 16 CFR Part 681 (Red Flags Rule) --- ## Output Format Produce a **Federal Mortgage Compliance Checklist** organized by regulation, with: - Each requirement as a binary checklist item (compliant / not compliant / N/A) - Regulatory citation for each requirement - Risk rating for each gap (Critical = enforcement risk; High = examination finding likely; Medium = likely cited; Low = best practice) - Remediation action for each gap - Evidence required to demonstrate compliance Accompany with: - **Priority Gap List** — Top 10 compliance gaps by risk rating, with owner and target remediation date - **Open Items** — Items requiring client clarification to complete the assessment