Letter to CFPB Director Cordray – 9/20/16 – Require All Bank Mortgage Loan Originators to Pass SAFE Act Exams

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2101 Wilson Boulevard, Suite 610
Arlington, VA 22201
(571) 527-2601

September 20, 2016
Mr. Richard Cordray
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552
Dear Director Cordray:
The Community Home Lenders Association (CHLA) writes to renew our long-standing recommendation that the CFPB impose a requirement that all bank mortgage loan originators (LOs) be required to pass the SAFE Act mortgage competency and ethics test. We would suggest that the CFPB could begin by imposing this requirement at least on loan originators that work for the large banks (over $10 billion in assets) – the banks that are subject to CFPB primary enforcement.
CHLA also renews our suggestion that the CFPB heighten scrutiny of bank mortgage loan originator training programs to ensure full compliance with the Dodd-Frank requirement that all mortgage loan originators must be “qualified.”
These suggestions are offered in light of CFPB’s recent enforcement action and $100 million fine levied against Wells Fargo related to illegal sales practices.
CFPB Actions Against Wells Fargo
CFPB’s actions last week against Wells Fargo were based on practices in which thousands of their employees secretly opened hundreds of thousands of unauthorized accounts in order to hit sales targets and receive bonuses.
One of the practices highlighted in the CFPB’s action was inappropriate cross selling of products. These cross marketing practices highlight the need to ensure that bank employees are subject to high ethical standards and are fully knowledgeable in the particular product they are offering to consumers.
CHLA believes that this objective is undermined by regulations that currently permit bank employees that failed the SAFE Act mortgage competency test or have limited mortgage knowledge and ethics training to offer and originate mortgages to consumers.
Under current regulations, bank employees are allowed to be registered as mortgage originators without meeting any of the following basic SAFE Act requirements that apply to all licensed mortgage loan originators that work at non-bank lenders:
(a) Passing the SAFE Act test,
(b) Passing an independent background check,
(c) 20 hours of SAFE Act pre-licensing courses, and
(d) 8 hours of SAFE Act annual continuing education courses (which includes ethics).
As you know, over 95% of bank and other depository institution registered mortgage loan originators have never even taken the SAFE Act test – and there are more than a thousand registered bank/DI loan originators that actually failed the test but are still registered and permitted to originate mortgages. CHLA believes this raises questions about the adequacy of their qualifications, training, and ethics.
CFPB’s actions against Wells Fargo also highlighted the existence of financial incentives encouraging employees to sign up customers for more products and accounts.
It is our understanding that Wells Fargo is discontinuing these compensation incentives for general bank employees – but is not discontinuing such incentives for mortgage loan originators. We believe this is further evidence that more scrutiny is need for bank mortgage loan originator training programs, as well as a mandatory SAFE Act test requirement.
Adequacy of Bank Mortgage Originator Training Programs
CHLA has written on several occasions to ask that the CFPB use its authority under the statutory requirement that all mortgage loan originators must be “qualified” [Section 1402(b)(a)(A) of Dodd-Frank] – to require that every registered bank and depository institution mortgage originator pass the basic SAFE Act test. This would ensure that all mortgage originators (not just those that work at non-banks) would meet the same type of basic testing requirement that applies to all bank employees that sell securities and insurance, as well as all other related professionals, such as real estate agents and appraisers.
In addition, in September 2013, when CHLA first wrote to make this recommendation, CHLA also suggested that “CFPB’s supervisory process should monitor and ensure that all banks have sound training programs [including] with regard to consumer protection and ethical standards.”
More recently, in January 2016, CHLA wrote the CFPB to inquire, among other things: “What training requirements have banks put in place specifically to demonstrate compliance with the Dodd-Frank requirement that all loan originators be qualified.”
The simplest step to improve consumer confidence in this area would be for the CFPB to impose a universal SAFE Act test requirement – or at least impose this on all banks with over $10 billion in assets.
Community Home Lenders Association