Compliance Q&A's


Question: We are going paperless, but we are unsure about retaining documents under the Truth-in-Lending Act (TILA), since we know that regulatory enforcement requirements may cause us to hold on to evidence. That goes along with our concerns about retaining paper copies, too. You may have answered a question like this one before, but we are still unsure of what evidence we need to retain to show compliance. So, we want to know what is the timeline for retaining documents beyond the required time required in case of regulatory enforcement against us? Also, must we keep paper copies as evidence of compliance?
 
Answer
You have asked a complicated question about regulatory enforcement parameters, with respect to record retention. Because you have framed your question in the context of TILA, this response will be narrowed to Regulation Z, the implementing regulation of TILA.
Except with respect to advertising, creditors must retain evidence of compliance with Regulation Z for a period of two years after the date the disclosures are required to be made or action is required to be taken. Enforcement of TILA, however, may require the creditor to retain records for longer periods necessary to carry out enforcement responsibilities and administrative actions.
 
In effect, this means that administrative agencies responsible for enforcing a subject regulation may require creditors under their jurisdictions to retain records for a longer period, if necessary to perform their enforcement responsibilities. [12 CFR § 226.25(a)]
As to paper retention, in terms of adequate evidence of compliance, actual paper copies of disclosures or other business records are not absolutely necessary to be retained. Evidence may be retained on microfilm, microfiche, computer programs, or by any other method that reproduces records accurately.
 
As a matter of fact, the creditor needs to retain only enough information to reconstruct the required disclosures or other records. By way of example, the creditor does not need to retain each open-end, periodic statement for purposes of complying with record retention of a home-equity plan's periodic statement, as long as the specific information on each statement can be retrieved. In other words, written procedures for compliance with the disclosure requirements and a sample periodic statement represent adequate evidence of compliance. [12 CFR Supplement I to 226, Official Staff Interpretations, § 226.25(a)-2]

Jonathan Foxx is Managing Director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in outsourced mortgage compliance and offering a suite of services in residential mortgage banking for banks and non-banks. If you would like to contact him, please e-mail Compliance@LendersComplianceGroup.com.

 

Question: We have an advertisement on our Web site and we also send out an e-mail advertisement that is the same as the Web site ad. Are these considered a single advertisement? If so, what are the obligations for each advertisement?
 
Answer
Multiple advertisements in any media, such as Web page advertisements on a Web site corresponding to a newsletter blast or in a catalog, are considered a single advertisement if the following criteria apply:
 
►A trigger term is used;
►Such term requires a table or schedule in order to provide information regarding a finance charge associated with the trigger term, or any other term is used that appears in the opening disclosures;
►The advertisement clearly and conspicuously sets forth or is required to set forth the foregoing table or schedule; and
►These advertisements are required to refer and/or provide access to such table or schedule.
 
Put otherwise, single advertisement guidelines apply for any advertisement where a statement of finance charge is required for a trigger term, or disclosure is required in opening disclosures for any other term, where the trigger term or other term appear in a catalog or advertisement, thereby requiring clear and conspicuous reference to the page or location where the mandated table or schedule begins. [12 CFR § 226.16(c)(1), 2010]
 
For instance, in any advertisement where a trigger term necessitates a statement of finance charge—indeed, any other term that appears in opening disclosures pursuant to Regulation Z § 226.6—the advertisement must clearly refer to the page, Web page, or any media location where a table or schedule is found and begins.
 
Therefore, in each online Web site ad and its corresponding newsletter ad, a hyperlink to the table or schedule containing required additional information should be provided for a trigger term requiring a statement of finance charge and/or any other term that appears in opening disclosures. [12 CFR Supplement I to Part 226 – Official Staff Commentary 12 CFR § 226.16(c)(1)-2, 2010]
Jonathan Foxx is managing director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in outsourced mortgage compliance and offering a suite of services in residential mortgage banking for banks and non-banks. Information contained in this article is not intended to be and is not a source of legal advice. If you would like to contribute a question, please submit it to Compliance@LendersComplianceGroup.com.

This article originally appeared in the January 2017 print edition of National Mortgage Professional Magazine. 
Question: We are in the process of reviewing our loan officer compensation plans, which means we are also looking closely at the employment agreements. I realize that the details in this area are very complicated, but would it be possible to offer some basic concepts that should be considered in our review analysis for the employment agreements?
 
Answer
Under the Truth in Lending Act and its implementing Regulation Z, the Fair Labor Standards Act and the Interagency Guidance on Incentive Compensation Plans, there are many factors that must be considered in such a review. These regulations, in particular, have all contributed to complicating the employment contract for a mortgage loan officer (MLO). State employment law also applies. In developing compensation plan guidelines for employment agreements, it is helpful to work with a risk management professional.
 
Here are some concepts every financial institution should consider when structuring an MLO employment agreement:
 
►Do not impose a monetary penalty on an MLO for failing to follow policy (i.e., collecting all required fees) on a per loan basis. That amounts to varying compensation based upon a term of the transaction. Instead, use a semi-annual review to adjust commission rates positively or negatively.
►If the commission rates paid to MLOs vary, make certain those differences in compensation are not reflected in the rates the borrowers are charged.
►Make sure that each MLO receives at least the minimum wage and that each MLO is paid for overtime appropriately. Require MLOs to submit records for hours worked. Maintain the records.
►Protect the institution’s financial records and intellectual property by incorporating strict confidentiality requirements and non-solicitation provisions into the employment agreement.
►Consider the inclusion of an arbitration clause to settle disputes, and in so doing minimize the potential for class action litigation.
►Incorporate qualitative factors into the employment agreement so that compensation is not tied exclusively to volume. Incentive compensation based exclusively on quantitative factors is subject to regulatory criticism.
 
In the review process, it is critically important not only to consider the applicable federal and state regulations, but also conduct a thorough review of their commentaries and supplementary information.

Jonathan Foxx is managing director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in outsourced mortgage compliance and offering a suite of services in residential mortgage banking for banks and non-banks. If you would like to contact him, please e-mail Compliance@LendersComplianceGroup.com.

http://lenderscompliancegroup.com/
Question: In a situation where a borrower switched from Lender A to Lender B and an appraisal was previously performed for Lender A, can Lender B accept that appraisal? Is Lender A under any obligation to transfer the appraisal to Lender B?
 
Answer
If the situation involves an FHA/VA/FHA/Federal Housing Authority loan, Lender A must, at the borrower’s request, transfer the case to the Lender B. Note that FHA does not require that the client name on the appraisal be changed when it is transferred to another lender.
 
If the situation involves a conventional loan, Lender A would have to release the appraisal (which it is under no obligation to do), and certify compliance with the Appraiser Independence Requirements.  
 
Note that in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), a lender is not permitted to request that the appraiser change the name of the client within the appraisal report unless it is a new appraisal assignment.
 
To effect a client name change, the Lender B and the original appraiser may engage in a new appraisal assignment wherein the scope of work is limited to the client name change. A new client name should include the name of the client (lender). As it is a new assignment, the appraiser is entitled to charge another fee.
 
Below are some FAQs from Fannie and Freddie on the topic.
 
Fannie Mae: Appraiser Independence Requirements Frequently Asked Questions
November 2010 (Reposted April 2017 for formatting)

Transfer of the Appraisal
Q37. May an appraisal be transferred to a lender from a correspondent lender and, if so, under what circumstances?
Yes. A lender may accept an appraisal from a correspondent lender that complies with AIR.
 
Q38. A mortgage broker submits a loan to lender A, which orders an appraisal. The broker later decides to submit the loan to lender B because it is offering better terms, or for another reason. May the appraisal obtained by lender A be used by lender B (assuming the mortgage broker has no control over or involvement in the assignment)?
Yes. A lender may accept an appraisal transfer from a different lender. However, the lender delivering the loan to Fannie Mae makes all representations and warranties that the loan complies with the requirements of the Fannie Mae Selling Guide and related documents. Lender A must be named as client on the appraisal report.
 
Q39. Lender A (an approved Fannie Mae Seller/Servicer) originates and closes a loan in its name, but sells it to lender B (another Fannie Mae approved Seller/Servicer), which in turn sells that loan to Fannie Mae. Is lender B under any obligation to obtain a new appraisal?
No. Lender B may buy a closed loan from Lender A and sell the loan to Fannie Mae without a new appraisal if Lender B can represent and warrant that any appraisal conducted in connection with the loan conforms to AIR.
 
Freddie Mac:  Appraiser Independence Requirements FAQs
November 2010

27. Can lenders accept appraisals transferred from another lender?
A lender may accept an appraisal from a different lender if the appraisal is obtained in a manner consistent with AIR, and the lender receiving the transferred appraisal determines that the appraisal conforms to its own requirements and is otherwise acceptable.
 
28. Can lenders accept an appraisal from an AMC specifically authorized by a different lender to act on its behalf? 
Yes. If the lender receiving the transferred appraisal determines the appraisal was obtained in a manner consistent with AIR that the appraisal conforms to the lender's requirements and is otherwise acceptable.
 
29. May an appraiser update an appraisal for another lender?
Yes. An appraiser is permitted to perform an update of an appraisal for another lender.
 
30. What documentation is required during an appraisal transfer to demonstrate that the lender transferring the appraisal is complying with AIR?
Each lender must develop its own documentation requirements to ensure compliance with AIR, based on its business model and processes.
 
31. AIR allows Lender B to originate a loan using an appraisal transferred by Lender A if Lender B determines that the appraisal with written assurances that the appraisal was obtained in a manner consistent with AIR, conforms to Lender B's requirements for appraisals and is otherwise acceptable. Will Freddie Mac hold Lender B liable for remedies if it is discovered after the transfer that Lender A did not obtain the appraisal in a manner consistent with AIR?
Yes. As with all other representation and warranties under the Guide, Freddie Mac will hold Lender B, the lender who sold the loan to Freddie Mac, fully responsible for any violations of AIR and our Guide requirements.

Joyce Wilkins Pollison is director of Legal & Regulatory Compliance for Lenders Compliance Group.

Question: As part of our company’s efforts to build up the servicing side of our business, and as a hedge against the loss of income from a drop in refinance originations, we just acquired a servicing portfolio from another lender. I am confused about what our reporting obligations are under the Fair Credit Reporting Act (FCRA) with respect to borrower payments that may (or may not) have been made to the previous servicer during the servicing transfer process.  Can you give us any guidance on this issue?
 
Answer
Under FCRA, a “furnisher” of information to credit reporting agencies (1) shall not furnish any information relating to a consumer if the person “knows or has reasonable cause to believe that the information is inaccurate” and (2) has an affirmative duty to “correct” and “update” information it has previously furnished that is “not complete or accurate.” [15 U.S.C. §1681s-2(a)(1) and (2)]
This can create significant challenges for subservicers or companies acquiring mortgage servicing rights (MSRs) from other lenders or servicers because the transfer of detailed borrower account information from one servicer to another typically does not occur instantaneously on the date that the servicing transfer becomes “effective.” Moreover, borrowers’ payments may be in transit during the transfer process or sent to the former servicer because the borrower has simply failed to process the new servicer’s instructions.
 
This issue is addressed in Regulation X of RESPA [12 CFR 1024.21(d)(5)] which provides that, during the 60-day period beginning on the effective date of transfer of the servicing of any mortgage servicing loan, if the transferor servicer (rather than the transferee servicer that should properly receive payment on the loan) receives payment on or before the applicable due date (including any grace period allowed under the loan documents), a late fee may not be imposed on the borrower with respect to that payment and the payment may not be treated as late “for any other purposes.” (Emphasis added.)
 
This creates an FCRA reporting issue for the new servicer or subservicer because, during the first 60 days after the servicing transfer becomes effective, the new servicer cannot automatically assume that a loan is delinquent just because the new servicer itself has not received payment. It is not uncommon for servicers to suspend credit reporting during that 60 day period to wait for payments from the former servicer. But what happens after that?
 
The new servicer’s affirmative duty to “correct” and “update” information it has previously furnished that is “not complete or accurate” [supra] now requires that any previous credit reporting be revised and updated to show any payments actually received (or not received) by the previous servicer during the 60 day period. This is not something the servicer can just ignore. If the “furnisher” (servicer) becomes aware that payments were in fact received during that period by the previous servicer, the furnisher now “knows” or “has reason to believe” that information previously reported (i.e., absence of payment history because reporting was suspended during the servicing transfer) is inaccurate or incomplete because it now has evidence in its files that payments were in fact received. That information must be reported.
 
In that regard, even though there is no Federal private right of action for violation of these provisions, there can be civil liability to regulatory enforcement authorities for both willful and negligent non-compliance with these requirements. [See 15 U.S.C. §1681n and o, not to mention possible violation of the “Unfair, Deceptive, Abusive Acts or Practices” (UDAAP) provisions of the Dodd-Frank Act [12 U.S.C. §§ 5481, 5531 & 5536(a)].
 
Moreover, the examination guidelines of the Consumer Financial Protection Bureau (CFPB) now include reviews for compliance with the new Mortgage Servicing Rule (Rule) that went into effect on January 10, 2014 imposing additional obligations on servicers. The provisions of that Rule, and related commentary pertaining to mortgage servicing transfers, can be found at 12 CFR 1024.33, 12 CFR 1024.38, and 12 CFR 1024.41.2 and are summarized in CFPB Compliance Bulletin 2014-01, issued on August 14, 2014 to help servicers with these issues. A copy of this Bulletin and the applicable regulations can be found on the CFPB Web site (ConsumerFinance.gov).
 
Among other things, the Rule requires servicers to maintain policies and procedures that are “reasonably designed” to achieve the objectives of facilitating the transfer of information during mortgage servicing and of properly evaluating loss mitigation applications. [12 CFR 1024.38(a), (b)(4)]
 
As you can see, this is a highly technical area. So do not hesitate to call us or your attorney if you need help.

Michael Pfeifer is director of Legal & Regulatory Compliance for Lenders Compliance Group and Servicers Compliance Group.

 
Question: Our bank is undergoing an internal review of its human resources department. I know you conduct such reviews and would like to know some of the primary regulations involving human resources compliance. There are experts in this kind of compliance; however, they seem to be mostly interested in handling litigation issues, while we are looking for a way to draft policies and procedures. What are some important federal regulations involving human resources? What review issues should we consider in our policy statements?
 
Answer
Human Resources (“HR”) compliance is a specialization that very few risk management firms offer. Ours does! Unfortunately, the legal community tends to focus on the litigation arising from compliance failures involving human resources, rather than providing reasonably-priced, compliance reviews of the HR function. Our firm actually has a Director of Human Resources Compliance, an expert in the regulatory requirements of human resources. We focus on guidance and reviews that seek to prevent litigation!
 
HR is the term that describes individuals who comprise the workforce of an organization. Human resources compliance, or "HR compliance," or sometimes colloquially referred to as "HR," is the term that applies to the department and functions within an organization, the administrative responsibility of which is charged with implementing strategies and policies relating to the management of individuals associated with the organization.
 
In many ways, human resources compliance is a central feature of a financial institution’s overall compliance function. This is intuitively obvious, given that local, state, and federal employment laws all play a role in human resources. Indeed, HR must be familiar with a wide array of different statutory and regulatory authorities to effectively and lawfully deal with company personnel.
Here are just two of the many federal regulations that affect HR compliance. Local and state statutes should also be included in any HR policy statement.
 
Fair Labor Standards Act (FLSA): This is a federal statute that applies to employees engaged in interstate commerce or employed by an enterprise engaged in commerce or in the production of goods for commerce (unless the employer can claim an exemption from coverage).
 
National Labor Relations Act (NLRA), sometimes called the Wagner Act, which, as amended, is known as the Labor Management Relations Act (LMRA).
The foregoing regulations are but two of the vast array of regulations, at all levels of government, that involve HR.
 
HR compliance takes into consideration virtually all work functions amongst an institution’s rank and file. For instance, HR’s responsibilities in an institution include overseeing and managing duties related to hiring, firing, employee benefits, wages, paychecks, and overtime. 
 
A compliance review of the HR function should include how its many authorities extend to the oversight of workplace safety, privacy, preventing discrimination, prohibiting harassment, minimizing legal liability in the hiring and firing process, worker complaints, job protection, compensation, benefits, pensions, employee training, and labor relations.
Jonathan Foxx is managing director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in outsourced mortgage compliance and offering a suite of services in residential mortgage banking for banks and non-banks. If you would like to contact him, please e-mail Compliance@LendersComplianceGroup.com.

 
 
Question: We are drafting a new policy and procedures for providing a copy of an appraisal to the consumer. Would you please outline the most important requirements that we should include in it?
 
Answer
Under Regulation B, the implementing regulation of the Equal Credit Opportunity Act (ECOA), there are specific requirements for providing a copy of an appraisal and other written valuations developed in connection with certain mortgage transactions. [See § 1002.14, Regulation B]
 
There are four requirements that should be outlined in a policy sections with respect to providing a copy of an appraisal to the consumer.
 
As a creditor, the procedures sections should:
 
►Require creditors to notify applicants within three business days of receiving an application of their right to receive a copy of appraisals developed.
►Require creditors to provide applicants a copy of each appraisal and other written valuation promptly upon its completion or three business days before consummation (for closed-end credit) or account opening (for open-end credit), whichever is earlier.
►Permit applicants to waive the timing requirement for providing these copies. However, applicants who waive the timing requirement must be given a copy of all appraisals and other written valuations at or prior to consummation or account opening, or, if the transaction is not consummated or the account is not opened, no later than 30 days after the creditor determines the transaction will not be consummated or the account will not be opened.
►Prohibit creditors from charging for the copy of appraisals and other written valuations, but permit creditors to charge applicants reasonable fees for the cost of the appraisals or other written valuations unless applicable law provides otherwise.

Jonathan Foxx is managing director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in outsourced mortgage compliance and offering a suite of services in residential mortgage banking for banks and non-banks. If you would like to contact him, please e-mail Compliance@LendersComplianceGroup.com.
 
We are redrafting on consumer complaint policy and we’re getting stuck on how to handle the early stages of complaint resolution
Question: We are redrafting on consumer complaint policy and we’re getting stuck on how to handle the early stages of complaint resolution. Can you provide some practical guidance with respect to starting the complaint resolution process? 
 
Answer
The Board of Directors or Senior Management should delegate the responsibility of monitoring and responding to complaints to a manager. Some companies give this individual the title Complaint Resolution Officer or CRO.
All written complaints initially would be directed to the appropriate department and functional area, or, if there is any uncertainty, instead to the CRO. The appropriate personnel will draft responses to consumers and/or regulators, and cross copy the CRO. If the company is small, the initial complaints would be sent directly to the CRO.
 
Generally, the CRO will keep a central file of complaints and responses. The Board and Management should meet, at least quarterly, to review new complaints and responses. Senior management would determine if certain complaints must be brought to the attention of the Board more often or if the response to the consumer and/or regulator should come from the Board.
 
Once a complaint is noted, institution personnel may be interviewed individually by the functional department manager or designated CRO if they are involved in the consumer’s complaint or comment. Explanations of the occurrence can be requested during the interview process, and copies of any written instructions furnished to employees about the allegation would be reviewed and discussed during the interview process.
 
A written report should by written by a department manager or CRO, presenting the facts and information in a clear, objective manner. The report should:
►Summarize the facts in a chronological order;
►Detail the precise claims of the complainant;
►Express the resolution desired by the complainant; and,
►Indicate management’s response to the claims of the complainant.
 
The report should include the recommended course of action or corrective procedures and comments on whether the complaint represents an isolated case or a pattern or practice that needs to be corrected.
 
Complaint resolution must follow a timed response process. Unless otherwise required by regulation for different timely response criteria, the following general guidelines should be followed regarding responses to complaints:
►Complaints should be acknowledged within 15 days after receipt of the correspondence, oral, telephonic, or electronic notification of a complaint;
►Inquiries, comments, or objections should be answered or information provided within 15 business days after receipt;
►Complaints not involving an on-site investigation should be fully processed and responded to within 30 days after receipt; and,
►Complaints involving an on-site investigation should be resolved within 45 days after receipt.
 
Jonathan Foxx is managing director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in outsourced mortgage compliance and offering a suite of services in residential mortgage banking for banks and non-banks. If you would like to contact him, please e-mail Compliance@LendersComplianceGroup.com.
 
 
Question: On a purchase money transaction, the lender issued a Closing Disclosure which set forth a 30-year term, as opposed to the 15-year term the borrower wanted. The error was discovered while the borrower was at the closing table. The lender issued a corrected CD reflecting an APR increase of more than 0.125%, thus triggering a new three day waiting period. The lender did not give the settlement agent a “clear to close”. However, for whatever reason, the settlement agent thought he had funding authorization and proceeded to consummate the transaction, including the disbursement of funds to the seller. It appears that the settlement agent closed on the initial CD, as that is the CD, signed by the borrower, that he returned to the lender. The following day the lender learned that the transaction closed and now seeks to “cure” the regulatory violation through the issuance to the borrower of a corrected CD within 30 days of consummation in accordance with 12 C.F.R § 1026.19(f)(2)(iii). Does doing so, in fact, cure the situation?
 
Answer
You are correct, that under the TILA-RESPA Integrated Disclosure Rule (TRID), the lender must issue a revised Closing Disclosure (CD) if any of the fees reflected therein become inaccurate at or before consummation and, if such revisions result in an increase in the APR of more than 0.125%, consummation must not take place sooner than three business days following the issuance of the corrected CD. [12 CFR § 1026.19(f)(2)]
 
As to the regulatory violation described in your question, there is no “cure” for failing to comply with the three day waiting period rule. Regardless of what actions the lender takes now, the lender can still be cited for this violation. 
 
As to the 30-day post consummation cure period, under the regulation, a revised CD must be issued within thirty days of consummation if two criteria are met.
 
1. “An event in connection with the settlement of the transaction occurs that causes the disclosures . . . to become inaccurate”, and
2. “Such inaccuracy results in a change to an amount actually paid by the consumer from that amount disclosed under paragraph (f)(1)(i) of this section . . . “ [12 CFR 1026.19(f)(2)(iii)]
 
In the Section by Section analysis (78 FR 79878), the Bureau sets forth its position that post-consummation redisclosures should only be made if a subsequent event results in a change to a charge paid by the consumer.
 
“The final rule requires redisclosure only for post-consummation events that change an amount actually paid by the consumer. The Bureau does not believe consumers would benefit from revisions to the Closing Disclosure due to post-consummation events that do not affect charges imposed on them . . . Thus, the Bureau believes a redisclosure to the consumer after consummation should be required only if a subsequent event changes a charge actually paid by the consumer and not for any change to the transaction."
 
So the question is, what is the post-closing event that caused the disclosure to become inaccurate?
 
The lender learning that the settlement agent consummated the transaction using the incorrect CD? That does not appear to qualify as a post-consummation event, as the event was the consummation of the transaction, not the lender learning of the error.
 
The second question is, what charges did the consumer actually pay? Those charges disclosed on the incorrect CD or those disclosed on the corrected CD? If the former (assuming they are less), I would suggest the creditor simply eat the difference in fees. If the latter, consider looking to the cure provisions under 15 USC § 1640(b); notify the consumer of the error and refund the lesser of the charge actually disclosed or the dollar equivalent of the APR disclosed on the incorrect CD.
 
Additionally, if on a good faith analysis, the charges disclosed on the corrected CD exceeded the amounts set forth on the Loan Estimate beyond permissible tolerances, the corrected CD must be issued together with a refund for excess to the borrower within 60 days of consummation. [12 C.F.R. § 1026.19(f)(2)(v)]
 
Joyce Wilkins Pollison is director of Legal & Regulatory Compliance for Lenders Compliance Group.
Question: Have there been any recent changes or developments concerning Testing and Education Requirements for non-bank Mortgage Loan Originators?
 
Answer 
At the recent NMLS Annual Conference held in Austin, TX, I attended a break-out session conducted by SRR officials Pete Marks and Rich Madison. Also presenting was Tammy Scruggs, a Director in the Kentucky Division of Financial Institutions and Vice-Chairperson of the Mortgage Testing and Education Board. (MTEB)
 
The MTEB has approved Rules of Conduct which cover test takers, education students and Standards of Conduct which cover course providers. It has also approved Administrative Action Procedures which determine how violations and investigations will be managed. Their role is to act in both an oversight and advisory capacity. The MTEB is comprised of at least nine state regulators representing each of the five CSBS Districts and at least one AARMR representative.
 
Test Administration
The number of tests administered in 2010 totaled 368,000 and has slowed at a steady pace staying at the 130,000 level for three years and then further declining to the 2016 figure of 59,000. The drop is attributed to the decline in the number of state specific tests, resulting from the introduction of the Uniform State Test in 2013. The National Test numbers have been at their historical highs over the last three years with 2017 getting off to a great start.
 
Test performance has been declining throughout 2016 as evidenced by the National Test with Uniform State Content First-Attempt Pass Rates ranging from about 63 % for the first three months of 2016 to an average score of 58.8% for the last five months of the year. Trends suggest that the quality of the test takers may be deteriorating.
 
Content Outline Expansion Program 
Presently, individuals taking the SAFE Mortgage Loan Originator Test National Component with Uniform State Content can review a Content Outline that breaks down the sections of the test by categories and provides topics covered in each section along with the percentage of the questions coming from each section. The outline is roughly three and one-half pages. The outline will be going through a revision which will take the outline to four times the detail that is there now to about 16 pages. It is expected that test takers will have a much broader understanding of the test elements without exposing the test content. The content of the test will remain the same. It is expected to be implemented, subject to getting the necessary approvals, sometime in the second quarter of this year.
 
It was pointed out that the test taker is responsible for changes that may have occurred in laws and regulations within the test cycle. Below is the actual language that appears.
Legislative Updates Legislative changes may occur throughout the test administration cycle. Candidates are responsible for keeping abreast of changes made to the applicable statutes, regulations and rules regardless of whether they appear on this outline or the test.
 
Also in play is a Standard Setting Process which will link a passing score to the ability level of a minimally qualified candidate. A Subject Matter Expert Panel will evaluate the test resulting in the evaluation of the panel output.
 
UST Adoption
The State adoption of the Uniform State test has been very successful. Florida and Arkansas have either adopted the test or will do so shortly. That will leave the remaining states not adopting to four. Of those four, Utah, Minnesota and South Carolina have legislation in motion to allow adoption. West Virginia has been meeting with CSBS leadership to further discuss adoption. It is possible that all states may be using the UST by the end of 2017.
 
Test and Education Security
Enhancements to the security of education programs and tests have been made during the period. A Candidate Agreement has been completed. Candidates must sign the agreement in advance to be able to proceed with testing. Rules of conduct for education students are also completed and in place. The MTEB is now allowed to act in an appellate capacity on cases brought before them. Web surveillance is also in place with the primary focus of searching for misuse of test content. Student authentication is in process. The concept is to find a way to determine that the online course taker is legitimate.
 
The number of investigations is quite low. Twenty-five cases were investigated in 2016 which represented a 50% reduction over the previous year. Some of the areas of concern are bad content at the test center and MLO’s changing the test score on the score report and presenting it to their employer.
 


 
Alan Cicchetti is director of Agency Relations for Lenders Compliance Group, and executive director for Brokers Compliance Group.