Mortgage Compliance

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):

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