Pipeline Management ECOA and HMDA

Transcription

1 4/12/2013 Pipeline Management ECOA and HMDA Regulatory Requirements Equal Credit Opportunity Act (REG B) a request for credit made in accordance with procedures established by the creditor. Fair Credit Reporting Act (FCRA) does not define application, but requires certain notices based on actions taken on an application. Real Estate Settlement Procedures Act (RESPA) six data points. RESPA Six Data Points RESPA requires that a GFE and initial Truth in Lending ( TIL ) disclosure be delivered to the applicant within 3 business days when the following information is received from the applicant: Name Social Security number Income Property address Approximate value of property Loan amount 1

2 4/12/2013 Good Faith Estimate ( GFE ) Once the six pieces of information are entered into Encompass, the System will trigger an application date. Disclosure Desk receives a daily report showing applications requiring disclosures. Enter data carefully to ensure that an application is not triggered when the application is still in the prequalification status. Shopping document provide upon request if six pieces of information are provided. Pipeline Management Once an application is established, it is essential that it continues to move through pipeline in a timely manner until its natural end. Approval, withdrawal, or denial. The application drives the process, not the applicant s name. Action Taken Originated The loan is approved and closes. Approved, not Accepted The application is approved by Underwriting, but the applicant decides not to accept the offer. Denied The application is turned down. The applicant must receive an adverse action notice within 30 days of the decision. 2

3 4/12/2013 Action Taken Withdrawn The applicant expressly withdraws the application from further consideration before a credit decision is made. Document the withdrawal request in the Conversation Log. Begin a new entry. Do not add your comment to an existing entry. Do not assume that applicants have withdrawn the application just because you can t reach them. Do not treat a rejected counteroffer as a withdrawal. Action Taken Notice of Incomplete Application This option is not currently used by WMC. Encompass Folders Prospects All loan files start in the Prospects Folder Prequal Loan files with credit pull <90 days for Preapproval Prequal Inactive Loan files with credit pull >90 but < 1 year Prequal Inactive OLD Loan files with credit pull > 1 year Prequal Adverse Prequal files that have been denied or withdrawn My Pipeline Loan files that are true applications, where a GFE date did populate in Encompass Adverse Denied Loan applications that were withdrawn or denied WMC Closed Closed loan files that have been purchased by Investor 3

4 4/12/2013 Prequalification vs. Preapproval A prequalification is an inquiry made by potential borrowers concerning how much financing they may qualify for using basic credit information and oral estimates of income. WMC does not have a true preapproval program as defined by regulations such as HMDA. Instead we offer pre qualifications to borrowers who are interested in purchasing a property. A true preapproval program would require us to issue a commitment letter to the borrower. WMC will still issue a preapproval letter. The language in the letter clearly explains its purpose and limitations. The expiration of a preapproval letter is tied to 90 days from the date of the initial credit report. All loan officers should use the revised Encompass preapproval letter as it has been approved by the Legal/Compliance Department. Obtaining a Credit Report Credit reports must be ordered through Encompass. Loan officers may not obtain a credit report through any other channel. This could inadvertently create a Fair Credit Reporting Act violation. Prequalification Preapproval letter issued Credit Report Issued Application Six data points = GFE date Obtaining a Credit Report It is the policy of Waterstone Mortgage that only one credit report may be obtained for each application unless an exception applies. Processors can obtain an updated credit report in the following situations: Applicant information entered incorrectly (i.e. SSN or name). The initial credit report expired after 90 days, but the application is still active. 4

5 4/12/2013 Managing the Timeline Tracking the number of days a loan application or prequalification has been in the System will allow Loan Officers and Branch Managers to better manage their pipelines. Number of Days Since Credit Pull and Days Since Application can be found on the Borrower Summary Origination screen in the Encompass loan file. Prequalification Process Originated Loan Prospect Folder Obtain credit Prequal Folder GFE Date Pipeline Folder Processing, UW, Pre Close Closed Loan Folder Prequalification No Application Prospect Folder Obtain credit Prequal Folder (holds applications for up to 90 days) Prequal Inactive (holds applications from 90 days to 1 year) Prequal Inactive Old (holds applications greater than one year) 5

6 4/12/2013 Application to Origination GFE Date Prospect Folder Pipeline Folder Processing, UW, Pre Close Closed Loan Folder Obtain Credit Timeline The average time period for an application to turn into an originated loan is less than 3 months. An application cannot remain in active status for more than 90 days without extenuating circumstances. Reporting Process Pipeline Management monitors several reports on an on going basis. Auto denial Prequals greater than 89 days Applications greater than 90 days Applications greater than 120 days 6

7 4/12/2013 Auto Denials Applies to pre qualification applications in the correspondent channel with a mid credit score less than 600 will be automatically denied unless the application involves a HARP loan. Loan denied for credit history. Brokered loans less than 600 will not be automatically denied as some brokers have programs in place for lower credit scores. WMC has minimum mid score credit score of 640. Applications Greater than 90 Days Applications 90 Days Old Applications that have been in the active pipeline for more than 90 days will appear on the Applications Greater than 90 Days report. Loan officers with applications appearing on this report will automatically receive an . This will notify you that the application is 90 days old and a status update is required to be provided to the Pipeline Management Department. Sample 90 Day If we do not receive a response to this within one week, the file will be automatically denied due to incomplete application and your borrower will be sent an adverse action notice. The above mentioned loan file is over 90 days old. In order to maintain active status, you must provide detailed information regarding the application s continued progress and an estimated closing date. We are no longer able to keep applications in an active status for over 90 days without substantive proof that the application is moving toward a definite closing date. For example, an application that has not moved from Disclosure to Processing cannot remain active as no apparent progress is being made toward an originated loan. In the event the loan file is withdrawn or denied, please provide the applicable explanation. Withdrawn application For an application to be considered withdrawn, the applicant must expressly withdraw the application (e.g. I want to cancel my application. ). That is, you cannot assume the application is withdrawn because the applicant is not returning your calls or s. If the applicant withdraws the application, you must enter an explanation in the Conversation Log (e.g. I spoke with the applicant on November 13, 2012 over the phone and he asked to withdraw the application. ). We will no longer accept file is dead or withdraw. We do need the complete reason as to why the file is no longer active. With the pipeline configuration process, it is imperative that we have information to update the loan file. If you have an application nearing 90 days, please contact your borrower and discuss the best course of action. It may be in the borrower s best interest to withdraw the loan and start fresh when whatever issue that stalled the application has been addressed. If you do not get the applicant s express permission to withdraw the application, the application will be considered denied for incomplete application. 7

8 4/12/2013 Loan Denial Loan officers, processors or other employees in the field should never deny nor discourage an application. Discuss all available loan programs with applicants so they can make an informed decision. Notify Pipeline Management so an accurate Statement of Denial can be prepared and mailed in a timely manner. Loan Denial Loans may be denied by Pipeline Management or Underwriting. Pipeline will typically deny an application in the early stages when information is being gathered. Underwriting typically denies a loan for credit related issues such as DTI or insufficient cash reserves. All denied applications are given an automatic second review with 48 hours of the initial decision to deny. Conditional Approval Underwriters often issue conditional approvals. The conditions must be approved before a clear to close is issued. If conditions are not met, the application must be denied. 8

9 4/12/2013 HMDA Data Collection Home Mortgage Disclosure Act Purpose Assists the federal government with monitoring lenders for compliance with the Equal Credit Opportunity Act. Applicant s cooperation is voluntary. HMDA Data Collection Government Monitoring Information ( GMI ) Ethnicity Hispanic/Latino or Not Hispanic/Latino Race applicants may select more than one option. Sex Face to face and telephone read the instructions. Internet and mail make instructions available. Do not coach the applicant. This is about how the applicant self identifies. Method of Applying Method of application is critical because it drives what information is required. Face to face interview applicant may choose not to furnish, but loan officer must make the selections base on visual observation and surname. Telephone if applicant chooses not to furnish GMI, move to the next part of the application. For example, do not enter sex based on sound of voice or name. Internet applicant may choose not to furnish GMI and provide it anyway. Applicant may choose to provide partial data. Note: If applicant chooses not to furnish GMI in a telephone or Internet application, do not override that decision by entering the information after first contact. 9

10 4/12/2013 Reporting to the Federal Government All financial institutions and mortgage lenders that are subject to HMDA must make an annual report to the federal government by March 1 st. Loan Application Register ( LAR ) Includes GMI, property location, action type and date, and loan program. Inaccurate data results in steep fines by the FDIC. Please respond to inquiries from HMDA/LAR Data Specialists in a timely manner. Contacts Kristin Cox Corporate Trainer KCox@WaterstoneMortgage.com Kate Johnson VP/Compliance Kate.Johnson@WaterstoneMortgage.com Compliance Department Compliance@WaterstoneMortgage.com Pipeline Management Pipeline@WaterstoneMortgage.com Encompass Encompass@WaterstoneMortgage.com 10

11 Drafted by: Compliance Department REV PROCEDURE: EQUAL CREDIT OPPORTUNITY ACT (ECOA) (TAKING ACTION ON AN APPLICATION) In accordance with the Equal Credit Opportunity Act ( ECOA ) and the Fair Credit Reporting Act ( FCRA ), an applicant must receive notification within thirty days after submitting a completed application concerning the lender s approval of, counteroffer to, or denial of the application. Although an approval may be expressed orally, a denial must be in written form on an Adverse Action Notice or Statement of Denial. As a general rule, only the Pipeline Management or Underwriting Departments may deny a loan application. Loan officers may counsel applicants by explaining loan program guidelines or WMC overlays, but should never express a judgment even informally. For example, a person applies for a loan and the loan officer runs DU and the findings indicate the application does not meet FNMA guidelines. The loan officer may explain to the applicant that it is the policy of Waterstone not to approve applications that do not meet investor requirements. The loan officer should go on to discuss all other options available to the applicant. In the end, the loan officer will notify Pipeline Management. The Pipeline Management Department will review the file and determine if a denial is appropriate and then prepare and deliver the Statement of Denial. When contacting Pipeline Management, loan officers should avoid requesting a denial as this may imply that a decision has been made and expressed to the applicant. Instead, loan officers should request a review of the application. Even though Pipeline Management makes the decision to deny, they rely on information from the loan officer to help make the appropriate determination. Therefore, when contacting Pipeline Management for a review and final action, loan officers should provide as much information as possible about what transpired with the borrower so that Pipeline can make the correct decision. There is really no such thing as too much information. Loan officers must also include supporting documentation when contacting Pipeline Management. For example, a loan officer may report that the applicant wants to cancel the application because the property value is too low. There should be an appraisal or HVE in the file to support this. A denial should not be based on speculation. Loan officers should never discourage an application as this would be a violation of the ECOA. Loan officers may explain loan program guidelines and leave it up to the applicant to proceed with an application. Usually consumers will be able to read between the lines and determine that they are not likely to be approved and then can decline to submit an application at that time. Approved Applications Loan applications are approved after a complete underwrite. Loan officers should never approve the loan or make promises that an approval decision can be made in minutes. The Underwriter assigned to the file will issue a clear to close approval which signifies that the loan has been approved without any conditions attached (other than those that are covered at closing). The Underwriter uploads a copy of the approval letter to the efolder.

12 Withdrawn Applications Determining whether an application is withdrawn or denied is not always an easy analysis. The ECOA states that in order for an application to be considered withdrawn, the applicant must expressly withdraw the application before a credit decision is made. This means that applicants must clearly express the desire to discontinue the application process. An applicant s intentions cannot be inferred from behavior. For example, if an applicant simply stops communicating with the loan officer, one might assume that the person does not want to continue. However, this does not meet the definition of withdrawn application for the ECOA. If the loan officer cannot reach the applicant, the application must be denied for incomplete application. To complicate matters more, what constitutes expressly withdrawn is not as obvious as one would like it to be. An applicant saying, I want to withdraw my application or I want to go with another lender is not always sufficient to demonstrate a withdrawn application. The proper designation really depends on what happened prior to the withdrawal request. You should ask yourself, why did the applicant back out? If nothing happened, for example, the applicants changed their minds about refinancing before the application process got started, the application is withdrawn. This is pretty straightforward. An application would be treated as denied if the decision to withdraw is made after receiving some bad news from the lender. As in the example above, during the loan application process, the loan officer runs an AUS and gets a refer, caution, or approve/ineligible. Assuming the loan officer does not ask for an exception from the Underwriting Department, or the applicant does not choose a different loan program, this application would be denied by the Pipeline Management Department for whatever reason(s) is indicated from the AUS findings. On the other hand, bad news from a source other than the lender could support a withdrawal. For example, an applicant applies for a loan to purchase a home, but negotiations break down and the offer is ultimately refused by the seller. This is a withdrawn application. Another example would be an unacceptable home inspection. Typically an acceptable home inspection is a condition of the purchase agreement, not the loan. Thus, if the home inspection is unacceptable and the buyer backs out of the purchase, this would be a withdrawal because the bad news did not come from the lender or someone working on behalf of the lender. However, had the lender required the home inspection as a condition of the loan and the inspection was unacceptable, the application would be denied. Please see Exhibit A for illustrative examples of denied and withdrawn loans. As a general rule, the farther along the application progresses, the more difficult it is to withdraw. This is because typically more information has been collected and evaluated, such as a credit report or AUS findings. Normally, submission to underwriting marks the point of no return. It is very difficult to withdraw an application when it reaches this point because the decision making process is underway. However, if a loan is suspended in underwriting because the file is incomplete, the application can be withdrawn if the applicant clearly expresses a desire to withdraw from the process instead of providing additional documentation. Loan officers will need to work with the underwriter to determine if the application can be withdrawn or if it should it be denied. If an application meets the definition of withdrawn, the loan officer must make an entry in the Conversation Log providing sufficient information to support the withdrawal. At a minimum, this must include how the withdrawal request was made, who made the request, on what day and at what time the request was made, and the reason for the withdrawal. Next the loan officer must notify Pipeline Management so that the file can be properly coded as application withdrawn.

13 When entering a comment into the Conversation Log, the comment needs to be added as a separate entry. That is, the comment should not be added to an existing comment. A Conversation Log entry is made as follows: a) Click on Conversation Log under Tools. b) Click on new conversation icon. c) Type Application Withdrawn in Company field and then type in the explanation. d) Save the entry prior to exiting the loan record. If the Underwriter issues a clear to close and the applicant does not accept the offer, the application is considered approved, not accepted. Approved, not accepted applications are similar to withdrawn applications in that no notification is required if the applicant refuses the offer.

14 Denied Application An application is denied if we are unable to grant credit on the terms requested. The decision to deny can occur at any time between application and underwriting. If an application is denied early in the process, it is usually because the applicant cannot meet loan program requirements or Waterstone overlays, or the collateral offered as security for the loan is unacceptable (e.g. LTV too high or condominium is not on the eligible list). Applications that make it to underwriting are typically denied for credit reasons such as an excessive debt to income ratio, insufficient cash reserves, or an inability to verify credit related information (e.g. income, assets). If the underwriter denies an application, he or she will update Encompass to indicate the reason and will then notify Pipeline Management so that a Statement of Denial may be prepared and delivered in a timely manner. Underwriters often issue a conditional approval which means the loan will be approved if the applicant can satisfy the conditions. A conditional approval is not an approval. If the loan has been conditionally approved and the applicant cannot meet the conditions, the loan must be denied. In these cases, the assigned underwriter should be able to assist with the appropriate reason for denial. When a conditional approval is made, the underwriter should notify the loan officer and processor. It is very important that the loan officer or processor keep in touch with the underwriter. Otherwise, the file will languish with the underwriter. If the applicant cannot or chooses not to clear the conditions, the underwriter will need to notify Pipeline Management with the final action so that a denial notice can be prepared and delivered if appropriate. Unaccepted counteroffers also result in denied applications. For example, an applicant applies for a cash out refinance based on the estimated collateral value. The appraisal comes in light so the loan officer discusses restructured terms with the applicant. The applicant says, No thanks. Although at first glance this may appear to be a withdrawal request, it is not. This is a denial based on collateral. This is because the original request was denied and the applicant did not accept the counteroffer. Had the counteroffer been accepted, the application would go forward with the changed circumstance. Counteroffers The ECOA includes regulations governing counteroffers. WMC does not offer a formal counteroffer program. The only exception would be a restructured transaction based on a change between the estimated and actual collateral value as described above. Otherwise, the initial application must be denied for the appropriate reason and a new application started if appropriate. For example, if an application cannot be approved because the applicant is not creditworthy, but would be creditworthy with an acceptable co borrower, the first application will be denied for the appropriate reason, and the applicant can begin again with a co borrower. (Note: If the initial application involves an FHA loan with a case number assigned, a co borrower may be added or removed from an application without starting a new application. This exception is related to FHA case assignment restrictions.)

15 Exhibit A Illustrative Examples of Withdrawn and Denied Loans 1. Collateral Denied Application. Applicant owes $150,000 on existing mortgage loan. The last time the property was appraised, the appraised value was $225,000. The applicant applies for a cash out refinance of $180,000 under a conventional program. After closing costs are deducted, the applicant expects to receive $20,000. The appraisal comes in at $205,000. The loan officer explains that we can t do the loan on the original terms, but we could try again with less cash received at closing. The applicant says, No thank you. I want to cancel my application. On its face, this looks like a withdrawal because the applicant expressed a desire to cancel the application. However, this is truly a denial because credit was denied on the original terms (i.e. $180,000/$225,000) and the applicant refused the counteroffer. Thus, this application is denied for collateral. Withdrawn Application. Applicant owes $150,000 on existing mortgage loan. The last time the property was appraised, the appraised value was $225,000. The applicant applies for a cash out refinance of $180,000 under a conventional program. The applicant receives his initial disclosure package. The loan officer contacts the applicant to see if he would like to proceed with the loan. The applicant says that he has been talking with his neighbors and has heard that property in the area is not appraising at values common a few years ago when he got his last appraisal. Consequently, he wants to withdraw the application to save on the appraisal cost. In this scenario, this is a withdrawn application. This is because we have no authoritative source of value such as an appraisal. The applicant is merely speculating about the outcome. It is quite possible that the appraisal, if ordered, would support the expected value. Withdrawn Application. The applicant makes an offer to purchase a property contingent on an acceptable home inspection. WMC does not require a home inspection as a condition of the loan. The home inspection identifies some serious problems with the property so the applicant cancels the offer. This is a withdrawn application because the application has not been denied by WMC. The applicant is choosing to back out before the process is complete. However, if WMC required the home inspection as a condition of the loan and the inspection failed, the application would be denied. You can generally tell whether or not the lender requires a particular settlement service (e.g. home inspection, pest inspection, survey) by looking at Blocks 3 and 6 of the GFE. These sections are reserved for required services. If Block 3 or 6 does not identify the service in question, one can assume that the service is not a requirement for loan approval. 2. Adding/Removing Co applicants Denied Application. Husband and wife apply for a loan. During underwriting, it is discovered that the husband has some credit issues that will cause this loan to be denied. It appears that the application could go through if the wife applied alone. This is a denied application because the husband is being removed from the application in order to get the loan approved. Withdrawn Application. Husband and wife apply for a loan. Both qualify individually. Upon further consideration, they realize that if the loan is in just the wife s name, they can expedite the loan process. This is a withdrawn loan because removing the spouse from the application is the couple s choice and not the result of derogatory information affecting qualification. Denied Application. Applicant applies for an individual loan. AUS findings show that she is ineligible for various reasons including excessive DTI. She decides to reapply with her significant other as a co borrower. This is a denial because the

16 applicant does not meet program requirements (i.e. excessive DTI). This application will be evaluated by Pipeline Management and a denial notice mailed for the appropriate reason(s). Withdrawn Application. Wife applies for an individual loan and is DU eligible. She decides to add her husband because she does want to take out a mortgage loan without him as a co borrower. This is a withdrawn application because she is adding her husband by choice and not because of her inability to qualify on her own. Note: The requirement to start a new loan application when a co borrower is added or removed is a WMC policy. This is done to help control the Pipeline and to ensure compliance with FCRA and HMDA. FHA loan applications with an active case number assigned are treated differently because of issues related to FHA Connection. In these cases, a co borrower can be added or removed while maintaining the same application number. 3. Incomplete Application Denied Application. The applicant submits an application. The loan officer and processor work with the applicant to bring in additional documentation to process the loan. The applicant drags his feet and keeps saying that he will take care of this. A month passes and the applicant no longer returns phone calls or s. One might assume that the application is withdrawn because the applicant lost interest. However, this is a denial because the applicant never expressly denied the application. The reason for denial is incomplete application. Withdrawn Application. The applicant submits an application. The loan officer and processor work with the applicant to bring in additional documentation to process the loan. The applicant drags his feet and keeps saying that he will take care of this. The loan officer contacts the applicant by phone and the applicant states that he does not want to continue. This is a withdrawn application because the applicant expressly withdrew the application. The loan officer made actual contact and spoke with the applicant about his intentions. 4. Program Ineligible Denied Application. The applicant submits an application. The loan officer obtains a credit report and that looks good. The processor runs AUS and gets an ineligible or caution response. This indicates that the loan does not meet secondary market requirements. The loan officer suggests that the applicant resubmit the application through the brokered channel. The borrower says, No thank you. Even though this may appear to be a withdrawal by the applicant, it is truly a denial for the reason identified on the AUS findings. Withdrawn Application. The applicant submits an application. The loan officer obtains a credit report and that looks good. The processor runs AUS and gets an ineligible or caution response. The loan officer reviews the findings and realizes that some of the information entered needs to be changed. The loan officer runs another DU and this time there is an eligible response. The applicant discusses his options with the loan officer and decides not to continue. This is a withdrawn application because the applicant was DU eligible at the time he made the decision to withdraw the application. In the same scenario, the facts are changed as follows. The AUS indicates ineligible. The loan officer realizes that inaccurate information has been entered. The applicant backs out of the transaction before an updated DU is run. In this case, the application should still be considered withdrawn. However, the loan officer must explain to Pipeline Management that the application appears to be ineligible, but that this is a false finding based on inaccurate information. If the loan officer does not communicate this fact to Pipeline Management, they are forced to evaluate on what information they have which is an ineligible DU and subject to denial.

17 PROCEDURE: HOME MORTGAGE DISCLOSURE ACT ( HMDA ) DATA COLLECTION As an originator of mortgage loans, WMC is required to collect certain information called "Government Monitoring Information" or "GMI" on all loan applicants. Summary: GMI consists of the applicant s ethnicity, race, and sex. This information must be collected at the time of initial application, so is not dependent on whether or not the loan is originated. Because GMI is collected at initial application, there is no need to go back and change information based on later encounters with the applicants. Thus, there is no "updating" involved. Failure to collect and report accurate data may result in a fine by the FDIC. Fines can range in the thousands to millions of dollars. Therefore, it is essential that everyone follow these procedures for data collection: Procedure: 1. Explain to the applicants that providing GMI is not required but encouraged. The government uses this information to help monitor compliance with fair lending laws. These laws protect consumers from discrimination based on this information. Applicants are asked to provide information on ethnicity, race, and sex. For race, applicants may choose more than one designation. In a face to face interview, the loan officer is required to complete the information based on visual observation and surname. Loan officers should avoid coaching or guiding applicants to answer in certain ways. The information provided by applicants should be based on how the applicants self identify. For example, one biracial person may select two categories of race, where another biracial person may see him or herself as only one race. It is not our job to pass judgment or make the decision. Our job is to explain the purpose of HMDA data collection and accurately record the answers provided. 2. Enter the method of application. This is a very important step because it affects all subsequent steps. At the bottom of the 1003 Page 3 WMC input screen, enter the method of application. There are four options: Face to Face, Internet, Mail, or Telephone. 3. Collect the data in accordance with the method of application as follows: Face to face application If the application is taken in a face to face interview, GMI must be collected. There are absolutely no exceptions. With that said if the applicants state that they do not wish to provide GMI that is their prerogative. However, the loan officer must enter the data based on visual observation and surname. It is essential that this is explained to the Drafted by: Compliance Department REV

18 applicants. That is, if they do not provide GMI, the loan officer is required by law to enter the data based on visual observation and the surname. Internet application Applicants may choose not to enter GMI. They indicate this choice by clicking on the "I do not wish to furnish" checkbox. This choice covers all data points (i.e. ethnicity, race, and sex). The current online application allows applicants to both click on the "I do not wish to furnish" checkbox and enter some or all GMI, so it is possible to see the I do not wish to furnish box checked, but gender or other classification data entered as well. In these situations, the choice not to provide GMI overrides and any GMI entered in error should be deleted. However, if the I do not wish to provide box is not checked, but only partial GMI is entered, that will suffice. It is not necessary to update the GMI later when the applicants come to the branch office. Telephone application When the application is taken over the telephone, the loan officer must explain the nature of GMI data collection and its purpose. This step cannot be skipped. If the applicants state that they do not wish to furnish the data, check the "I do not wish to furnish" box and move on. Do not enter gender information even if it s obvious that you are speaking with a man or woman or can make a determination based on name. It is all or none. If the application involves multiple applicants and the person with whom you are speaking provides GMI on him or herself, the applicant may provide GMI for the coborrower as well. Example of Face to Face Application with Married Borrowers

19 Example of Telephone Application Where Applicants Choose Not to Furnish GMI 4. The Compliance Department is responsible for entering HMDA data on the Company s Loan Application Register ( LAR ). If a loan officer fails to enter HMDA data correctly, an is sent from Compliance asking for the correct information. Loan officers are generally given three days to respond before a second request is sent. Branch managers are automatically copied on second and third requests. The National Sales Manager is copied on the third request.

20 PROCEDURE: PIPELINE CONFIGURATION (FIELD) Summary: WMC utilizes a pipeline structure to manage loan applications (pre qualifications and applications). This Job Aid is designed to provide an overview of the process. Key Terms Prospects are defined as potential buyers of a product or service. Pre qualifications are inquiries (typically oral) made by a potential borrower regarding general financing and based on basic credit information and oral estimates of income. They are not considered applications under RESPA or Regulation Z. Applications are defined as a request for credit where the following six pieces of information are received from the applicant: 1. Name 2. Monthly Income 3. Social Security number 4. Subject Property Address 5. Subject Property Estimated Value 6. Mortgage Loan Amount Requested KEEP IN MIND Most loans go directly from Prospect to application. Pre-qualifications should only take place when applicants are unsure about their creditworthiness or of the amount they can afford (mortgage loan amount); or they have not located a subject property. WMC does not have a true pre-approval program as defined by regulation. Instead WMC offers pre-qualifications to borrowers who are interested in purchasing a property. A true pre-approval program would require WMC to issue a commitment letter to the borrower. With this in mind, we are still providing documents labeled as pre-approvals instead of pre-qualifications. When the items listed above under the term Application are collected, certain required disclosures are triggered. The disclosures must be delivered within 3 business days from the date of application and should initiate the processing of the loan application. Drafted by: Compliance Department REV

21 Pipeline Process Flow All new loans (pre qualifications or applications) are started in the Prospects folder. Encompass will automatically move the loan file to one of two folders when a credit report is obtained. If a credit report is obtained before all six pieces of information are collected, the loan will automatically move to the Prequal folder located in Encompass. When the six pieces of information are entered into Encompass, a GFE Application Date automatically populates in the Disclosure Tracking Screen. At this point, the loan will automatically move to the My Pipeline folder. Key items that define an application Borrowers Name Borrower SSN Subject Property Address Subject Property Estimated Value Estimated Income Loan Amount BROKERED LOANS Brokered loans will transition through the folders as described above. However, brokered loans do not follow the process outlined below. Waterstone Specialty Group processes adverse actions on brokered loans and should be contacted directly for assistance. Once a credit report is obtained on a pre qualification, Encompass will check the credit score to determine if the application can proceed or be automatically denied. If the mid credit score is below 600 or the borrower has no credit score, the loan will be automatically denied within 25 days of the credit report date. The auto denial process does not apply to applications. Although an application is never automatically denied, WMC does have a minimum mid credit score of 620 for approval. However, there are some exceptions. An application with a mid credit score below 600 may still be processed through the brokered channel. The application would need to be started in brokered channel. In addition, applications for the HARP Program may still be processed with a credit score lower than 600. If the application is for a HARP loan, the HARP PIW/HVE box must be checked (see below).

22 Denials due to a credit score under 600 or no credit score will be handled by the Pipeline Management Department. Pre qualifications Pre qualifications need to become full applications within 90 days from the credit report date. Any pre qualification that does not become a full application within the 90 day time frame will be automatically moved to the Prequal Inactive Folder in Encompass. s will be sent to loan officers letting them know that the prequalification will be moved to an inactive folder when it becomes 90 days old. However, an inactive pre qualification can be reactivated by moving it back to the Prequal folder. In order to do this, an updated credit report must be obtained and Encompass must be ed with a request to transfer the file. The credit report needs to be ordered by 4:00 PM Central Time for Encompass to move the file. Inactive pre qualifications will remain in the Prequal Inactive Folder for one year from the credit report date. Once a year has elapsed, the loan will be moved to the Prequal OLD folder. Loans in the Prequal OLD folder may not be moved back to the Prequal folder. Applications Loan applications are tracked by the number of days that have passed since the application date. An application is created when the GFE Application Date populates in Encompass. This date will be visible on the Borrower Summary Origination screen. Applications 90 Days Old If a loan application (file with a GFE Application Date) reaches 90 days old and has not originated, it will appear on a report monitored by the Pipeline Management Department. Additionally, the loan officer and loan processor will receive an alerting them to the fact that the loan application is older than 89 days. The Pipeline Management Department will contact the loan officer or loan processer to obtain a status update on the loan application.

23 Loan officers or processors are required to provide a status update on loan applications. Failure to provide an update may result in the loan application being denied. If the applicant has withdrawn the application, the loan officer must Pipeline Management. Pipeline Management will take the necessary steps to code the loan as withdrawn.. The following information must be provided in the . The date and time the application was withdrawn, the method the applicant used to communicate this (Any written communication must be uploaded to the efolder.), and the reason. If the loan officer wants the application to stay in the Pipeline, he or she must send an to Pipeline Management and explain the reasons. The loan officer must have substantive proof that the application is truly active. The benchmark is typically submission to Underwriting. However, there could be other valid reasons such as construction topermanent financing, delayed short sale, or some other extenuating circumstance. When ing Pipeline Management, try to be as thorough as possible so that an accurate assessment may be made. If the loan officer believes that the application may not qualify, he or she should Pipeline Management and ask to have the file reviewed. The loan officer should include as many details as possible to assist Pipeline Management. Pipeline Management will review the application and prepare and deliver an Adverse Action Notice if appropriate. Applications 120 Days Old If a loan application reaches 120 days old and has not originated and funded, it will appear on a report monitored by the Pipeline Management Department. Pipeline Management is responsible for ensuring that all applications are processed within 120 days from GFE Application Date. If a loan appears on this report, the Pipeline Management Department will contact the loan officer and loan processor to find out the current status of the loan, when it is scheduled to close, and why it did not close within 120 days. If the loan becomes 135 days old with no communication from the loan officer, loan processor or branch manager, the application will be denied and the appropriate notification sent to the applicant(s). Loans Denied by WMC Underwriting If a loan is denied by a WMC underwriter, he or she will submit the file for an automatic second review. That second review will occur within 48 hours of the underwriter s decision. If the second review overturns the decision, the application process will continue. If the decision is not overturned, the loan officer will be notified and given 48 hours to present additional information for further consideration. If the decision is not overturned based on the additional information, the Statement of Denial will be prepared and mailed to the applicant(s) by the Pipeline Management Department.

24 Policy For: Fair Credit Reporting Act Board Approved: April 16, 2013 Board Reaffirmed: Executive Team Approved: April 8, 2013 Executive Team Reaffirmed: Department: Legal/Compliance Fair Credit Reporting Act ( FCRA ) Policy It is the policy of Waterstone Mortgage Corporation ( WMC ) to comply with the requirements of the FCRA, as amended from time to time. INTRODUCTION The intent of the FCRA is to legislatively ensure the accuracy and fairness of the credit reporting system. The FCRA has the following provisions to ensure this intent: Guarantee the accuracy and fairness of the information gathered by consumer reporting agencies. Ensure that public confidence is not undermined by inadequate, obsolete, or incorrect consumer reports. Communicate to lenders and borrowers that credit reports are vital to consumer access to loans and other services. Communicate that credit reporting agencies must exercise their grave reporting responsibilities with fairness and impartiality and with respect for consumers rights to privacy. Ensure that users of consumer reports use the information for legitimate purposes. WMC is not classified as a consumer reporting agency; rather WMC is a user of consumer reports. Thus, it is the policy of WMC to comply with all of the responsibilities of users of reports set forth in the act. TERMS Affiliate. The term affiliate means any company that controls, is controlled by, or is under common control with another company. Consumer Report. The term "consumer report" means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or Fair Credit Reporting Policy Page 1 of 11 Created on 04/08/2013 Updated on MM/DD/YYYY

25 expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for: Credit or insurance to be used primarily for personal, family, or household purposes; Employment purposes; or Any other permissible purpose authorized under the Act. Consumer Reporting Agency. The term consumer reporting agency means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports. Key Factors. The term key factors means all relevant elements or reasons adversely affecting the credit score for the particular individual, listed in the order of their importance based on their effect on the credit score. PERMISSIBLE PURPOSE TO REQUEST CONSUMER REPORT WMC must have a permissible purpose to request a consumer report. Following is a list of the permissible purposes under the law: Subject to a court or a federal grand jury subpoena. As instructed by the consumer in writing. For an extension of credit as a result of an application from a consumer, or the review or collection of a consumer s account. (For business purpose loans that are guaranteed by the principals, WMC may request a consumer report if the guarantor/owner gives his or her consent in writing.) For employment purposes, including hiring and promotion decisions, where the consumer has given written permission. For the underwriting of insurance as a result of an application from a consumer. When there is a legitimate business need in connection with a business transaction that is initiated by the consumer. To review a consumer s account to determine whether the consumer continues to meet the terms of the account. When, as a potential investor or servicer, WMC is evaluating or assessing the credit or prepayment risks associated with an existing credit obligation. Loan officers or their delegatees are authorized to obtain an individual or joint credit report in connection with a pre-qualification request or an application for credit. A credit report may only be obtained when a customer initiates a transaction. Loan officers or their delegatees may not obtain additional credit reports for a specific application for the purpose of manipulating credit scores. However, loan officers or processors may obtain an updated credit report under the following circumstances: The applicant s Social Security number was entered incorrectly on the initial credit request. Certification The applicant s name was misspelled on the initial credit request. The initial credit request is more than ninety days old and therefore expired; and the file is still active and in process. WMC will certify to all consumer reporting agencies that reports are obtained only for permissible purposes and that the reports will not be used for any other purpose. NOTIFICATION TO CONSUMERS REGARDING ADVERSE ACTION The FCRA defines adverse action very broadly. Adverse actions include all business, credit, and employment actions affecting consumers that can be considered to have a negative impact, such as unfavorably changing credit or contract terms or conditions, denying or canceling credit or insurance, Fair Credit Reporting Policy Page 2 of 11 Created on 04/08/2013 Updated on MM/DD/YYYY

26 offering credit on less favorable terms than requested, or denying employment or promotion. Thus, the term generally follows the definition in Regulation B. Adverse Actions Based on Consumer Reports If WMC takes any type of adverse action that is based at least in part on information contained in a consumer report, WMC will notify the consumer in writing. WMC will provide the notice within 30 days after receiving a completed application, or within 30 days after taking adverse action on an incomplete application in the case of consumer credit. If the credit request is by joint applicants and both have been denied credit based on information in a consumer or third-party report, WMC will send a separate notice of adverse action to each applicant. The notice requirements apply whenever credit is denied or when a change takes place that adversely affects the consumer. The notice will include the following: The name, street address, and telephone number of the consumer reporting agency (including a toll-free telephone number, if it is a nationwide consumer reporting agency) that provided the report. A statement that the consumer reporting agency did not make the adverse decision and is not able to explain why the decision was made. A statement setting forth the consumer s right to obtain a free disclosure of the consumer s file from the consumer reporting agency if the consumer requests the report within 60 days. A statement setting forth the consumer s right to dispute directly with the consumer reporting agency the accuracy or completeness of any information provided by the consumer reporting agency. Adverse Actions Based on Credit Scores When WMC takes adverse action on a consumer request based on a credit score in a consumer report, WMC will also provide the following information in the notice: The current credit score of the consumer or the most recent credit score of the consumer that was previously calculated by the credit reporting agency for a purpose related to the extension of credit The range of possible credit scores under the model used. All of the key factors that adversely affected the credit score of the consumer in the model used, except that the total number must not exceed four (4). (Note: If a key factor that adversely affects the credit score of a consumer consists of the number of inquiries made with respect to a consumer report, that factor must be included in the disclosure even if there are four other factors. So in this case, the maximum number of key factors may be five (5).) The date on which the credit score was created. The name of the person or entity that provided the credit score or credit file upon which the credit score was created. Adverse Actions Based on Information Obtained from Third Parties That Are Not Consumer Reporting Agencies If WMC denies (or increases the charge for) credit for personal, family, or household purposes based either wholly or partially on information from a person other than a consumer reporting agency (e.g., another financial institution or an employer), then WMC will clearly and accurately disclose to the consumer his or her right to obtain disclosure of the nature of the information relied on by making a written request within 60 days of notification. Adverse Actions Based on Information Obtained from Affiliates If WMC takes adverse action involving insurance, employment, or a credit transaction based on information obtained from an entity affiliated with the user of the information by common ownership or control, WMC will notify the consumer of the adverse action. The notification must inform the consumer Fair Credit Reporting Policy Page 3 of 11 Created on 04/08/2013 Updated on MM/DD/YYYY