Subject: Fair Lending Examinations - Licensed Mortgage Lenders
To the Chief Executive Officer of the Institution Addressed:
The Division of Banks (Division) is issuing the attached guidance ( Fair Lending Policy - Licensed Mortgage Lenders) to assist licensed mortgage lenders with the fair lending examination process.
Chapter 268 of the Acts of 2004, An Act Prohibiting Certain Practices in Home Mortgage Lending (the "Act") expanded examination requirements for all mortgage lenders that have made 50 or more loans in the last calendar year. The Act, amending Section 8 of Massachusetts General Laws chapter 255E, calls for the review of licensed mortgage lenders' compliance with fair lending laws which include but are not limited to the federal Equal Credit Opportunity Act, Home Mortgage Disclosure Act, and the Massachusetts Predatory Home Loan Practices Act.
As part of the fair lending examination process, the licensed mortgage lenders' underwriting policies, practices, standards and procedures will be reviewed. Internal controls and procedures for compliance with fair lending laws and regulations will also be evaluated.
Examiners will interview mortgage originators and any other personnel to determine if consumers are treated in a fair and equitable manner. These interviews will also assist in determining if the credit application process is in compliance with applicable laws and regulations. Examiners will also note any potential high-risk areas or weaknesses of the licensed mortgage lender. The licensed mortgage lenders' training policies and materials as well as compensation for employees or agents will be subject to review. The Division will also assess the licensed mortgage lenders' advertising and marketing practices and techniques. The loan file review will analyze underwriting practices as well as factors involved with loan pricing, credit scoring, and loan terms and conditions. The examiners may conduct side by side file reviews which will encompass originated loans and denied applications as well as foreclosure activity and exceptions to policy. In addition, at the discretion of the Division, loan applicants may be contacted and examiners may choose to attend loan closings. Examiners will continue to review the Division's consumer assistance complaint database and the licensed mortgage lenders' complaint file for any allegations of prohibited practices.
The fair lending examination process will be conducted in conjunction with the Division's regularly scheduled examination/inspections for compliance with federal and state consumer protection laws and regulations. However, the Division reserves the right to conduct scope-focused examinations for compliance with applicable fair lending laws and regulations. Examination findings may require an increase in the scope of review of the licensed mortgage lenders' lending activities and operations. Adverse fair lending findings may also have a negative impact on a licensed mortgage lender's overall compliance rating and will be considered in future decisions regarding license renewal.
If you have any questions regarding this letter, please feel free to contact Gregory Short, Deputy Commissioner, Compliance and Community Affairs Section at (617) 956-1500, extension 1547 or Gregory Short
Very truly yours,
Steven L. Antonakes
Commissioner of Banks