Don’t End Up In Fair Housing Jail!

Title:  Don’t End Up in Fair Housing Jail!

Karen Deis, Publisher,  & Tammy Butler,

Here’s a story that is happening more and more as the CFPB hires more people to “police” FAIR HOUSING – Can you defend yourself in case of an audit?

Examiner:  Mr. Mortgage Company:  can you please tell me why this client did not receive the lowest rate offered to her on this day?

Mr. Mortgage:  Uh, well let me call the loan originator.  Oh, he is not here anymore, okay I’ll call the processor.  Oh, she is on maternity leave.  Can someone look in the LOS and tell me if you see any notes on that file?  None about rate, huh!  Well, we will pull that file, get the rate sheets from that day and review everything.  I’m sure there was a good reason.

Examiner:  Fantastic, and while you’re at it, can you also pull the data together for these 350 files?  We have questions on those too.

Sound like a nightmare?  For many lenders this is a reality.  Yes, I know Fair Housing audits are not the most exciting topic; however it is the most important item you can focus on when it comes to making an exam easier.

We’ve created a Fair Housing Compliance Checklist and at the end of this article, you’ll find a “partial list.  Email for the complete 3-page checklist.

Here is how it works.  The loan originator answers the questions on the checklist.  The answers can be “yes,” “no” and/or a comment.  If they do not give you the answer that you have set up as a rule, then it needs to be noted in the file.

I have several pages of example questions; you will have to determine which ones you want to use.  The goal is to get your team brainstorming regarding the questions that you want to memorialize.

Here are some ways other lenders are using the Compliance Checklist function:

  1. Requiring explanation when the loan originator gave the client a higher rate (assuming equal price) than one of the offered programs.  This might be as simple as one lender taking the loan and another will not.  The examiner is searching for the reason.
  2. Requiring written explanation when a loan is re-locked.  What changed on the file that the program or rate needed to change?  This prevents any notion of baiting and switching.
  3. Reining in your TPO’s to get written reasons for loan selections.
  4. Ensuring that internal workflow is followed.  As an example, do you require a fully completed loan application prior to a lock in?
  5. Can the loan be locked only with this investor, or any investor?  If limited, why?

These are just a few ways the Compliance Checklist functionality is being used.  I cannot urge you strongly enough to get this started.  Ask anyone who has been through an audit and they will tell you that notations about what happened and when are so very important – and save you an enormous amount of time.

Oh, one more thing, they are monitoring real estate agents too.   A real estate agent recently got a letter that he was violating Fair Housing rules when he advertised a home as “adults only—no one under age 16” on the listing.

CFPB is out there and they have the people to monitor, audit and fine you!

Fair Housing Compliance Check List – Pricing Questions

Prices being equal, did you offer the client the lowest rate option available to them?

Is this a re-lock?  If yes, what changed on the file that it needs a re-lock?

Is this file dependent on the underwriting guidelines of the
investor you selected? If yes, what specifically?

Is the length of the lock being requested compatible with the time to close?

If you are requesting a 15-day lock, is the loan clear to close?

If you are requesting less than 60 days for a refinance or short sale, is that time frame realistic?  If yes, please indicate the loan status in the notations.

Is your final price par?

If your final price is above par, are you charging any discount points? If yes, are you giving a lender credit?  If yes, then how much is the lender credit?

Is your rate lock within (x% – lender determines) of the initial disclosed rate?

What are the client credit scores?  Please list (lender decides which scores they want listed in the notation).

Is this loan a pre-qualification?  If yes, when is closing anticipated?

Is this loan under contract?  If yes, what is the closing date?

What are the lender credits? Require notation.

If the price is below 100 or outside of your LO contract, did you receive prior exception?  If yes, by whom?  Did you document the reason for the exception in the loan file? (Lender sets what they mean by “document.”)

Does the requested pricing meet the parameters of your LO contract?  If no, give reason and who authorized lock.

Has this loan been locked with us during the last 120 days?

If you are requesting a re-lock, is the rate going up?  If so, is this based on a credit verification issue?  Notation needed for explanation.

If you are requesting a re-lock, and the rate or price are increasing, do you have written documentation in the file as to what changed and how that resulted in a higher rate or price?  Require notation.

Where Will Mortgage Rates Go in 2011?

Last week’s Treasury auctions’ effects heavily amplified; High volatility still common in fixed-income markets; Traders coming back this week; Strong beliefs that economic growth in 2011 will be significant; What about housing?

The final week of 2011 was quite the roller coaster for mortgage originators and home buyers waiting to lock in their mortgage rate. After a very weak 5-year Treasury note auction on Tuesday, mortgage pricing worsened by almost 1 point, roughly the equivalent of a 0.25% increase in interest rates. Then, on Wednesday, 7-year notes were on the block. Surprisingly, that auction saw the healthiest bidding in many auctions. Mortgage pricing reversed, more than offsetting Tuesday’s losses. Activity was minimal on Thursday, in spite of the best weekly unemployment claims report since 2008, while Friday, mortgage pricing improved on minimal activity, as traders closed out positions to close the year.

The key characteristic seen recently in fixed-income markets, such as those for Treasury debt and mortgage-backed securities is volatility. Movement in markets since the November 3rd announcement of “Quantitative Easing II” has been exaggerated, with daily pricing changes often more than twice the previously common change. That is to say, if mortgage originators had become accustomed to mortgage prices changing by 1/4 to 1/2 point on a busy day, since November 3rd, the new reality is that it isn’t uncommon for mortgage prices to change by 1/2 to 1 point. That type of change results in very rapid shifts in mortgage rates, and volatility like that makes home buyers nervous.

A significant factor that has contributed to this volatility is low trading volume. Traders are tending to purchase fewer Treasury secruities, which is contributing to the exaggerated swings we have seen in markets. This is not at all uncommon in the holiday season. From the Monday before Thanksgiving through New Year’s Day, many bond traders schedule time off from work, as do professionals in many other industries. The result of this is that the remaining traders are more likely to be swayed when markets make a sudden move in one direction or another. Short sellers, betting that mortgage prices will continue to worsen, also contributed to this effect.

On Wall Street, the consensus is that 2011 will be a strong year for the economy. Recent economic data (other than employment and housing data) has borne this out, with most of the regional Federal Reserve Bank business indexes showing positive signs for growth, inflation starting to pull away from zero, and retail sales figures suggesting the just-ended holiday season was the best in 4 or 5 years. The Federal Reserve, on the other hand, isn’t so sure, and is continuing its $600 billion asset-purchase program, intended to provide some stimulus to the economy, but, more importantly, to keep inflation positive.

A too-low inflation rate can lead to economic stagnation much like what Japan experienced in the latter part of the 20th century. The bigger concern is that the economy might actually slip into deflation, in which prices of goods and services decline over time. This causes consumers to defer purchases, expecting lower prices, which leads to lower economic growth and still-lower prices. It can be a very difficult economic cycle to break.

If recent data is correct (and we’ll have a very good idea on January 28th when the advance reading on 4th quarter GDP is released), we should expect mortgage rates to continue rising gradually, with the 30-year fixed rate mortgage staying between 5%-6% for most of 2011, barring other significant economic shifts. If, however, the Fed is correct, and economic growth has been overestimated, mortgage rates could correct significantly later this month, likely bringing the average 30-year fixed rate back below 4.5%. At present, according to Freddie Mac, the average 30-year fixed rate is 4.86% with an average of 0.8 points.

This week will provide a significant test for mortgage rates, as the most significant data of any month is published: employment market data. November was a conundrum, as only 39,000 jobs were added, in spite of continual declines in weekly unemployment claims. When we get a reading on December, it is hoped the picture becomes much clearer. Here’s what to expect later this week:


  • ISM Manufacturing index
  • Construction spending


  • Factory orders
  • Same-store sales
  • Fed minutes


  • ADP employment – private payrolls
  • ISM Non-manufacturing


  • Weekly unemployment claims
  • Monster employment index


  • Ben Bernanke speaks

All the key data points this week hit Americans in their pay checks. Are those checks growing? We’ll know by Friday. If they are, then predictions of a better-than-expected 2011 may come true.

But what about housing? Housing led the US economy into the Great Recession, as home prices tumbled when many owners were unable to make their payments, whether initially due to predatory lending, poor underwriting, or poor consumer choices, or later as the initial effects of the crisis sparked wave after wave of layoffs. Housing data has been dismal since the expiration of the home buyer tax credit last June. Because so many middle-class Americans held such a large proportion of their wealth in their homes, this has precipitated the largest broadening in the wealth gap in decades.

Consumer confidence will not rebound strongly until consumers are confident of when home prices will stop falling. At present, there are between 9-11 months of housing inventory on the market, and housing experts suggest there are many more months worth of inventory that have yet to be placed on the market. Will 2011 be the year that housing markets hit bottom? Check back here regularly to find out.

If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great week!

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Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.