Pennsylvania Code › Title 10 - BANKING AND SECURITIES › Part IV - Bureau of Consumer Credit Agencies › Chapter 48 - FIRST MORTGAGE LOAN BUSINESS PRACTICES-STATEMENT OF POLICY › Section 48.3 - Dishonest, fraudulent, illegal, unfair or unethical, or negligent or incompetent practices or conduct in the first mortgage loan business

Current through Register Vol. 54, No. 28, July 13, 2024
The following paragraphs provide guidance as to what the
				  Department will consider when reviewing licensee conduct for dishonest,
				  fraudulent or illegal practices or conduct in any business, unfair or unethical
				  practices or conduct in connection with the mortgage loan business and
				  negligence or incompetence in performing any act for which a licensee is
				  required to hold a license under the act and examples of these kinds of
				  activities within the context of the mortgage loan business. The examples
				  listed under each paragraph are for illustrative purposes only and do not limit
				  or otherwise alter the Department's discretion or the applicability of the
				  guidance contained in each paragraph to all licensees.
(1) A dishonest practice or conduct is
				characterized by a lack of truth, honesty or trustworthiness, or is deceptive
				or implies a willful perversion of the truth to deceive, cheat, or defraud.
Example A
: In the process of obtaining a
				  mortgage loan for a consumer, a mortgage originator employed by a mortgage
				  broker discloses to the consumer in the Good Faith Estimate that the mortgage
				  broker's fee for the transaction will be $1,000, although the mortgage
				  originator knows that the fee will be much higher. There are no material
				  changes to the loan prior to closing. The consumer appears at the loan closing
				  and discovers when reviewing the HUD-1 settlement sheet that the mortgage
				  broker's fee is $3,000.
Example B
: A consumer tells a mortgage
				  originator employed by a mortgage broker that she seeks a fixed-rate mortgage
				  loan without a prepayment penalty that has an interest rate within a certain
				  range. The mortgage originator knows that the consumer does not qualify for
				  such a fixed-rate mortgage loan, but does not inform the consumer of that fact.
				  Additionally, in all legally-required disclosures it is indicated that the
				  consumer is getting a fixed-rate loan without a prepayment penalty. However,
				  when the consumer arrives at the loan closing, the mortgage loan that is
				  offered is a variable-rate loan with a prepayment penalty.
Example C
: A mortgage loan correspondent
				  designs and issues targeted loan solicitations that purposefully appear to come
				  from Federal or State government agencies or consumers' existing lenders, or
				  both.
(2) A fraudulent
				practice or conduct is characterized by deceit or trickery, an intentional
				perversion of the truth to induce another to part with something of value or to
				surrender a legal right, or an act of deceiving or misrepresenting. Fraud also
				includes any other definition of fraud under applicable law.
Example A
: A mortgage originator employed by
				  a mortgage broker has promised a certain low-rate mortgage loan to a consumer.
				  However, the consumer does not have the minimum debt-to-income ratio set by the
				  lender preferred by the mortgage originator's employer to qualify for the
				  lowest-rate mortgage loan offered. Therefore, the mortgage originator changes
				  the W-2 statement of the consumer to reflect a higher income for the consumer
				  without the consumer's knowledge, and then submits the documentation to the
				  lender.
Example B
: An employee of a mortgage lender
				  contacts a real estate appraiser with a request to perform an appraisal and
				  informs the appraiser that the sale price of the property is $150,000. The
				  employee knows that the property will not appraise for that amount, but
				  promises the appraiser future business if the appraiser "can make the deal
				  work." The mortgage loan is closed by the mortgage lender based upon the
				  appraisal report showing the value of the property as $150,000.
Example C
: A consumer seeks a particular
				  mortgage loan from a mortgage broker but does not have sufficient income or
				  assets to obtain the specified product offered by one of the mortgage broker's
				  lenders. After the mortgage broker explains the problem to the consumer, the
				  consumer tells the mortgage broker he forgot to mention previously that he
				  makes double his previously-stated income based upon a side business. The
				  consumer later provides documentation to the mortgage broker regarding the
				  additional income. The mortgage broker, although suspicious of the sudden
				  change in the consumer's circumstances, does not question the consumer on the
				  additional income and submits a loan application including the additional
				  income to the lender. The mortgage loan is closed by the lender and the lender
				  later discovers that the purported additional income never existed.
(3) An illegal practice or conduct
				is characterized as not according to or authorized by law.
Example A
: A mortgage broker fails to
				  provide a consumer with a good faith estimate within 3 business days of
				  receiving the consumer's mortgage loan application as required by the Real
				  Estate Settlement Procedures Act of 1974 (12 U.S.C.A. §§
											2601-2617) in a situation where the
				  lender has not rejected the application within 3 days.
Example B
: A mortgage loan correspondent
				  fails to implement a plan to safeguard confidential consumer information as
				  required by the Gramm-Leach-Bliley Act and the Federal Trade Commission's
				  Privacy and Safeguards Rules.
Example C
: A mortgage lender advertises an
				  interest rate without conspicuously disclosing the annual percentage rate and
				  identifying the qualification terms, as required by the Truth-in-Lending Act
				  (15 U.S.C.A. §§
											1601-1667f).
(4) An unfair practice or conduct is
				characterized as being marked by injustice, partiality or deception or being
				inequitable in business dealings. An unethical practice or conduct is
				characterized as not conforming with the moral norms or standards followed in
				the mortgage loan business or profession.
Example A
: A consumer tells a mortgage
				  originator employed by a mortgage broker that he seeks a $30,000 fixed-rate
				  home equity loan on a house that the consumer has advised the mortgage
				  originator he intends to remain in permanently. Although the mortgage
				  originator's employer is able to provide the requested loan, the mortgage
				  originator "steers" the consumer to variable-rate products with balloon payment
				  features for which the mortgage originator's employer, and thus the mortgage
				  originator, will receive higher compensation than with a traditional fixed-rate
				  home equity loan.
Example B
: A lender has an agreement with a
				  mortgage broker to provide qualified consumers a certain interest rate. The
				  mortgage broker then tells a consumer who qualifies for the certain interest
				  rate that the interest rate is locked in with the lender; however, the consumer
				  was not asked by the mortgage broker or lender to sign a lock-in agreement with
				  the lender. The lender later informs the mortgage broker that the lender is not
				  going to honor the agreement between the mortgage broker and the lender to
				  provide certain interest rates. Therefore, the mortgage broker is unable to
				  offer the consumer a mortgage loan with the promised interest rate and the
				  consumer has no written lock-in agreement to enforce against the lender.
Example C
: A mortgage lender enters into a
				  lock-in agreement with a consumer. During the lock-in period, interest rates
				  rise. The mortgage lender decides to delay closing until the lock-in agreement
				  with the consumer expires, thus causing the consumer to lose his locked-in
				  interest rate and forcing the consumer to accept a mortgage loan with a higher
				  interest rate.
(5)
				Negligence in performing any act for which the licensee is required to hold a
				license under the act is characterized by the definition of negligence as used
				by the courts of this Commonwealth. Incompetence in performing any act for
				which the licensee is required to hold a license under the act is characterized
				as inadequate or unsuitable for a particular purpose, or lacking the qualities
				needed for effective action.
Example A
: A mortgage originator employed by
				  a mortgage lender takes mortgage loan applications from consumers on behalf of
				  the licensee, but then leaves the company. The mortgage lender fails to follow
				  up on the former employee's application files. A consumer assumes that his
				  mortgage loan is being processed by the mortgage lender until he contacts the
				  mortgage lender as the closing date on his home purchase approaches. The
				  mortgage lender realizes the error but is unable to provide the applied-for
				  mortgage loan in time for the closing date.
Example B
: A mortgage broker routinely fails
				  to timely forward information received from consumers that was requested by the
				  lenders and which is necessary to meet lenders' underwriting criteria. As
				  closing approaches, the lenders receive the consumers' information and
				  determine that the consumers do not qualify for the loans promised by the
				  mortgage broker, thereby causing the consumers to delay closings or obtain
				  different loans, or both.
Example C
: A mortgage lender consistently
				  fails to file mortgage satisfaction pieces, thereby repeatedly causing
				  consumers to have to send notices to satisfy to the mortgage lender to get the
				  mortgage lender to issue mortgage satisfaction pieces regarding the consumers'
				  paid-off mortgage loan obligations.