Tough New Lending Restrictions in California Make Compliance Technology a Necessity for Lenders and Brokers

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New law adds more compliance challenges and the possibility of suspended or revoked licenses

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“Now, with the penalties under the new law including loss of license in California, having a system in place is an even better idea for state lender and broker ..."

ComplianceEase®, the nation’s leading provider of mortgage compliance and risk management solutions, announced today at the Mortgage Bankers Association’s Legal Issues and Regulatory Compliance Conference that new functionality added to its ComplianceAnalyzer® automated mortgage compliance system now enables lenders and brokers to comply with tough new lending restrictions that are set to take effect in California on July 1, 2010. By using the system to conduct automated loan-level compliance audits during the origination process, lenders and brokers can quickly find and fix violations of the new California provisions as well as critical Federal statutes, all of which now carry with them the possibility of a suspended or revoked license in the state.

The new restrictions are part of the state of California’s Assembly Bill 260, which was signed by Governor Schwarzenegger in October of 2009. While lenders and brokers in California have always been subject to both federal and state lending laws, they now face additional concerns. Under the new law loan originators can have their licenses suspended or revoked for violating certain federal lending laws, upping the ante for licensees in the state. Among the specific federal lending regulations named in the new law are the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), and the Home Ownership Equity Protection Act (HOEPA). While federal agencies certainly have the authority to go after originators that violate those federal regulations, losing a California license can be a devastating event since it means the licensee must stop lending in the state altogether.

“Of course, with all of the federal and state restrictions that California lenders face, it’s more important than ever to implement and use an automated compliance system like ComplianceAnalyzer,” explained Don Lampe, partner at Womble Carlyle Sandridge & Rice, PLLC. “Now, with the penalties under the new law including loss of license in California, having a system in place is an even better idea for state lender and broker licensees because it clearly demonstrates to state regulators and others that the licensee is paying close attention to compliance and being proactive about monitoring its operation.”

Set to impact loan originators starting July 1 is the creation of a new category of loans called “higher-priced mortgage loans.” If a loan meets the attributes and thresholds that place it in the “higher-priced” category, originators face increased risk from some prohibitions that are much more subjective, including making “deceptive” or “misleading” statements about the loan to borrowers. Since it will be possible for civil penalties to be as high as $10,000 and directly assessed against individuals, lenders and brokers will need to know whether each loan they originate will be subject to the new restrictions, whether or not they decide to continue originating the new category of loans. California’s restrictions in this area follow a growing trend among states to create a “higher-priced” category that is intended to subject a larger quantity of loans to additional restrictions. So far seven other states have created similar loan categories with increased restrictions.

ComplianceAnalyzer now enables lenders, brokers, and regulators to identify, in seconds, whether a loan falls under the new “higher-priced” category. Simultaneously, and on a single report, the system includes comprehensive tests for the various federal statutes that can also place California lending licenses at risk under the new law. Jason Roth, senior vice president and co-founder of ComplianceEase, explained, “We built ComplianceAnalyzer from the very beginning to support automated loan reviews that span multiple jurisdictions and that cover everything from high-cost lending restrictions to consumer credit laws and fee restrictions. That type of comprehensive auditing is exactly what the industry needs in order to deal with this new law. Our latest reports show that nearly 20% of ComplianceAnalyzer audits are on California loans. It’s clear that these new restrictions are going to have a large impact on the mortgage industry as a whole.”

About ComplianceEase
ComplianceEase, a division of LogicEase Solutions Inc., headquartered in the San Francisco Bay Area, is a premier provider of intelligent business solutions to the financial services industry. ComplianceEase's patented platform includes ComplianceAnalyzer – the mortgage industry's leading automated compliance solution. ComplianceEase combines industry and regulatory compliance expertise with innovative technology to power beginning-to-end solutions in a fraction of the time and for a fraction of the cost of traditional approaches, while providing high levels of accuracy and integrity. ComplianceEase's significant and growing client base includes three of the top five mortgage lenders in the nation, and over 400 financial institutions, service providers, and regulators. Managed by a team of highly experienced and innovative mortgage professionals, the company is funded by the First American Corporation, the WI Harper Group, and the senior management team. For more information about ComplianceEase, visit http://www.ComplianceEase.com.

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Jason Roth
ComplianceEase
650.373.1111 ext. 1107
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