COMPLIANCE
U.S. Bank Home Mortgage requires that each Correspondent maintain compliance in
lending with all applicable local, state, and federal regulations. The regulations
discussed in this section cover the primary compliance concerns that U.S. Bank
Home Mortgage, requires of each Correspondent. This presentation is not a
comprehensive compilation of compliance issues, and correspondents are encouraged
to consult their legal counsel for complete interpretation.
A. Equal Credit Opportunity Act (ECOA)-Regulation B
The purpose of the Equal Opportunity Act is to ensure that no person is denied
access to credit due to prohibited discrimination. Under ECOA, a creditor
cannot discriminate against an applicant on the basis of race, color, religion,
national origin, sex, marital status, age, receipt of public assistance benefits, or
good faith exercise of consumer credit rights under federal or state law. A
creditor is defined as any person who in the ordinary course of business,
regularly participates in a credit decision, including setting the terms of the
credit or who regularly refers applicants to creditors.
Regulation B also requires that a creditor must notify an applicant of its credit
decision within 30 days of receipt of a "completed application." If the
application is rejected, the creditor must send a written "adverse action" notice
to the applicant. An application is complete when the creditor has obtained all
the information it normally considers in making a credit decision. A creditor
must act with reasonable diligence to collect all the information needed to
complete the application. For example, a creditor must request information
from third parties promptly after receiving the application. If additional
information is needed from the applicant, such as an address or telephone
number needed to verify employment, the creditor must contact the applicant
promptly.
Therefore, Correspondent warrants and represents to U.S. Bank Home
Mortgage, that it shall at all times comply with the requirements of ECOA and
Regulation B. Specifically, the correspondent represents and warrants as
follows:
1. Correspondent shall not discriminate in its lending policy, and must make
its lending policy available for inspection by U.S. Bank Home Mortgage,
upon reasonable notice.
2. Correspondent shall not discourage or dissuade any person from
contemplating an application based upon any attribute of the applicant
Compliance (9/23/05) Page 1
which is protected under ECOA.(Race, color, etc.).
3. Correspondent shall use only such application forms as have been
approved by U.S. Bank Home Mortgage.
4. Correspondent shall not request information regarding an applicant's
receipt of child support, separate maintenance, or alimony payments
unless Correspondent has informed the applicant that he/she is not
required to provide information but may choose to include this income as
a basis for repaying the loan.
5. Correspondent shall diligently collect all information necessary to complete
an application file, and shall promptly forward each complete application
file to U.S. Bank Home Mortgage. Correspondent shall request all
necessary information from third parties promptly after receiving an
application and, if additional information is needed from the applicant,
Correspondent shall contact the applicant promptly.
6. Correspondent shall provide the written "adverse action" notice required
by Regulation B to all rejected applicants identifying itself as the creditor.
If such rejection is based upon U.S. Bank Home Mortgage 's rejection of
the application, Correspondent shall notify the applicant promptly upon
receiving the Non-Purchase Notice from U.S. Bank Home Mortgage.
B. Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) is primarily designed to assure that
"Consumer Reporting Agencies" exercise fairness, confidentiality, and accuracy
in preparing and disclosing consumer information, and that the information is
not used for an improper purpose. The FCRA limits the furnishing of
consumer reports to those authorized to receive them, and it places obligations
on the users of consumer reports. The FCRA permits consumers to obtain
credit information regarding themselves from credit bureaus and to dispute
inaccurate or incomplete information.
A creditor is prohibited from requesting or using a consumer report for
improper purposes. A creditor may generally only seek, and a consumer
reporting agency may only provide, a consumer report:
In connection with a credit transaction involving the consumer, or
Where the creditor has a legitimate business need for the information in
connection with the business transaction involving the consumer.
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The FCRA also requires a creditor to make certain disclosures to a consumer
when the creditor takes "adverse action" based in whole or in part on
information received from third parties.
Therefore, the correspondent represents and warrants to U.S. Bank Home
Mortgage as follows:
l. Correspondent shall not request consumer information from a
consumer reporting agency or other third party for any improper
purpose or before an application has been received.
2. Correspondent shall not release consumer information to anyone
other than employees of Correspondent, U.S. Bank Home Mortgage, and
agency or company which may insure or guaranty the loan, or other
mortgagee involved in the transfer of the application to an investor.
Specifically, Correspondent shall not release consumer information to
the seller, real estate broker, or any other third party, including the
borrower (except for information provided by the borrower).
3. Employees of the Correspondent may not disclose information from a
credit report to the borrower unless and until the borrower has
obtained a copy of his credit report from the reporting agency.
4. Correspondent shall identify (Name, Address) any consumer reporting
agency that provided information to the Correspondent in any Adverse
Action Notice sent by Correspondent to a rejected applicant.
5. Correspondent shall disclose in each adverse action notice whether
information was obtained from a third party other than a consumer
reporting agency and shall clearly and accurately disclose to the
consumer his right to receive a disclosure of the nature of the
information within 60 days of the date of adverse action.
C. Fair Housing Act
l. The Fair Housing Act, Title VIII of the Civil Rights Act of 1968,
prohibits discrimination in the sale, rental or financing of housing
and the provision of brokerage services on the basis of race, color,
religion, national origin, sex, handicap, or family status. The Act
encompasses all segments of the real estate industry including
brokers, builders, apartment owners, sellers, appraisers, and
mortgage lenders, and applies to both single family and Multi-family
housing.
Compliance (9/23/05) Page 3
The FHA specifically prohibits the following practices:
a. Failing or refusing to provide to any person information
regarding the availability
of loans; application requirements; or procedures for the review and
approval of loans;
b. Providing information that is inaccurate or different to persons
because of their race, color, etc.
c. Using an appraisal if the user knows, or reasonably should know that
the appraisal improperly takes into account race, color, etc.
D. National Flood Insurance Act
The National Flood Insurance Act, Title XIII of the Housing and Urban
Development Act of 1968, authorized a program, the National Flood Insurance
Program (NFIP), to make flood insurance available nationwide through the
efforts of the federal government and the private insurance industry. Private
mortgage companies are not directly subject to the NFIP because they
are not supervised by a "federal instrumentality". However, investors in the
secondary market, such as U.S. Bank Home Mortgage, are subject to the
requirements of the program, and they look to the loan originator to protect
their interest. Therefore, Correspondent must be familiar with the program
and Correspondent represents and warrants to U.S. Bank Home Mortgage, as
follows:
l. Correspondent shall determine whether any of the communities in their
trade area have designated special flood hazard areas, and whether or not
any of the communities are participating in the National Flood Insurance
Program.
2. Correspondent shall determine whether improved real estate that will
secure a loan is located in a special flood hazard area using up-to-date
records for the community.
3. Correspondent shall provide written notice, if applicable, to borrowers
informing them that the property securing a loan is in a special flood
hazard area and whether or not federal disaster relief assistance will be
available if the property is damaged by flooding. This notice must be
provided a least 10 days prior to closing, or at the time of commitment if
this occurs less than 10 days before the closing.
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4. Correspondent shall obtain written acknowledgments from the borrowers
indicating their understanding that the property securing the loan is or
will be located in a special flood hazard area and that they have received
the notice regarding the availability of federal disaster relief assistance.
5. If the improvements are in a special flood hazard area and the community
is participating in the NFIP, flood insurance is required for the lesser of the
loan amount or the maximum insurance available for the duration of the
loan. If the property and/or improvements are located in a secondary
zone, flood insurance is recommended.
If the property and/or improvements are located in a special flood hazard
area, Zone A, and the community does not participate in the National
Flood Insurance Program, flood insurance is not available and the loan
cannot be made.
6. Correspondents must order their own flood certification from an outside
vendor. The certificate must show life of loan coverage. A change of
mortgagee letter or notification must be sent to the vendor changing the
mortgagee clause to:
U.S. Bank N.A.
Its Successors and Assigns as Their Interest May Appear
c/o U.S. Bank Home Mortgage
P.O. Box 7298
Springfield,OH 45501-7298
A flood certification fee must be disclosed on the Good Faith Estimate. It
is acceptable for the seller or lender to pay this fee for the borrower. If the
lender is paying the flood certification fee, the fee must still be listed on
the GFE as a POC by Lender.
The flood certification fee should be included in the finance charges for
calculation of APR.
E. Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act (RESPA) was designed to give home
buyers full disclosure of the settlement costs and, where possible, to assist in
reducing settlement costs.
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Therefore, correspondent represents and warrants to U.S. Bank Home
Mortgage as follows:
1. Correspondent shall provide the borrower a Good Faith Estimate (GFE) of
Settlement Services in the format required by RESPA, along with the HUD
Booklet of Settlement Costs, at the time of application for all mortgage
loans secured by a first lien on residential real property.
Good Faith Estimate and Table Funded Transactions
The new RESPA regulations make clear that table funded transactions are
not excludable secondary market transactions regarding fee disclosures on
the HUD-1. For table funded loans that will close in the Correspondent's
name, the Correspondent is shown as the lender on the GFE and U.S.
Bank Home Mortgage is not required to provide a separate GFE to the
borrower. Any fees paid to a Correspondent must be for services actually
performed in the mortgage process and must be reasonable within an
individual market area. Any fee or payment received by the Correspondent
from and U.S. Bank Home Mortgage, such as a servicing release premium
or yield spread premium, is to be shown on the GFE.
If at the time of application the Correspondent has not determined to
which "table funder" they will sell the loan, the Correspondent may
estimate a range of discount points, yield spread premiums, and the SRP
that will be paid by the borrower (discount) or paid by U.S. Bank Home
Mortgage (yield spread or SRP). Refer to Exhibit Section for a
recommended format for disclosure of Estimated Payments Received by
Correspondents Outside of Closing.
2. Correspondent shall not pay or receive any kickbacks or unearned
payment from any settlement service provider.
3. Correspondent shall provide a written disclosure in the format required by
HUD to borrowers at application for any purchase money or refinance loan
regarding the intention of Correspondent to transfer the borrower's loan
and the percentage of loans made by the Correspondent that have been
transferred in the last three years.
4. Correspondent shall provide a Notice of Assignment, sale or Transfer of
Servicing Rights (Refer to Exhibit Section) in the format required by HUD
(VMP Form #553) at loan closing for any purchase money or refinance
loan.
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5. Correspondent shall prepare and provide, for each loan, a completed HUD-
1 Settlement Statement showing all actual settlement costs.
Correspondent shall make this available to borrowers at least one day
before closing and shall deliver it to borrowers at closing. If U.S. Bank
Home Mortgage "table funds" the loan, the Correspondent shall separately
itemize its portion of the loan origination fee and If U.S. Bank
Home Mortgage 's portion on the HUD-1.
Correspondent shall comply with the required provision of Regulation X of
RESPA. Specifically, if the Correspondent maintains a "controlled list" of
required providers or relies on a list maintained by others, and at the time
of application the Correspondent has not yet decided which provider will
be selected from the list, then the Correspondent must:
a. Provide the borrower with a written statement on or with the Good
Faith Estimate (GFE) that the lender will require a particular provider
from a lender controlled or approved list; and
b. Provide in the Good Faith Estimate the range of costs for the required
providers; and
c. Provide the name of the specific provider and the actual cost on the
HUD-1 or HUD-1A.
If a particular provider is required, you must clearly state that the use of
the particular provider is required and that the estimate is based on the
charges of the designated provider; give the name, address and telephone
number of such provider and describe the nature of the relationship
between you and the provider.
HUD-1 and Table Funded Transactions
Disclosure of discount points passed through from the Correspondent to U.S.
Bank Home Mortgage, must be itemized as paid to U.S. Bank Home Mortgage,
Also, any fee or payment received by the Correspondent from U.S. Bank Home
Mortgage, such as SRP or yield spread premium, is to be listed in the 800
series of the HUD-l. Proper disclosure regarding potential volume incentive
payments must be included both on the GFE and the HUD-l in order for a loan
to be included in quarterly volume totals for potential incentive payments.
Instructions for completing the HUD-l are as follows (until further clarification
from HUD):
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EXAMPLE: Correspondent closes the loan in own name, transaction table
funded by U.S. Bank Home Mortgage and loan is immediately assigned to U.S.
Bank N.A.
Loan Amount: $100,000.00
SRP Paid to Correspondent 1% (P.O.C.)
Example A: Buy price to correspondent = 99.00 (1% discount)
Price to borrower 98.00 (2% discount)
Pass through underwriting fee $160.00 to borrower
HUD-1 Item Borrower Paid
802 Loan Discount 1% to U.S. Bank Home Mortgage $1000
808 Loan Discount 1% to Correspondent $1000
809 SRP to Correspondent 1% (P.O.C.)$1000
810 Additional compensation may be received from U.S. Bank Home
Mortgage based on the volume and quality of the transaction
closed in a given quarter.
Example B: Buy price to Correspondent 101.00 (1% yield spread)
Price to Borrower 99.00 (1% discount)
HUD-1 Item Borrower Paid
802 Loan Discount to Correspondent 1% $1000
808 SRP to Correspondent 1% (P.O.C.)$1000
809 Yield Spread Premium to Correspondent 1%
(P.O.C.) $1000
810 Additional compensation may be received from U.S. Bank Home
Mortgage based on the volume and quality of the transaction
closed in a given quarter.
Example C: Buy Price to Correspondent 103.00 (3% yield spread)
No Fees to Borrower
No Discount to Borrower
HUD-1 Item Borrower Paid
809 SRP to Correspondent 1% (P.O.C.)$1000
810 Yield Spread Premium to Correspondent 3%
(P.O.C.) $3000
Additional compensation may be received from U.S. Bank Home
Mortgage based on the volume and quality of the transaction
closed in a given quarter.
Page 8 Compliance (09/23/05)
F. Truth in Lending Act
The Truth-in-Lending Act is aimed at promoting the informed use of consumer
credit by requiring various disclosures about its term and costs.
Therefore, Correspondent represents and warrants to U.S. Bank N.A. as
follows:
l. Correspondent shall provide applicants with an estimated TIL disclosure
within three business days of application for loans subject to the Good
Faith Estimate requirements of RESPA. An estimated TIL must be re
disclosed when a loan program changes. A final TIL disclosure must be
given at closing and reflect the actual terms for the loan.
2. Correspondent shall provide each consumer with final Truth-in-Lending
disclosures, formatted in compliance with the requirements of Regulation
Z, prior to consummation of any loan.
The Annual Percentage Rate (APR) tolerance is .25% for ARM loans and
.125% for all other product.
3. TIL disclosures shall reflect the terms of the legal obligation or if any terms
are unknown, the disclosures shall be based upon the best information
seasonably available to the Correspondent and shall be designated as an
estimate ("e").
4. In refinance transactions, each person who has an ownership interest in
the dwelling shall be given a copy of the final TIL disclosure and two copies
of the "Notice of Right to Cancel".
a. Funds shall not be disbursed prior to the expiration of the rescission
period on rescindable transactions. The rescission period expires at
midnight of the third business day after the last to occur of the
following:
The date of the transaction;
The date the customer received their TIL disclosures, or
The day they have their Notice of Right to Cancel.
b. A "business day" means all calendar days except Sunday and Federal
holidays (any day in which mail is delivered).
Compliance (9/23/05) Page 9
G. HOME MORTGAGE DISCLOSURE ACT
The purpose of HMDA is to make mortgage lending policies more visible by
requiring that financial institutions collect data regarding home loans. Collected
data is submitted to federal agencies which compile the data into reports that
are returned to the lender. The lender must keep the HMDA Report and make it
available to the public. HMDA applies to U.S. Bank Home Mortgage and in order
that we satisfy our reporting requirements, we must gather information from our
Correspondents with respect to each home purchase or refinance loan submitted
for purchase. Therefore, Correspondent represents and warrants to U.S. Bank
Home Mortgage that it will collect the following information regarding each loan
application that it receives:
1. Property Information
a. MSA
b. County
c. Census Tract
2. Application Information (each applicant)
a. Race Government Monitoring Information
b. Gender
c. Combined Annual Income for all Applicants
d. Method of Application
Government monitoring information shall be requested from all borrowers on the
initial application; or the interviewer shall obtain the borrower‟s initials that they
do not desire to provide that information AND the interviewer shall indicate the
borrowers‟ race and gender by visual observation and/or surname for all face-to-
face applications taken.
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H. ANTI - PREDATORY LENDING POLICY
Predatory Lending consists of any of a number of fraudulent, deceptive,
discriminatory, or unfavorable lending practices. Many of these practices are illegal,
while others are legal but not in the best interest of the borrower(s). According to the
definition, a loan is considered to be predatory if the terms are unfavorable relative to
other loans "offered to similarly qualified borrowers.” Unfavorable terms include
placing a consumer in a loan at more onerous terms, charging the customer a higher
a interest rate, discount points, or other fees, or such as charging prepayment
penalties that the consumer could have avoided had they shopped other sources for
the same loan at the same time." The unfavorable terms and overcharging of fees to
a consumer result in what is referred to as a “high-cost loan.”
As defined by USBHM, high-cost loans are loans that meet one of two thresholds.
The thresholds are:
1. The points and fees charged on the loan times the “Total Loan Amount” exceed
more than 5 percent. (This threshold may vary based on the points and fees
threshold established by the state‟s predatory lending law pursuant to where
the property is located).
2. The APR of the loan exceeds comparable U.S. Treasury rates plus 8 percentage
points for first-lien loans and comparable U.S. Treasury rates plus 9
percentage points for subordinate lien loans. (This threshold may vary based
on APR or interest rate thresholds established by the state‟s predatory lending
law pursuant to where the property is located).
Exceeding either of these two thresholds means the loan is a “high cost loan.”
To combat predatory lending activities, many states have enacted laws that prohibit a
lender from engaging in any type of predatory lending practices. In order to comply
with most predatory lending laws, a lender must monitor each state‟s laws not only to
ensure that they do not originate high cost loans, but to take additional steps to
ensure that their mortgage lending practices discourage as well as prohibit any type
of abusive, unfair or deceptive lending practices.
Compliance (9/23/05) Page 11
The following are examples of predatory lending practices:
Intentionally placing consumers in loan products with significantly worse
terms and/or higher costs than loans offered to similarly qualified consumers
in the region for the primary purpose of enriching the originator and with little
or no regard for the costs to the consumer.
Making unaffordable loans based on the assets of the borrower rather than
the borrower‟s ability to repay the loan.
Inducing a borrower to refinance a loan repeatedly in order to charge high
points and fees each time the loan is refinanced.
Engaging in fraud or deception to conceal the true nature of the loan
obligation from an unsuspecting or unsophisticated borrower.
Refinancing a specially subsidized mortgage loan (such as a zero interest loan)
the borrower may currently have to a mortgage with more adverse repayment
terms; or where the refinance transaction does NOT result a “reasonable
tangible net benefit” to the borrower.
USBHM does not engage in any abusive or predatory lending practices either directly
through its loan originators or indirectly through its mortgage brokers or
correspondent lending activities. USBHM does not originate or purchase any loan
that is a high-cost loan subject to any individual state "predatory or high cost"
lending law or any loan subject to the federal Homeownership Equity Protection
Act (HOEPA).
I. BANK SECRECY ACT (BSA) – ANTI-MONEY LAUNDERING (AML) AND OFFICE
OF FOREIGN ASSETS CONTROL (OFAC) POLICY
Bank Secrecy Act (BSA)
The Currency and Foreign Transactions Reporting Act, also known as the Bank
Secrecy Act (BSA), is a tool the U.S. government uses to combat drug trafficking,
money laundering, and other crimes, including (effective with passage of the USA
Patriot Act) terrorism. Congress enacted the Bank Secrecy Act to prevent banks
and other financial service providers from being used as intermediaries for, or to
hide, the transfer or deposit of money derived from criminal activity. In
conjunction with the Bank Secrecy Act financial institutions are required to
maintain accurate financial records and to report unusual financial transactions
or activities. The Act contains a number of reporting requirements that are
Page 12 Compliance (09/23/05)
designed to aid federal authorities in criminal, tax, and regulatory investigations.
By filing Currency Transaction Reports (CTRs), Suspicious Activity Reports
(SARs), and Monetary Instrument Logs (MILs) financial institutions make the
Bank Secrecy Act the focal point of efforts to track money laundering. The Office
of the Comptroller of the Currency (OCC) monitors national bank compliance
with the BSA and 31 CFR 103, the implementing regulations of the BSA.
The Money Laundering Control Act of 1986 (MLCA) strengthened the
government‟s ability to fight money laundering by making it a criminal activity.
Currently more than 170 crimes are listed in the federal money laundering
statutes. They range from drug trafficking, gunrunning, murder for hire, fraud,
acts of terrorism, illegal use of wetlands, and certain foreign crimes. Therefore, a
financial institution must educate its employees, understand, and be able to
identify its customers and their businesses. In addition, they also must have
systems and procedures in place to distinguish routine transactions from ones
that rise to the level of suspicious activity.
The most recent amendment to the Bank Secrecy Act is the USA Patriot Act;
passed in the wake of the September 11, 2001 terrorist attacks on the United
States. This amendment established a variety of new requirements to which
financial institutions must comply; all designed to combat terrorism. Most
notably, the section of the Act which affects most lines of business within a
financial institution is Section 326 of the USA Patriot Act. This Section requires
financial institutions to clearly know and verify each customer through the
Bank‟s customer identification program.
The correspondent warrants and represents to U.S. Bank Home Mortgage that it
shall at all times comply fully with all BSA and related anti-money laundering
regulations imposed upon financial institutions.
Terminology Associated with the Bank Secrecy Act
To better understand the Bank Secrecy Act and crimes associated with money
laundering it is important to be familiar with the terms associated with the Act.
The Bank Secrecy Act has several key terms that define "suspicious activity.”
The definitions of those terms are defined below:
● Criminal violation refers to a known or suspected crime or pattern of criminal
activity. This includes crimes committed or attempted against the Bank as well as
other criminal transactions conducted or attempted at the Bank.
● Transaction refers to a purchase, sale, loan, pledge, gift, transfer, delivery, or
other disposition and, for financial institutions, includes a deposit, withdrawal,
Compliance (9/23/05) Page 13
transfer between accounts, exchange of currency, loan, extension of credit,
purchase or sale of any stock, bond, certificate of deposit, or other monetary
instrument or investment security, or any other payment, transfer, or delivery by,
through or to a financial institution, by any means. Attempted transactions, as
well as completed ones, are included.
● A suspicious transaction is a "transaction" which a Bank employee knows is
suspicious or has reason to suspect the transaction such as:
- Funds derived from illegal activities or is intended or conducted in order to hide or
disguise funds or assets derived from illegal activities as part of a plan to violate or
evade transaction-reporting requirements.
- Transactions designed to evade any Bank Secrecy Act requirement.
- Transactions that have no business or apparent lawful purpose or that are not the
sort the customer would normally be expected to engage in and the Bank knows of
no reasonable explanation for the transaction after examining the available facts.
● Insider abuse involves a “criminal violation” committed or facilitated by a Bank
director, officer, employee, consultant, joint venture partner, attorney, appraiser,
accountant, agent, independent contractor, or other person who participates in
the conduct of the affairs of the Bank.
Money Laundering Process
Money laundering is the criminal practice of filtering illegal gains or “dirty”
money through a series of transactions so that the funds appear to be “clean”
and will look like proceeds from legal activities. Cash does not need to be
involved in every stage of the laundering process, and almost any transaction
conducted at a bank may constitute money laundering. Although money
laundering is more often than not a complex process, it basically involves three
independent steps that can occur simultaneously:
● Placement: This is the process of placing, through deposits or other means,
unlawful or “dirty” cash proceeds into traditional financial institutions.
● Layering: This is the process of separating the proceeds of criminal activity from
their origin through the use of layers of complex financial transactions, such as
converting cash into traveler‟s checks, money orders, wire transfers, letters of
credit, stocks, bonds, or purchasing valuable assets, such as fine art, jewelry, or
real estate.
Page 14 Compliance (09/23/05)
● Integration: This is the process of using a legitimate transaction to disguise the
exchange of illegal proceeds, allowing the laundered funds to be disbursed back to
the criminal. Different types of financial transactions, such as sham loans or false
import/export invoices, may be used to accomplish the exchange of dirty funds for
clean money.
Office of Foreign Assets Control (OFAC)
Correspondent will maintain procedures to comply with rules of the Office of
Foreign Assets Control (OFAC). OFAC rules impose economic sanctions against
targeted individuals, countries, geographic territories, and groups by rejecting
transactions or blocking assets. All U.S. persons and entities are not permitted
to transact business with any of the countries on the OFAC list or with any
person or entity named in OFAC‟s List of Specially Designated Nationals (SDN
list).
Correspondent will screen each applicant against the OFAC list.
J. USA PATRIOT ACT
General Information
The USA Patriot Act is the most recent amendment to the Bank Secrecy Act. The
amendment establishes a variety of new requirements designed to combat
terrorism to which financial institutions must comply. Section 326 of the Act
most notably affects most financial institutions because it requires them to
implement a Customer Identification Program to ensure that banks clearly know
and verify the identity of each of it‟s customers.
In addition to the requirements of Section 326, the U.S. Treasury Department
and its Office of Foreign Asset Control ("OFAC") require financial institutions to
establish policies, procedures and controls reasonably designed to detect and
report transactions with individuals identified as known or suspected terrorists
or terrorist organizations. OFAC rules impose economic sanctions against
targeted individuals, countries, geographic territories and groups. Sanctioned
countries are identified on the OFAC list of sanctioned countries and targeted
individuals are identified on the "Specially Designated Nationals and Blocked
Persons" list.
The correspondent‟s Customer Identification Program must fully comply with
Compliance (9/23/05) Page 15
Section 326 of the USA Patriot Act and OFAC. The following outlines specific
regulatory requirements that should be included in the correspondent‟s policy:
1. Provide each loan applicant with a “Customer Identification Notice”;
2. Comply with the four minimum pieces of customer information and
documentation needed to identify who the customer is;
3. Verify the identity of the customer through documentary or non-
documentary methods;
4. OFAC Alert screening must be performed all new loan applicants against
the OFAC list of "Specially Designated Nationals and Blocked Persons";
5. Determining if a customer is questionable or suspicious and loan denial
procedures;
6. Monitor questionable instances which may require internal and external
reporting of suspected individuals;
7. Ensure employees are trained and informed of suspicious activities related
to Anti-Money Laundering or involved in terrorist activities.
Customer Notification
At the time of initial loan application, the correspondent must provide a
“Customer Identification Notice” (“the Notice”) to each loan applicant applying for
a mortgage loan. The purpose of the “Notice” is to 1) inform each applicant that
they are required to provide information that will help to identify them as a
customer and 2) requires the applicant(s) to provide their date of birth and social
security number.
Each loan applicant must sign and date the Customer Identification Notice and
provide their date of birth and social security number. The date of birth must
include the month, day and four-digit year (i.e. mm/dd/yyyy). A copy of the
signed “Notice” as acknowledged by each applicant must at all times be retained
in the loan file.
For face to face applications the loan officer should review the driver‟s license,
green card, passport, etc. and document that the identity has been verified. Mail
and phone applications will not require any additional documentation other than
what is customary in the normal course of business for verifying the name,
address and social security numbers through other documentation collected
(i.e., credit report information, W-2 information, etc.).
Page 16 Compliance (09/23/05)
Due to retention requirements, the Notice must be obtained from all applications
and must at all times be retained in the loan file.
The following language for the Notice is suggested:
IMPORTANT INFORMATION ABOUT PROCEDURES FOR A MORTGAGE LOAN
To help the government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record information
that identifies each person who opens an account.
That this means for you: When you apply for a mortgage loan, we will ask for your
full name (including middle initial), address, date of birth, and other information that
will allow us to identify you. We may also ask to see your driver‟s license or other
identifying documents.
Minimum Identification Requirements for New Applicants
At the time of the initial loan application interview, the correspondent must at a
minimum, obtain the following four pieces of identifying information from each
new loan applicant:
1. Name (complete first, middle, and last name)
2. Date of birth (for individuals only to include month, day and year)
3. Mailing (street) address (individual residency or business location)
4. Taxpayer Identification Number (TIN or social security number or federal
tax identification number.
The residency of each applicant must be verified to determine if the applicant is
either a U.S. citizen or a permanent legal resident of the United States (i.e., the
applicant is not a “non-U.S. person”).
For U.S. citizens or individuals that reside in the U.S., a permissible address will
be a residential or business address, an Army Post Office (APO) or Fleet Post
Office (FPO) box number, or the residential or business street address of a next
of kin or of another contact individual. For entities other than an individual, the
street address must be the principal place of business, local office, or other
physical location.
The taxpayer identification number for U.S. persons will be the taxpayer
identification number (or social security number) of the applicant. For non-U.S.
persons, the identification number may be:
A taxpayer identification number
Compliance (9/23/05) Page 17
A passport number and country of issuance
An alien identification card number
A number and country of issuance of any other government-issued document
evidencing nationality or residence and bearing a photograph or similar safeguard
In the absence of a government issued identification number for foreign
businesses or enterprises, an alternative government-issued documentation
certifying the existence of the business or enterprise
Customer Verification Procedures
For face to face applications the loan officer should review the driver‟s license,
green card, passport, etc. and document that the identity has been verified. Mail
and phone applications will not require any additional documentation other than
what is customary in the normal course of business for verifying the name,
address and social security numbers through other documentation collected
(i.e., credit report information, W-2 information, etc.).
In any instance in which an applicant is not able to provide the required
documentation within a reasonable amount of time after the request has been
made, the mortgage loan process should not continue.
The customer verification process and required documentation that must be
obtained from each applicant or entity will vary based on the citizenship and
residency of the applicant. The following defines the document verification
requirements of each:
1. If the applicant is a U.S. citizen, the applicant must provide a U.S.
taxpayer identification number (TIN) or social security number. Individuals
that are U.S. citizens must also provide an un-expired government issued
identification document evidencing nationality or residence that includes a
photograph of the applicant. In most instances a U.S. citizen would provide
a copy of their driver‟s license (photo id) however a passport or government-
issued identification card such as a military ID card would also be
acceptable.
2. If the applicant is a U.S. trust, a corporation or a partnership the TIN
number is the Federal tax identification number. For U.S. trusts,
corporations or partnerships, a copy of the trust instrument, or documents
demonstrating the existence of the entity such as certified articles of
incorporation, a government issued business license, or partnership
agreement must be provided.
Page 18 Compliance (09/23/05)
3. If the applicant is not a U.S. citizen, you must determine if the applicant
is a permanent legal resident of the United States on a temporary visa.
For individuals that are a permanent legal resident of the United States, the
individual must provide an un-expired government-issued "green card".
Each applicant must also provide a government issued photograph. This
may also include a passport, military ID card or INS Resident Alien ID card.
Lack of Documentation or Inability to Verify the Identity of a Customer
If an applicant is unable to provide the documentation outlined above or if the
documentation provided has expired, the correspondent may use non-
documentary methods to verify the identity of a customer. Non-documentary
methods may be used under the following circumstances:
1. Whenever the preferred method of documentary verification cannot be
produced for individuals appearing in person (an un-expired government-
issued identification).
2. Whenever the documents provided present conflicting information or the
validity of the documents presented are questionable.
3. Whenever the correspondent is not familiar with the documents the applicant
has presented.
Allowable non-documentary methods for verifying the applicant‟s identity may
include the following:
1. Independently verifying the customer's identity through the comparison of
information provided by the customer with information obtained from a
consumer reporting agency, public database, or other source.
2. Checking references with other financial institutions.
3. Performing a site visit to a non-individual customer‟s business address.
4. Checking with an employer if the customer consents.
5. Checking the telephone number and address provided in a telephone book or
with the telephone company.
6. Checking the address against a utility bill or credit card bill.
7. Obtaining a financial statement.
Denial Procedures
If the applicant is unwilling to provide acceptable documentation to verify
his/her/its identity, the correspondent should not proceed with the loan
application. In addition, all such transactions may require the filing of a
Compliance (9/23/05) Page 19
Suspicious Activity Report. If the applicant is unwilling to provide acceptable
documentation to verify identity, the following steps should take place:
It is the policy of U.S, Bank Home Mortgage to issue a Statement of Credit Denial.
The reason for denial would be “other” with one of the following denial
explanations:
- “The applicant has been determined to be a true „match‟ on the Office of Foreign
Assets Control Specially Designated Nationals list that has been confirmed with
the Office of U.S. Foreign Assets Control. As such, we are sorry to advise you that
we cannot grant you a loan at this time.” OR
- We have been unable to verify the identify of the applicant. As such, we are sorry
to advise you that we cannot grant you a loan at this time.”
All required internal and external SAR reporting requirements of the Act must be
performed.
Customer Identification Program and OFAC Alert Screening
USBHM relies upon representations and warranties of each correspondent, along
with their performance to comply with the requirements of the USA Patriot Act
and OFAC. USBHM will ensure that:
1. Such reliance is reasonable under the circumstances;
2. That the other financial institution is subject to a rule implementing an Anti-
Money Laundering Program under the USA Patriot Act and is regulated by a
Federal functional regulator or a state regulator; and
3. That each financial institution or third party vendor enters into a contract
requiring it to certify annually to USBHM that it has implemented its Anti-
Money Laundering Program, and that it will perform (or its agent will perform)
the specified requirements of the USBHM Customer Identification Program.
4. Where weaknesses through testing are identified or where failure to comply
with regulatory requirements exists, weaknesses and/or non-compliance are
resolved.
Record keeping
All identifying information and documentation or non-documentary methods
used to verify the identify of the applicant must be retained in the applicants
loan file and maintained for a period of five years after the loan is paid off.
Page 20 Compliance (09/23/05)
Verification information that must be maintained includes: a description of any
document that was relied upon for identification noting the type of document,
any identification number contained in the document, the place of issuance and,
if any, the date of issuance and expiration date; a description of the methods
and the results of any measures undertaken to verify the identity of the
customer; and a description of the resolution of any substantive discrepancy
discovered when verifying the identifying information obtained.
K. OTHER REQUIREMENTS
In additional to the foregoing, Correspondent represents and warrants to U.S.
Bank Home Mortgage as follows:
1. The initial application shall be signed by all parties who are on the NOTE, as well
as by the interviewer.
2. The initial application shall be dated by all parties including the interviewer to
establish Truth-in-Lending compliance.
3. Product disclosures shall be signed and dated by all applicants. See Program
Description section of this manual for all disclosures. A new program disclosure
shall be delivered to the applicant if the applicant changes programs.
4. ARM disclosures must be signed at initial application.
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