Risk Based Pricing Disclosures Made Easy (?)

Like RESPA in 2010 we are faced with a yearend disclosure that at first can seem relatively straight forward but the details start to make operations managers nervous. The Risk Based Pricing (RBP) policies and disclosures required as of 1/1/11 will need some attention to make sure both the technology and operations have been considered. The regulation requires creditors (therefore not mortgage brokers) to provide a disclosure to customers who receive materially less favorable terms than most of their customers. The disclosure cannot be given before the borrower is approved and this puts a bit of a kink in process. The notice must be provided to each borrower who resides at a different address. Lenders will need to choose between: A) Issuing a Risk Base Pricing (RBP) disclosure on a case by case basis or B) Issuing a Residential Mortgage Credit Score Disclosure to all borrowers who receive an approval For compliance managers who like easy solutions and want to skip the 100 pages of text describing how to determine when a RBP disclosure is required, the Residential Mortgage Credit Score(RMCS) disclosure exception seems to be the quick answer. The Residential Mortgage Credit Score disclosure does need to show US consumer credit score information in the form of a graph so be sure your credit report provider is able to produce a complete disclosure. The new form will show the borrower’s low middle credit score compared to US consumers. Overall the disclosure includes good information every customer should know about credit and giving it to everyone shouldn’t present a problem for an originator. If you are company that does not want to send the new disclosure to all borrowers, then you will need to choose between one of three methods for determining which borrowers will receive the disclosure. A credit union asked if they could just issue the disclosure to borrowers who received portfolio loans and consider this product the ‘materially less favorable’ over the secondary market products. Under the regulation the credit union would need to document that a substantial proportion of borrowers received secondary market financing and that the terms for ALL of the secondary market loans closed were consistently priced. The group of secondary market loans could not contain any loans with pricing adjustments related to credit. This level of verification becomes tedious and risky even in a small shop. It just seems too easy to just give the disclosure to all borrowers. It will be important to establish clear policies for your staff on the use of the form. Remember that the form will need to go out after the loan has received an approval. Although the word ‘approval’ isn’t defined, the assumption is they mean an approval issued by someone with lending authority. Lender’s may or may not be able to rely on the AUS approval, depending upon their policies. Don’t forget that you will need to issue a separate form to borrowers who do not have a credit scores. We recommend providing this to all applicable borrowers. The disclosure provides valuable information and gives the originator an opportunity to discuss how the borrower can become a future customer. Learn more about the great procedure manuals that we help customize along with a policy and procedures webinar customized to train your staff successfully at any time. Policies and Procedures page.