The new application definition eliminates some of the flexibility that wholesalers and the third party originators/brokers have today in determining when an application has been submitted. Are there still ways that information collection can be controlled?

Yes, there are, but there are some limitations. Recall the “catch-all” element, which exists under RESPA. This is basically anything else (in addition to the six elements) that the creditor requires to complete an application. This catch-all element is going to be gone on August 1st so the new definition for an application triggering the Loan Estimate is going to be six specific pieces of information: the consumer’s name, income, social security number (as the rule is written it says social security number for purposes of retaining a credit report), the property address, the estimated property value, and the estimated loan amount. Those are the six. That’s it and once those six elements have been submitted by the consumer for purposes of obtaining credit—meaning they’re not just on file somewhere, but the consumer has actually submitted them to a broker or a creditor for the purposes of getting an extension of credit—the application has been submitted and the clock is ticking.

However, the preamble sections on the new definition of application in the final rule (if you want a regulatory cite that’s section 2(a)(6) of Regulation Z) discuss at length the flexibility that creditors or brokers have in controlling or sequencing the collection of information. For example, the sixth element collected in a lot of cases is going to be something sensitive like the social security number, and may be saved for the end while other useful information or necessary information like date of birth and mailing address (which aren’t in the 6 elements), as well as information like the product type, can be captured first. The catch, however, is implied in the preamble and was clarified later by the CFPB’s webinar: the creditor or broker is not permitted to refuse to proceed with the application collection if the consumer has provided all six elements and wants to submit the application. There’s a reason for this. Despite all this talk about flexibility, which I think usually works because people want to get a loan and they will willingly give information as the information collection goes, one of the main policy objectives of the rule is making it easier and quicker for consumers to get estimates and shop between them. The Bureau felt strongly that removing the creditor-specific or “catchall” application element would mean that the consumers can get Loan Estimates from different creditors based on the same universe of information, and that would greatly facilitate shopping. That was the theory. This means sequencing is allowed, but in the CFPB’s view there is a caveat—and in your case, that is a caveat you are going to be entrusting to third party brokers.

As for what you need to do to make sure brokers are complying with the rule, section 19(e)(1) has a section titled “Mortgage Broker,” and makes clear what the minimum expectations are going to be: the creditor is expected to maintain communications with the brokers to ensure the broker’s acting in place of the creditor. In other words you do have responsibilities for making sure that the broker is doing this correctly. Policies and procedures will govern how information is collected, how scripts are designed, how people are trained if you’re doing face to face sales, and there’s also some specific guidance about online application systems as well if that’s the way your brokers are taking applications.

This transcript has been edited from the May 2015 round table discussion for clarity and completeness.

Answered By: Andy Arculin