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Best Practices-Fair Lending Workflow-Pricing Exceptions

Time to get back to workflow design!  The second trigger to design around workflow, are the dreaded pricing exceptions.  Pricing exceptions are a part of our business.  The difference is that now you will need to write policy, monitor and train on this issue to avoid fair lending issues.  Remember, that whatever you choose, you must apply the policy equally.  Mr. Big Wig in town has to get the same as Mr. Nobody.  If you deviate from your policy you have to document and track.  Do this, and you’ll be 90% on your way to a better exam.

Step One:  Pricing Exception Policy-Written Policy

____ Review each of your lines of business and determine allowable pricing exceptions per line and per position.

____What happens if the pricing exception allowed needs to be exceeded in order to get the loan?  Is there an approval chain of command for that process?  For instance, a loan originator has the discretion to deviate pricing by 25 bps in price.  Any deviation beyond that will require a manager’s approval and documentation of competition’s offerings to the client.  Then go on to define what that documentation looks like and where it is housed.

_____ Have you established limits per originator, branch or region?  What is the consequence if those are exceeded?

_____ Are you LLPA’s applied equally and how do you demonstrate that?

_____ Decide what paperwork will be required to document any deviation from price.

_____ Is there any sort of discount program for an employee, corporation, etc.  If so, what is the business justification, what is the policy and is it applied equally?

Step Two:  Monitoring-Secondary and Compliance You Are a Team

_____How do you determine the base interest rate and price?  Pricing, Pricing Traces and calculating the new points and fees is about to get really complex. (More on that in another article)

_____How will you archive your base interest rate and price, your LLPAs added and then your calculation for determining a QM loan?  OB users who use our Fair Lending Software…’re going to have it easy!

_____When you allow for a pricing exception, how are you keeping track of it?  Each one should be documented by secondary, and compliance should review for whether or not it is being applied equally.

_____ If you allow for pricing exceptions and require, as part of your policy, certain documents to substantiate the exception, is this being collected from everyone and not just some?

_____If you established limits per originator, branch or region, how do you monitor this?  How do you monitor consequences?

_____ Have you configured your pricing engine around your policies, so that it issues alerts when policy is violated?

Step Three:  Training-Comprehension is Vital

____ How will you train existing employees on new pricing exception policies?

____ How will new employees be trained and on-boarded to the process?

_____ Make sure you incorporate in the training, the need for these changes, and relate it to the new regulation.

_____ Document who has attended training.

_____ Since much of the way you are calculating price and rate is changing, you may want to consider scenario based testing, to ensure that your employees understand the changes.  It is so different than it has been that this type of comprehension testing is vital to keep down complaints.

Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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