Steering is defined as guiding a client to a specific product or feature on a prohibited basis versus considering their needs or other legitimate factors.
Steering can be very obvious, like sending a client to a product for which the loan originator receives more income. Or, sending a client into a program because the loan originator thinks it is easier. This can occur through financial incentive, prohibited bases biases, or lack of knowledge of product offerings. All circumstances should have policy and monitoring around them.
The second challenge is to ensure that the loan originator is not making the decision for the client. Their function is to present the options and the consumer should make the decision. The key for the originator is not to judge or start spouting off programs immediately. Listening to what the client is trying to accomplish, paired with a financial product that works for their financial circumstance is essential. Mystery shoppers are generally surprised by the practice of loan originators talking about programs before they even have the details from the client.
Do not pay a mortgage originator more for one product versus another. I’m quite surprised that I still have to write this, but it is still a rampant practice in our industry. I know that some of you say that one type of loan takes more work than another, but that is not being accepted by the regulators as a reason. The goal of the regulator is remove any possible incentive that would cause an originator to offer one product over another. Keep it neutral and you will be much happier with the exam results.
Mortgage bankers are used to getting “perks” for sending clients to specific lenders. What monitoring will you have in place to ensure this isn’t happening outside of regulation? How will you monitor any “side deals” or “kickbacks”?
Lack of Knowledge:
Steering can also be unintentional but still exist. For instance, let’s say you have a client who clearly qualifies for USDA and would cost the client less overall. Yet, the loan originator is unfamiliar with that product so they do not offer it. Procedures for a “product double-check” should be put into place to make sure the client was offered viable options. This might occur at the branch, processing or underwriting level. The goal is to make sure you don’t have an uninformed originator that causes financial harm to a client and to document what was presented.
Does the originator realize that it is not just the best rate, but also the best overall cost? Do they search for options outside of the “norm” when a borrower has a challenge?
Loan originators are tasked with understanding the financial implications of the products that they offer; and for some this may be many. So one of your first points of a great compliance management system is training the loan originator on the financial products you offer. What types of financial profiles work with each type of product? What considerations should be made by the client prior to entering into an agreement on a product? What are the pros and cons of each product? Training should also remove the myths of one product over another. There is no “evil” product. Each product was developed for a specific financial profile and careful attention in training and testing of the originator should be employed. When a new product comes out, what type of training is given and how is the staff knowledge tested?
Who is responsible for pulling a sampling of loan originator files to see if the client received a compatible program? How are new originators monitored? Who looks at the trends of where files are being placed? Is one originator sending all of his files to his buddy at a wholesale lender and not to someone else?
Next Up-Disparate Impact!