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Risk Analysis: Mortgage Application Notices

In this grid, we lay out risks associated with providing the notices and disclosures that are triggered by mortgage applications. First, we look at the frequency with which the situation occurs. Think of each covered action as an opportunity to violate a regulatory requirement. With mortgage loan applications, most of the notices and disclosures must go with each application. The frequency of occurrence is therefore high - as high as the number of mortgage loan applications you take. The one exception is the Affiliated Business Arrangement notice. This has to be provided less often. Instead of being triggered by the application it is triggered by a referral.

To determine consequences, we consider several things. First is the statutory penalty. In the case of the RESPA booklet, there is no penalty beyond a citation. So even though it happens frequently, it isn't a priority. Contrast this with the GFE, which can provide generic information, or the early TIL which must be specifically prepared. There are content concerns for both.

Now look at the effectiveness of controls. Although the early TIL has a high risk level, the risk can be effectively managed with software. Other disclosures can be managed by procedures, including them in application folios. Use the cost and effectiveness of controls compared to the risk and set your priorities.

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Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 1, 1/05

First published on 01/01/2005

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