Is there any cure for making a HPML and failing to escrow?

Right now the prevailing thought is to re-do (and re-dislcose)the loan with a lower rate to avoid HPML status. I'm not exactly comfortable with that idea as one loan was closed in early May.

Any other ideas?

Doing so (refinance) does not eliminate the original violation.

Randy - I agree. However they're talking about a "do over" not a refinance. They want to back date new docs with a lower rate and replace the original docs. They will refund any difference in payments based on the new, lower rate. It would be like the original violation never happened.

Sounds like a falsification if you plan on destroying the original transaction. Whether you go back and "re-do" it or not, the fact of the matter is you have a violation. There is no regulatory cure for what has already happened. I think you are just digging a deeper hole.

Acknowledge the error, review internal controls, train and move on.

agree with Randy...you can't just "cover up" the mistake!

Ditto.... and I would even go so far as to consider it fraud by the employee(s) and subject to having a SAR filed for the act since there is no threshold for employee fraud.

Ok, so we did an audit of all our 1-4 family loans and discovered we had one booked in May as a HPML. We did a loan modification to lower the rate in hopes of correcting the violation. Then the examiners arrived and said that did not correct and we would still need to escrow. The bank does not do escrow and we did not intend to book a HPML. Does anyone have any suggestions? Can we rewrite the loan, book (not backdate)and price so it is not an HPML? Or will this create another tangled mess in this regulatory world??

Under what authority are they saying you have to escrow? You have violated the regulation and are subject to penalties but most likely you you have no legal authority to force the borrower to set up escrow now as long as they are not in violation of any provisions of the loan/security agreement.

Refinancing the loan would eliminate the need for escrow if you price it out of HPML but that still does not cure the violation or negate any penalties the examiners may decide to impose for the violation.

In response to "covering up"..... wouldn't the best thing be to show as part of an audit that you realized that you failed to add escrow to a loan, or set of loans, and that you have corrected your procedures and re-trained all involved? Isn't it better to show that you caught the error(s) than for the examiners to think you 1) you never realized your mistake or 2)saw it and didn't care to fix or train?

Thoughts?

That's what Randy was saying with his statement,

Acknowledge the error, review internal controls, train and move on.

I knew I heard it somewhere!!

So Dan and Randy, I agree with the statement about acknowledging the error, train and move on. What about refinancing the loan and setting up an escrow? I know this does not eliminate the original violation, but would this also be part of acknowledging the error?

Like I said, I know it doesn't fix it, but it is just another way of acknowledging the mistake. Of course, customers would have to be willing to do the refinance with the escrow, which would be a whole other issue, I suppose.

Unless I see one of the regulators come out with what a cure might be, I just don't see it accomplishing anything but annoying the customer at this point.

I agree. The bank violated the Reg, not the borrower. I'm not aware of any legal precedence that would allow you or your regulator to mandate the borrower refinance the loan or establish an escrow after the fact to cure the bank's violations. The only remedy the regulator has that I know of is to assess monetary penalties to the bank for the violations.

I was just informed that we have some "issues" and have HPML on the books in our Consumer Loan Dept - no escrows established. Can you tell me what the penalties are for non-compliance? I agree with the other posts to identify , train and move on but at what penalty?

Thanks you

A pattern and practice of non-compliance will most likely result in a reduced compliance rating and Civil Money Penalties.

PS. It could also result in a MOU or a Consent Order.