Federal Deposit Insurance Corporation
Office of Inspector General
Federal Deposit Insurance Corporation - Office of Inspector General

FDIC's Implementation of Consumer Protection Rules Regarding Ability to Repay Mortgages and Compensation for Loan Originators

Wednesday, December 6, 2017

On December 6, 2017, the FDIC Office of Inspector General issued a report assessing the FDIC’s implementation of two rules required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  These rules placed new requirements on the banking industry to (1) determine if a consumer has a reasonable ability to repay a mortgage loan and (2) limit loan originator compensation and subject loan originators to new requirements.  We reviewed a judgmental sample of 12 FDIC compliance examinations completed in 2016 to assess the FDIC’s coverage of these rules and related workpaper documentation.  

We found that the FDIC took steps to implement the two rules by incorporating them into its examination program, training its examiners, and communicating the regulatory changes to FDIC-supervised institutions.  

The FDIC also tracks financial institution violations of the rules and reasons for those violations.  In this regard, we identified regional variances in the number of rule violations in relation to the number of banks examined.  However, we could not assess the significance of the variances because the FDIC did not track how many institutions were subject to the rules and how frequently examiners elected to test compliance with the rules.  
Our report notes that the FDIC should track such information to better understand the impact the rules have on FDIC-supervised institutions, put the frequency of examination findings and violations into context, determine to what extent examiners are reviewing or electing to not review compliance with the rules, and assess institution compliance and examination coverage trends by FDIC regional office.

We also found that examination workpapers needed improvement.  Examiners did not consistently document why they excluded compliance testing for the two rules.  In some instances, examiners’ workpapers were incomplete, filled out incorrectly, or not stored in accordance with FDIC policy, thus precluding an independent assessment to fully understand the FDIC examinations based on the workpapers alone.

We recommended that the FDIC research potential reasons for the regional variances in the number of rule violations by banks in its six regional offices, track the aggregate number of FDIC-supervised institutions in each region that are subject to the rules and  how often examiners test for compliance with the rules, and improve workpaper documentation and retention.  The FDIC concurred with our recommendations.

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