Examination Findings: Unlicensed Staff, Steering Notes, and Missing Records
During a routine examination by the North Carolina Commissioner of Banks, examiners review 30 files originated by Evan at TriCounty Mortgage. They find: (1) nine files have no dated evidence that the borrower received the initial Loan Estimate and indicated an intent to proceed; (2) four files show Evan's unlicensed assistant, Kim, took applications, quoted rates, and discussed loan terms by phone; (3) one file contains Evan's note, 'Borrower lives in Eastside - likely Section 8, better steer to FHA high-cost, don't waste time on conventional'; the borrower is Black and met conventional guidelines; (4) Evan deleted borrower text messages monthly, so 18 files lack the required three-year records; (5) a rate sheet shows three Hispanic borrowers paid a 1.5-point higher broker fee than similarly situated white borrowers with no documented risk reason. Evan says Kim only 'answered basic questions,' the note was a 'personal reminder,' and texts were 'not official files.'
1. Which findings present the greatest immediate risk, and why?
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The highest immediate risks are the unlicensed assistant and the fair lending evidence. Kim's taking applications, quoting rates, and discussing terms are origination activities that require an MLO license; 'answering basic questions' is not a defense if she went beyond clerical work. The note about Eastside and Section 8 is direct evidence of steering based on race or a race proxy, and the 1.5-point fee disparity for Hispanic borrowers suggests disparate treatment. Those issues create consumer harm, ECOA and Fair Housing exposure, and licensing risk. The missing intent-to-proceed documentation and deleted texts are serious recordkeeping and TRID issues, but they are secondary to the fair lending and unlicensed activity findings. Evan's explanations are self-serving and do not rebut the documentary evidence.
2. Analyze the fair lending exposure from Evan's note and the 1.5-point fee disparity. What evidence would an examiner seek?
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Under ECOA and the Fair Housing Act, a lender may not discriminate in credit terms or steer applicants based on race, national origin, or neighborhood racial composition. The note is direct evidence of intent to treat a Black borrower differently; the examiner will compare the borrower's qualifications with the conventional guidelines and ask why FHA high-cost was chosen. For the fee disparity, the examiner will identify similarly situated white borrowers, compare credit risk, DTI, LTV, lock period, and broker compensation, and look for any legitimate risk-based reason. A pattern of three higher fees with no documented rationale supports a disparate treatment claim. The examiner will also review Evan's other files, compensation, training, and whether managers knew or should have known.
3. What should TriCounty do immediately, and what are the recordkeeping and examination consequences?
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TriCounty should immediately remove Kim from any origination duties, suspend Evan pending review, preserve all files and electronic records, and stop the deletion of texts. It should self-report to the Commissioner and, if appropriate, to HUD or the CFPB, and retain outside counsel. The company should review all of Evan's files for pricing and steering, refund any overcharges, and offer remediation to affected borrowers. Recordkeeping requirements generally require retention for at least three years under state law, and any longer federal period must also be met; deleting texts that are part of the loan file violates those rules. The Commissioner may impose penalties, require a corrective action plan, and monitor the company. The company should also retrain staff on ECOA, fair lending, and the licensing boundary for assistants.