FDIC’s OIG Issues Evaluation of Agency’s Implementation of ATR/QM and Loan Originator Rules

Federal Issues OIG FDIC Ability To Repay Qualified Mortgage Consumer Finance Loan Origination Mortgages Examination

On December 6, the FDIC’s Office of Inspector General (OIG) released an evaluation report to examine how the agency implements certain consumer protection rules concerning consumers’ ability to repay mortgage loans and limits for loan originator compensation. The OIG report, FDIC’s Implementation of Consumer Protection Rules Regarding Ability to Repay Mortgages and Compensation for Loan Originators (EVAL-18-001), focused on the FDIC’s Division of Depositor and Consumer Protection (DCP), which is responsible for implementing the Ability to Repay/Qualified Mortgage (ATR/QM) and Loan Originator rules and tracking violations of the rules. The report found that the DCP “incorporated these rules into its examination program, trained its examiners, and communicated regulatory changes to FDIC-supervised institutions.” However, based on a sample of 12 examinations, the OIG also determined that examination workpapers generally needed improvement, finding (i) inconsistent documentation by examiners on decisions to exclude compliance testing for the ATR/QM and Loan Originator rules, and (ii) in certain circumstances, incomplete, incorrect, or improperly stored examiners’ workpapers, “which would preclude someone independent of the examination team from fully understanding examination findings and conclusions, based on the workpapers alone.”

OIG further noted that, because DCP’s examination practices did not include tracking the number of institutions subject to the rules or recording how frequently examiners tested for compliance, any identified variances among the FDIC’s six regional offices could not be assessed for significance due to lack of context.

As a result of these findings, the OIG made several recommendations for the DCP to strengthen its compliance examination process, including:

• “research potential reasons for the regional variances in the number of rule violations by banks in the FDIC’s six regional offices”;
• “track the aggregate number of FDIC-supervised institutions in each region that are subject to the rules”;
• “track how often examiners test for compliance with the rules”; and
• ‘‘take steps to improve workpaper documentation and retention.”

The DCP agreed to implement these recommendations June 30, 2018.