Feb. 1: Compliance tips & news; demographics on "partnering"; Saturday Spotlight: Prudent AI; "shaggy dog" pun

I was sitting with the MBA’s Dr. Mike Fratantoni in Austin earlier this week (I don’t mind name dropping celebrities) and the topic of dogs came up. Here’s an actual fun pandemic time memory. COVID and the pandemic caused quite a lot of changes, not the least of which were working and living arrangement shifts, as well as analyzing financial transactions. Somewhat recently TransUnion reported that nearly half (48 percent) of property managers report rent payments to credit reporting agencies, a 33 percent increase from the number of property managers who said they reported such payments in 2023. More than half (52 percent) of those who now report rent payments began doing so within the past two years. In a related but unrelated issue, the percentage of adults who did not live with a spouse or partner increased steadily up through around 2019, hitting 44 percent. Since then, though, the trend has reversed, and now 42 percent of adults are unpartnered, thanks to slight increases in the percentage of married adults and percentage of adults who cohabitate with an unmarried partner. In general, young people are way more likely to be unpartnered than any other age demographic, with 88 percent of men aged 18 to 24 and 83 percent of women 18 to 24 not having a partner.

Saturday Spotlight: Prudent AI

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“Get instant income certainty with fraud protection.”

In 3-5 sentences, describe your company (when it was founded and why, what it does, where, recent growth and plans for near-term future growth).

Prudent AI is the default income intelligence platform powering the top non-QM lenders, including Angel Oak, Newfi, Change Lending, Kind Lending, Logan finance and several others. Our intuitive UI and cutting-edge AI enables lenders to pre-qualify borrowers with a single click while providing day-one income certainty and proactive fraud screening.

Trusted by over 50 percent of the non-QM market, Prudent AI empowers lenders to double their loan volume, save 4 hours per application, and keep their operating costs in check as they scale.

Founded in July 2020, our mission is to revolutionize lending by equipping teams with tools that offer them unparalleled speed, accuracy, and confidence in their decision-making.

Looking ahead, Prudent AI is poised for explosive growth as we continue to transform the lending landscape. Our roadmap includes aggressive expansion into new market segments, strategic partnerships with industry giants, and the development of groundbreaking AI solutions that will redefine the way lenders operate. With our unrivalled technology and deep industry expertise, Prudent AI is not just shaping the future of lending – we are creating it.

What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes or training, in-house training. How does the company help people develop?

At Prudent AI, we prioritize the growth and development of our employees. We offer a dedicated budget for learning and development, allowing our team members to enroll in courses and training programs that align with their professional goals.

Additionally, we foster a culture of knowledge sharing through regular internal sessions. We also encourage innovation by providing our employees with the time and resources they need to work on new ideas.

We believe that we can achieve more when we trust each other, and we are committed to creating a high-trust environment for everyone on our team.

Tell us how your company maintains its culture in a work-from-home environment, or how you plan on bringing employees back into the office, if applicable.

At Prudent AI, we have adopted a flexible working model that balances the benefits of remote work with the collaborative spirit of in-person interactions. Our team members work from home three days a week and spend two days in the office. To further strengthen our company culture and promote cross-functional collaboration, we organize regular team dinners and off-site events that bring together teams from multiple locations.

Things you are most proud of that don’t have to do with sales.

At Prudent AI, we take immense pride in our technology, which has been developed with a deep understanding of our customers' needs. By working closely with lenders from the very beginning, we have built a platform that is intuitive, user-friendly, and incredibly fast. Our customers have become ardent fans of our app, appreciating its ease of use and the speed at which it delivers results.

(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.) 

A letter about historical tariff results

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Adam R. sent, “At risk of making a suggestion, I thought it might be useful & illuminating to briefly chronicle the Presidency of William McKinley, who through the use of tariffs, created a gusher of revenue to the U.S. Treasury, prior to the advent of a federal income tax, the IRS, or the Federal Reserve. McKinley ran on ‘sound money.’

“This particular chapter of U.S. history is obscured by the established media/academia, but it holds profound relevance to the period of time we find ourselves in today for any brave soul willing to ‘go there.’ Defy the groupthink mob in 2025!”

Sure enough, President McKinley is known for the McKinley Tariff of 1890, which raised average duties on imports to nearly 50% to protect American industries from foreign competition. This tariff was a significant part of his economic policy and was met with considerable debate and opposition.

Per Wikipedia, “The tariff was not well received by Americans who suffered a steep increase in prices. In the 1890 election, Republicans lost their majority in the House with the number of seats they won reduced by nearly half, from 171 to 88… It represented protectionism, a policy supported by Republicans and denounced by Democrats. It was a major topic of fierce debate in the 1890 Congressional elections, which gave a Democratic landslide. Democrats replaced the McKinley Tariff with the Wilson–Gorman Tariff Act in 1894, which lowered tariff rates.”

Compliance is still important regardless of the CFPB’s direction

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Mortgage lenders must ensure their staff is well-trained in locating disaster-related resources and understanding investor, agency, and regulatory guidelines to avoid compliance issues in the event of a natural disaster. Resources available to lenders for disaster preparation and response include websites and tools from agencies such as Fannie Mae, Freddie Mac, HUD, the VA, the Federal Housing Finance Agency’s Mortgage Loan and Natural Disaster Dashboard, and the Federal Emergency Management Agency (FEMA), which offers a disaster declaration search tool. Lenders should also develop written disaster response policies, which should address the process for confirming whether properties are in federally declared disaster areas, determining when inspections are necessary, and meeting other relevant requirements. Additionally, lenders must assess their readiness for scenarios where their employees or office locations are directly impacted by a disaster and ensure their disaster recovery and business continuity plans are tested regularly. This guidance, provided by MQMR, highlights the importance of preparedness in maintaining regulatory compliance and operational continuity during natural disasters.

The Department of Veterans Affairs (VA) made changes to its guidelines regarding a borrower’s ability to pay real estate broker commissions, issuing Circular 26-24-14, which was effective August 10, 2024 and authorizes VA borrowers to pay compensation to a buyer’s real estate broker or agent. VA regulations prohibit a veteran from paying for real estate brokerage charges. However, the Circular explains that this temporary allowance is appropriate to ensure veterans remain competitive buyers in the rapidly shifting real estate brokerage market. The Circular indicates that VA will develop a more permanent policy, through a new notice-and-comment rulemaking, as the real estate brokerage market restabilizes and new practices take hold. VA loan borrowers may now pay reasonable and customary amounts for any buyer-broker charges, including commissions and any other broker-related fees, subject to terms set forth in the Circular.

Noteworthy, the Circular requires lenders to collect the buyer-broker representation agreement as VA considers it part of the sales contract. VA expects lenders to upload the agreement as part of the package lenders use when requesting an appraisal. VA also expects lenders to retain the agreement in the loan file. The VA also published Change 1 to Circular 26-24-14, which clarifies how veteran-paid buyer-broker charges are to be recorded on the Closing Disclosure.

MQMR wrote a compliance FAQ on the potential risks of advertising that a consumer should “buy now and refinance later.” It must be clear to a consumer that refinancing is not guaranteed as the consumer may not qualify or there may not be a benefit to refinancing if rates do not drop. Any advertisement should disclose that the consumer will have to apply to refinance the purchase loan at a later date and that there are costs and fees associated with that separate refinance loan transaction. Failing to provide this information may be misleading and/or deceptive in the eyes of a regulator.

Additionally, Fannie Mae specifically prohibits a seller/servicer from delivering a loan to it if the seller/servicer (or any affiliate or third-party originator) and the borrower have entered into an arrangement for special terms, such as reduced fees, for a future refinance of the loan. In order to bypass this prohibition, the seller/servicer must obtain a negotiated contract from Fannie Mae that allows delivery of the loan in spite of its shortened prepayment expectation. See Selling Guide B2-1.3-04, Prohibited Refinancing Practices.

MQMR recently wrote a Compliance Hot Topic on HUD no longer requiring branch office registrations to conduct FHA business. Effective March 4, 2024, HUD eliminated the current requirement for mortgagees and lenders to register branch offices where they conduct FHA Title I and/or Title II loan originations. HUD explained that as the mortgage industry has evolved, it believes that requiring a mortgagee or lender to register all branches is an unnecessary administrative and cost impediment to program participation.

This final rule, Changes in Branch Office Registration Requirements, published in the Federal Register on February 2, 2024, revises 24 CFR 202.5(k) to give mortgagees and lenders the option to register all branch offices; and makes fees applicable only to branch offices that mortgagees or lenders register, rather than applying fees to each branch authorized to originate FHA loans. Branch offices not registered with HUD are not subject to branch registration fees and will be excluded from the HUD Lender List Search page. Removing the requirement to register branch offices will not affect HUD’s monitoring of lenders and mortgagees. HUD will continue to maintain oversight and risk management of lenders and mortgagees that remain responsible to FHA for the actions of its branch offices and employees. 

MQMR wrote a Compliance FAQ on why mortgage lenders should require ongoing, comprehensive, and up-to-date compliance training for both management and employees, tailored to their specific responsibilities. According to the CFPB’s Compliance Management Review Examination Procedures, training should cover federal consumer financial laws, anti-discrimination policies, and practices to prevent unlawful, deceptive, or abusive acts. The training must be proactive, reflecting changes in products or regulations, and consistent with company policies and procedures. Key topics for training include anti-money laundering, fair lending, ECOA, security awareness, privacy, UDAAP, RESPA, and TRID. Training records must be maintained and reviewed by both federal and state examiners to ensure compliance and that all relevant staff are adequately trained for their roles.

Did you know that HUD recently updated its reporting requirements for cybersecurity incidents? On December 2, 2024, HUD published Mortgagee Letter 2024-23, which revised cybersecurity notification requirements for FHA-Approved Mortgagees to require notification to HUD as soon as possible and no later than 36 hours after the mortgagee determined a Reportable Cyber Incident occurred. 

Previous guidance required notification no later than 12 hours after determination that a cyber incident occurred. HUD also provided the following definitions. Cyber Incident is an occurrence that results in actual harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits. A Reportable Cyber Incident is a Cyber Incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the FHA-approved mortgagee’s ability to meet its operational obligations for originating or servicing FHA-insured mortgages. Notification of Reportable Cyber Incidents must be emailed to HUD’s FHA Resource Center at answers@hud.gov and HUD’s Security Operations Center at cirt@hud.gov.

MQMR wrote about the potential liability for inaccurate HMDA data. The Consumer Financial Protection Bureau (CFPB) has taken action against HMDA reporters in recent months for inaccurate reporting of HMDA data. The CFPB imposed a $12 million fine after finding that bank employees failed to ask mortgage applicants certain demographic questions and falsely reported that applicants chose not to respond. It is clear that enforcement actions, reputational risk, and potentially exorbitant fines and penalties are all risks.

Also noteworthy is that the CFPB has often performed additional follow-up reviews of HMDA reporters found in violation. These additional reviews require company/bank time and resources on top of what would normally be allocated to HMDA data scrubbing and reporting and may result in additional actions and fines to the HMDA reporter. Most recently, the CFPB filed a proposed order against a non-bank mortgage lender labeling it a repeat offender and, in addition to a large civil money penalty ($3.95 million), indicated it will require the mortgage company to retain the services of a qualified third-party independent auditor to perform: Quarterly HMDA data transaction testing, root cause analysis for each error identified by the testing, and quarterly written transaction test reports describing the methodology used and summarizing the HMDA transaction test and results, including errors identified, error rates per data filed, the root cause of the errors, and all actions taken to prevent reoccurrence of the error.

An archaeologist is visiting a small town in Nevada, and he's just ambling around, enjoying the play of the autumn light on the terracotta and adobe-colored buildings. He rounds a corner and is surprised to see the most, bar none, stunningly beautiful alley he's ever come across. It may sound like he's a bit nerdy, but we all have our things we love, and he's a lover of old streets.

The ground of the alley is a light orange in hue, with a soft almost nutty sheen and texture. His feet feel refreshed! The street has gorgeous slopes and embankments, like an alleyway out of Florence in the 1500s, but made out of clay stones.

He sees two gentlemen working on fixing a small crack in the street, the only blemish for blocks. One of them is pounding down the clay with a wide-head sledgehammer, thwap thwap! The other is on his knees with a compass and a pick and a broom, adjusting the grade of the street material.

He interrupts them to say, "Excuse me gentlemen! I hate to be a bother, but I just want to applaud your hard work on this alleyway. It's rare that a city takes such good care with its streets, and this one is one of the best."

The man with the sledge stops and says, "Well, we appreciate that sir. You know your streets, it seems! Would it surprise you to know that the composition of this street is not adobe? It's mulched with our cashew nuts from a local orchard. That's what gives it its softness. When it rains, the petrichor has a slight sweetness due to the cashew, and the town smells fantastic. I'm just hammering it down before it gets too cold."

"Well, I'll be!" cried the archaeologist. "And what's that fellow up to?" pointing to the man on his knees.

"Oh him! He's in charge of checking the grade of the clay. If it's too rough, he picks and sweeps it. Backbreaking work. We hire four of them, one for each season. And since autumn just arrived, he's got a few months yet. So, you see..."

and here the man paused...

"So, you see...my hammered alley is really 'cashews clay'. And he is the gradist."

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2025 Chrisman LLC. All rights reserved. Occasionally paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman. The views and opinions in this newsletter are mine alone unless otherwise specifically stated herein.)