[NMLS SAFE] 22, Demographic Data, Reg B Inquiries, Gifts and Verifications

Lesson 22 of the free Quibank NMLS SAFE course. Three questions about information run through the whole origination file: what you must collect, what you are allowed to ask, and how a document has to travel. Get any of them wrong and the file is not just messy — it is a violation. Start with the data you must collect.

Regulation C requires demographic information — ethnicity, race and sex — and applicants may decline to give it. What happens next depends entirely on how the application was taken. Face to face, including video with visual contact, the originator notes the refusal and then records ethnicity, race and sex from visual observation or surname. The data are not allowed to simply vanish.

Exam version. An applicant in the office declines to provide ethnicity, race and sex. The answer: note that she declined, and record all three from visual observation or surname. Leaving the fields blank is the tempting wrong answer — that is correct only for mail and internet applications, where there is no visual or telephone contact.

And the information is never mandatory; you cannot tell her the application stops without it. Now what you may ask. Regulation B draws a hard line. Childbearing intentions and religion are flatly prohibited — never askable, in any framing.

Age is different: you may ask it, because age determines capacity to contract, and it may be used only in an empirically derived, demonstrably sound scoring system, or to favor an elderly applicant. Alimony and child support have their own sequence. Exam version. In a face-to-face interview with a 34-year-old female applicant, which inquiry is permissible?

The answer: her age, so long as age is not used to discount or disfavor the application. Religion and future children are prohibited outright. And alimony is not wrong to ask about — it is wrong to ask about in that order. You must first tell her the income need not be disclosed unless she wants it counted.

Two documentation rules now, and both exist for one reason: a file is only as good as the independence of what is in it. A gift letter must state the amount, the donor's name and relationship, and that no repayment is expected — and the donor may not be an interested party to the transaction: not the seller, the builder, the agent, or the lender. Third-party verifications must travel directly between the lender and the bank or employer. Exam version.

The seller's listing agent offers a 5,000 dollar gift, and the letter says the borrower will take care of the agent after closing. The answer: unacceptable, twice over. The donor is an interested party, and there is an expectation of repayment — which turns the gift into an undisclosed unsecured debt that distorts the debt ratio. Notarizing it does not help.

Wiring it to the settlement agent does not help. Exam version. A processor hands the borrower a blank Verification of Deposit and asks him to walk it to his bank and bring it back. The answer: improper.

Third-party verifications go from the lender to the verifying party and back, never through the borrower's hands, because that route creates an opportunity to alter the document. Lock these in. Face to face, a declined demographic answer is recorded from visual observation or surname — blank is only for mail and internet. Age is askable; childbearing and religion never are; alimony only after the disclosure.

A gift letter needs no expectation of repayment and a donor who is not an interested party. And a verification never passes through the borrower's hands. Next lesson: the four Cs of underwriting — capital, qualifying income, and the representative credit score. Practice every one of these free at quibank.com/en/mlo.

See you in lesson 23.