Narrator: Sheila, an audit manager, is in the process of buying her first
home. Her partner, who is deemed a spousal equivalent for independence
purposes, has been pushing to use a family friend who works for a
mortgage broker to find a lender with the best rates, and wants to reach out
to them now so they can get the process underway. Sheila understands
there are independence considerations when purchasing a home, but
before giving her partner the go-ahead to move forward with the family
friend, she wants to be sure she’s doing the right thing.
She decides to call Risk Management – Independence.
Let’s listen to their discussion.
Independence: Congratulations! Buying your first home is exciting!
You’re right, there are independence considerations to take
into account when buying a home. You mentioned that you’re
planning to use a mortgage broker to help find a lender?
Sheila: Yes, we have a friend that works for a mortgage broker.
Independence: Okay, let’s start there. Independence rules apply
to mortgage brokers too. Did you confirm the restriction
status of the mortgage broker in KICS?
Sheila: Oh, I didn’t consider that. If they are restricted,
does that mean we can’t use them?
Independence: That’s right. You also can’t use an unrestricted broker
that sells its loans exclusively to restricted entities.
Sheila: Hmm…how would I know that?
Independence: You’re required to make reasonable inquiries of the
mortgage broker to determine whether the loan may be sold to an
audit client or its affiliate. Ask questions like “Do you routinely sell your
mortgages to certain entities?”, and “Who is my loan going to be sold to?”
If they only sell to restricted entities, you shouldn’t use this broker
because that could impair your independence.
Sheila: Ok, I’ll add that to the list of questions to discuss with the broker.
Independence: Whether you use a mortgage broker or not,
always check the restriction status of the mortgage lender in KICS
before closing on the loan. You and your immediate family members
are not permitted to obtain a loan from a restricted entity.
Sheila: Right, and when we do close on the loan, I must report
it in KICS within 14 days of closing on the loan?
Independence: That’s right. And remember to report the lender, not the
the servicer. The lender is the financial institution that will lend
you the funds, and is often a different entity from the loan servicer
that is, the one that sends you statements and that you make payments to.
Sheila: Okay, is there anything else to consider?
Independence: Yes, there are restrictions related to homeowners and
title insurance as well. Before obtaining a new policy, or modifying an
existing one, make sure you determine the restriction status of the insurer.
If it’s an SEC restricted entity, you’ll need to confirm that you’re not
a Covered Person to the entity.
Sheila: Okay, so I can obtain a policy from a restricted entity,
as long as it’s not an SEC restricted entity that I am
considered a Covered Person for?
Independence: That’s right. There is one other thing to keep in mind.
Mortgage lenders often sell their loans to other lenders.
You should review all notifications you receive about your loan carefully.
If your loan is sold, you’ll need to report the new lender in KICS
within 14 days of the effective date of the sale. You have an ongoing
responsibility to ensure any changes to your loan
are reported in KICS in a timely manner.
Sheila: Oh, okay, I’ll look out for that. This has been very helpful. Thank you.
Independence: You’re welcome! There’s also a resource on the
Independence portal page that you can use called the
Independence reminders when purchasing a home. It has information
about what we discussed today and is a great tool to remind
you of all your independence considerations throughout this process.
Narrator: The conversation with Risk Management - Independence
helped Sheila recognize the independence considerations she has to
take into account when purchasing a new home. Sheila now has the
information she needs to move forward. She checked KICS and confirmed
that the family friend actually works for a restricted mortgage broker.
She informed her partner that they aren’t permitted to use that broker
and instead have begun searching for an
unrestricted mortgage broker and lender.