Comfort Letters Allison M. Henry, CPA PICPA Vice President Professional & Technical Standards
Overview • New CFPB Regulations • Strategy for Responding • Boundaries • Applicable Standards • Confidentiality and Consent • Understand the Risk • Resources
Regulations No loan unless The creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan… “ ”
CFPB Regulations Basis for ability to pay determination to include all: • Credit history • Current income • Expected income that the consumer is reasonably assured of receiving • Current obligations
CFPB Regulations Basis for ability to pay determination to include all (continued): • Debt-to-income ratio, or the residual income the consumer will have after paying non-mortgage debt and mortgage-related obligations • Employment status • Other financial resources other than the consumer’s equity in the dwelling or real property that secures repayment of the loan
CFPB Regulations Income Verification A creditor making a residential mortgage loan shall verify amounts of income or assets that such creditor relies on to determine repayment ability…
CFPB Regulations Use A method that quickly and effectively verifies income documented by a third party subject to rules prescribed by the Bureau. “ ”
CFPB Regulations Section F.2.b. When a consumer’s percentage of ownership does not appear on the tax returns, the creditor must obtain the information from the corporation’s accountant, along with evidence that the consumer has the right to any compensation. “ ”
How to Respond Be Prepared • Discuss the issue with your client in advance • Educate your clients • Disclose the potential for additional costs and reasonable turnaround times for responses • Have a template ready for last minute requests
How to Respond Be Prepared • Identify a solution or alternative response • Develop relationships with legitimate banks who understand the limitations of the CPA • Have contact information for you liability carrier • Know your coverage • Discuss the issue with your attorney
How to Respond Be Prepared • Have a PICPA brochure handy for quick response For free brochures visit picpa.org/brochures
Know Your Boundaries • Can you explain the impact that the loan will have on the business? • Can you confirm ownership percentage? • Can you state the self-employed status?
Know the Applicable Standards, Laws and Regulations* • AICPA – SASs, SSARs, SSAEs • State Board • State Privacy • Circular 230 • IRC Sect 6103(c) and 7216 • Rev Proc 2008-35 • HIPPA and HITECH Acgt *These are examples; this list is not comprehensive.
Obtain Permission Before Disclosing AICPA and PICPA ET Section 301 Confidential Client Information “ • A member in public practice shall not disclose any confidential client information without the specific consent of the client. ” Consent must be in the form and manner stipulated by the IRS.
Know Your Risks • $$ – Potential liability to 3rd parties • Potential ethics violation • Potential punitive actions by the State Board of Accountancy • IRS penalties and sanctions • Other
For more resources visit picpa.org/comfortletters