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Safe Harbor Protection to Avoid Steering Violations    
April 20, 2023
QUESTION
I am the CEO of a Midwest mortgage lender. We are being sued in a class action alleging that we violated the steering prohibitions. They're claiming that we can’t use the safe harbor protection. Our General Counsel and outside counsel are fighting back.
 
However, I would like your review, and I especially want other companies to know about their potential vulnerability. Since your newsletter is hugely followed, I hope you will provide the safe harbor elements to your readers. 

What are the elements of the safe harbor to avoid steering violations?
ANSWER
Although originators know the anti-steering disclosure and anti-steering requirements, many do not realize that there is a legal safe harbor. A transaction does not violate the steering prohibition if the consumer is presented with loan options that meet the conditions regarding the presentation of loan options. This applies to each type of transaction in which the consumer expressed an interest. 

Let’s clarify what I mean by “each type of transaction” for purposes of the safe harbor. 

These three criteria relate to the meaning of each type of transaction:

1. A loan has an annual percentage rate that cannot increase after consummation; 

2. A loan has an annual percentage rate that may increase after consummation; or
 
3. A loan is a reverse mortgage transaction. 

Now, concerning the presentation of loan options, there are three dispositive factors. ...
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