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Fair Lending - Collection of Photo ID

Q: Do Fair Lending laws prohibit a mortgage lender or broker from collecting and retaining a copy of a photographic identification document ("Photo ID") as part of a mortgage loan application?

A: Although there has been some debate as to whether maintaining such a Photo ID in the loan file could create a fair lending concern, it is specifically permitted by some federal agencies. For example, the Federal Housing Administration's ("FHA") Single Family Housing Policy Handbook 4000.1 ("FHA Handbook") requires a mortgagee to review an applicant's Photo ID. The FHA Handbook indicates in relevant part, "[t]he Mortgagee must include a statement that it has verified the Borrower's identity using valid government-issued photo identification prior to endorsement of the Mortgage or the Mortgagee may choose to include a copy of such photo identification as documentation."

Further, the Federal Financial Institution Examination Council ("FFIEC") permits a mortgage lender to verify the identity of an applicant using a Photo ID as part of its Bank Secrecy Act Manual (the "BSA Manual"). According to the BSA Manual, mortgage lenders and banks are expected to "review an unexpired government-issued form of identification from most customers. This identification must provide evidence of a customer's nationality or residence and bear a photograph or similar safeguard; examples include a driver's license or passport."

There are various ways a mortgage lender can collect a Photo ID, while also being mindful of the fair lending concerns that may result. In an effort to prevent fair lending concerns related to maintaining a copy of a Photo ID within a loan file, mortgage lenders may choose to maintain a separate file for the applicant's Photo ID and/or create another way to not provide the underwriter with a copy of the Photo ID. This would help ensure that reviewing the Photo ID does not affect the underwriting decision. Additionally, providing adequate fair lending training, as well as privacy training to employees is important.

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