Peanut butter and jelly. Football fans and face paint. And, of course, compliance and the mortgage industry. Although some natural pairings are clearly visible, some exist behind the scenes – but invisible doesn’t mean unimportant. Take the example of compliance and third-party service. That’s an issue that has become critical for financial institutions of all sizes.
Focus On Compliance
In order to maintain the trust of their lender and servicer clients, third-party service providers today must also have a laser-sharp focus on compliance. That means staying ahead of the curve and being prepared for changes long before they happen, as well as monitoring all regulatory agencies to make sure no changes are overlooked. This frees a lender or servicer up to focus on its core business.
During the past several years, a slew of new mortgage regulations resulting from the financial crisis have been implemented. More regulations are scheduled for implementation over the next several years. On the lender-placed insurance front, there are new flood rule changes, as well as new deductible requirements from Fannie Mae and Freddie Mac.
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Meanwhile, on the lender side, two of the most significant changes include additional data reporting requirements under the Home Mortgage Disclosure Act (HMDA) and the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) rules.
In August 2015, the CFPB issued a final rule amending Regulation C of the HMDA, which requires many financial institutions to maintain, report and publicly disclose information about mortgages. Regulation C sets out specific requirements for the collection, recording, reporting and disclosing of mortgage lending information.
But that’s not the end: Effective Jan. 1, 2018, the HMDA rule will adopt a uniform loan-volume threshold for all institutions. Lenders must be sure that their service providers are up to date with these new changes.
Then, there’s TRID – a hefty serving of alphabet soup that is also known as “Know Before You Owe.” Implemented in October 2015 by the CFPB, TRID consolidated four existing disclosures required under the Truth in Lending Act and Real Estate Settlement Procedures Act and also created a detailed explanation of how the forms should be filled out and used. “Know Before You Owe” comes from the particularly consumer-friendly aspect that the integrated forms also provide details designed to help potential home buyers shop around for other deals and also to help them determine if they can actually afford the loan.
TRID may just be one of the best examples of that peanut butter/jelly partnership between compliance and the mortgage industry. Many lenders have had to upgrade their systems to accommodate the changes. It’s imperative that the new forms are accurate – and it’s a new factor in loan quality. Basically, it has created one more layer of compliance for lenders to be concerned about.
The question for lenders and servicers alike is this: Do you trust that your service provider has been proactive in not only meeting compliance, but also updating technology and service standards to ensure your company is protected?
What To Look For In A Provider
Lenders and servicers should seek out third-party providers that have service standards in place, regularly monitor patterns and trends, and perform root-cause analysis to determine if a change in processes or technology is in order. A service provider should be proactive in identifying all process, policy or system deficiencies so that they can be corrected immediately so as not to expose clients to unnecessary risk. This is critically important when one considers that both lenders and servicers are legally “on the hook” for any errors committed on the part of their vendor partners resulting in noncompliance.
Lenders and servicers should seriously consider if their service partners have a truly proactive approach to compliance. A good service provider will proactively contact its clients to let them know that it is on top of a change – in other words, the client should not need to ask.
The SWBC Solution
As a service provider, SWBC is highly sensitive to the impact of state and federal regulations on its clients. The company constantly monitors regulatory changes via multiple sources and regularly consults with third-party specialists for additional insights and industry best practices.
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For our firm, collecting data isn’t enough. In order to stay abreast of compliance changes, our firm uses a comprehensive governance process with compliance controls to oversee regulatory changes and interpret their impact on each client. When regulatory changes occur, such as new HMDA reporting requirements, SWBC engages its operations, communications, training and quality control organizations to ensure effective implementation across the board.
And those processes aren’t generic – they’re developed specifically for each regulatory agency. At our firm, we assign an experienced associate as the dedicated project manager to monitor implementation and ensure a timely, smooth execution from start to finish. We also develop a guidebook – again, a separate one for each regulatory agency – on processes and procedures to ensure the highest compliance quality. This is especially important with very large initiatives that involve state approvals, letter changes, programming changes, etc.
SWBC values its client relationships and continuously upgrades its processes to provide valued and compliant services to its clients and their customers.
We pride ourselves on being your partner in all aspects of your business and making sure we go together like, well, you know …
Elizabeth Anderson Lopez is an award-winning writer with a diverse background in creating internal and external communications for financial services and other industries.