REQUIRED READING: Did you know that earlier this year, a mortgage banker made a $1.25 million settlement with the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) following an examination of compliance with federal and state consumer protection laws? Not keeping up with regulatory changes can put a deep dent in your reputation – if not put you completely out of business!
Loans that hit your desk with regulatory issues, incomplete packages and erroneous pricing are unacceptable in today's environment. Now, more than ever, it is crucial to understand exactly what is happening from the time an application is taken, through underwriting, pre-funding quality control and closing. Additionally, you need to question how your staff operates – and if anyone on your staff explains their actions by saying, ‘Because we have always done it this way,’ you should toss out the yellow flag while shouting ‘Foul!’ at the top of your lungs.
Admittedly, there has been an avalanche of new regulations and requirements coming from federal and state levels. Many mortgage banking executives are struggling to get their employees to think differently about the lending process and to embrace change. This can be difficult, because many executive themselves do not quite understand what needs to change.
If any of this sounds familiar, it is an excellent idea to immediately update your written corporate policies and prepare for resistance. This will help clarify any ambiguous issues and force you to re-evaluate how your operation should be working.Â
Then, check the technology that you are leveraging to ensure that it is configured to support your policies. Many systems available today are highly configurable, but lenders need to invest some time to actually configure them. This may sound strange, but there are still too many lenders who are in the market for a new technical ‘miracle solution,’ – when, in fact, the product they already have installed just needs to be configured to meet their current business needs.
In this area, it is important to work with your lending system vendor. Any vendor worth its salt is eager to give guidance that will benefit its clients' secondary operations. Then, make sure that you invest the time to train your staff – this should be a key component of any risk-management strategy.
The acronym parade
The key areas that need to be updated in your policy documents include the Home Valuation Code of Conduct (HVCC), the Real Estate Settlement Procedures Act (RESPA), the Mortgage Disclosure Improvement Act (MDIA) and the state examinations.
People have been grumbling about HVCC rules for more than a year. Now, the Subtitle F of the Mortgage Reform Act (Title XIV of the act) addresses appraisal activities, with new rules that have provisions to abolish HVCC with a new interim final regulation. Having your current procedures clearly documented will make it easier for you to adjust quickly to the new rulings going into effect shortly.
As for RESPA, those regulatory changes have been the bane of our industry this year. One of the key elements driving lenders crazy is the conflicting information we have been receiving from various regulatory agencies. There is also the matter of the vague language within RESPA that is left up to interpretation.
Regarding RESPA, it is vital to determine if your technology can easily support your workflow. In some automated solutions, there are alerts that notifies you if closing dates are outside of the regulatory requirements.Â If your platform does not support this type of functionality, how clearly have you documented your manual work-around processes so that new hires will be doing their job without putting your company at compliance risk?
MDIA is another regulatory change that has most certainly had an impact on your internal processes. At one time, it was a mild and mostly benign inconvenience – but borrower disclosures are now an integral element of a compliant loan. Not only does MDIA set new rules around the timing of when disclosures need to be sent to borrowers, but it also changes which loan programs and purposes are being regulated differently.Â
But that's just the federal concerns. The states are also party to this issue. If you are not up to speed on what your state regulators are demanding, you need to get cracking on that knowledge gap ASAP.
It is of no value to a lender to have originators failing their state examinations. Although these exams are expensive and tedious to manage, their quality-control measures can ultimately protect your company.
From a policies and procedures perspective, the impact of state exams should definitely change how you do business – especially if you lend in multiple states. The multistate examination process is a collaboration of two state regulators: CSBS and AARMR. Together, they have embarked upon a comprehensive initiative to modernize mortgage lending regulatory practices. Not only are they establishing consistency across all states relative to what gets looked at in an audit, but they are also sharing their findings.
Niccolo Machiavelli once wrote, ‘There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.’ In today's evolving regulatory environment, change will not come easy or fast. However, the industry cannot procrastinate when it comes to meeting the new requirements and understanding the new guidelines. Without having the correct operations policy in place, this task will be more difficult than it needs to be.
Sue Sroka is vice president of client services for Del Mar DataTrac, based in San Diego. She can be reached at (858) 550-8810.