BLOG VIEW: Lenders and servicers are struggling to achieve compliance in a cost-effective and efficient manner – and because regulations are constantly changing, this will be a concern for the mortgage industry for years to come. The Thomson-Reuters 2015 Cost of Compliance survey reveals that 70% of financial services firms expect regulators to enact even more regulations in the next year, and as a result, 59% expect the personal liability of compliance officers to increase this year. According to the report, ‘The costs of skilled compliance staff will continue to rise, but the growing issue is in the availability of high-quality skills and experience.’
As a result, some institutions' compliance policies and procedures will fall short, which, in turn, can lead to severe penalties and fines. What's interesting is that regulatory enforcement seems to follow certain trends and patterns. By being aware of these trends, lenders and servicers can take preemptive measures that will help them stay off regulators' radars. What follows are three types of enforcement that have been increasing among lenders and servicers lately:
Advertising and Marketing
Misleading advertising can be a problem in originations or servicing. Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), says, ‘Deceptive advertising has no place in the financial marketplace.’
The CFPB recently fined two companies for misleading consumers by promising substantial interest savings for frequent mortgage payments. Paymap, a payment company, was fined $5 million in civil penalties and will pay $33.4 million in restitution to consumers, while LoanCare, a servicer that used Paymap's services, will pay $100,000 in civil penalties.
Meanwhile, on the origination front, the CFPB recently filed a suit against NewDay Financial for $2 million in penalties for deceptive mortgage advertising practices, as the company failed to disclose a financial relationship with a veterans' organization.
Lenders and servicers must have strong compliance oversight practices for all advertising to consumers in order to avoid such fines and penalties.Â
Loss Mitigation
Modification and loss mitigation infractions continue to plague servicers, particularly when nonperforming loans are transferred from one servicer to another. In fact, earlier this spring, mortgage servicer Green Tree paid $63 million ($48 million in restitution and a $15 million civil penalty) after it allegedly failed ‘to honor modifications for loans transferred from other servicers, demanded payments before providing loss mitigation options, delayed decisions on short sales, and harassed and threatened overdue borrowers,’ the CFPB says.
Servicers need to research existing payment plans and loss mitigation activities agreed upon by the previous servicer and identify payments that are made during the transfer of servicing before taking any action.
Loan Originator Compensation
Last month, the CFPB filed two suits involving unfair compensation practices. One suit was a consent order against Provident Funding, including $9 million in damages, for a compensation plan rewarding mortgage brokers for originating higher-priced loans and related claims of discrimination against African-American and Hispanic borrowers. In addition, RPM, a California-based lender, must pay $18 million in restitution and a $1 million civil penalty suit for allegedly steering consumers into more expensive mortgages through the payment of bonuses, higher commission structure and expenses accounts that funded commissions and concessions. The company ‘rewarded its loan officers for steering consumers into mortgages with higher interest rates,’ Cordray says.
Lenders should follow the CFPB regulatory requirements for compensation and have all compensation structures approved by their legal and compliance teams to avoid unintentional steering practices and hefty fines.
The cyclical nature of the regulatory environment is putting pressure on lenders and servicers. But, adding staff or creating manual check processes within legacy technology platforms are not the only options for mitigating compliance infractions.
Lenders and servicers should consider more innovative technologies that are scaled and customized to their exact compliance needs. With automation, lenders and servicers can handle the costly task of compliance while, at the same time, realizing significant cost savings through improved efficiency.
Lisa Weaver is senior vice president of mortgage solutions for ISGN, a provider of end-to-end technology solutions and services to the U.S. mortgage industry.
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