REQUIRED READING: In the late 1990s, Ron Popeil, the iconic infomercial king, introduced the Showtime Rotisserie, one of his most popular inventions. One of the selling points of the Showtime Rotisserie was making the process of roasting meats quick and easy. In his infomercials, Popeil would tout its simplicity, exclaiming, ‘Set it and forget it.’
While the ‘set it and forget it’ mentality might be great for a rotisserie, it does not work in mortgage servicing. In fact, it can be downright risky. Even so, this behavior is still part of the servicing world.
Too often, servicing professionals tend to think of compliance management programs like that Showtime Rotisserie. They do not know how the programs work, and they rarely think about them until they have to. They figure that just like the Showtime Rotisserie, the compliance management program will do its job on its own.
The problem is that a compliance management program is not a kitchen appliance. Effective compliance programs are more like living organisms – they are made up of separate components and require consistent, regular attention. Each element of a compliance management program must be fulfilled as a deliberate, well-thought-out action. And each must be maintained with attention and action.
While there is no one compliance model that fits for all servicers, there are a few standard elements that can help servicers stay compliant throughout all of the regulatory twists and turns that this year may bring.Â
Getting involved
Every compliance management program should be actively overseen by the board and senior management. ‘Actively’ is the key word here. Some servicers may be tempted to have their boards cover the company's compliance efforts just enough to get it included in the meeting minutes. This is another example of setting it and forgetting it.
A compliance program cannot run itself, and regulators know that. Thus, servicers need to make it an active component of the business. Minimal efforts like mentioning the compliance program in passing during the board meeting minutes are not likely to get you past regulators that are doing a lot more than kicking the tires and taking a cursory glance under the hood these days. Today's regulators have been known to conduct interviews with members of a company's board or senior management to confirm that the references to compliance management in the board's meeting minutes are more than just placeholders.
The board should approve a formal document creating the program; appoint a chief compliance officer and ensure compliance staff have sufficient authority and independence; receive and act upon routine reports on the effectiveness of the program; and address consumer compliance issues on a regular basis. Furthermore, senior management should develop the written program for board approval and manage that program on a daily basis.
Being thorough
Take a look at the way your company approaches compliance in its everyday business activities and ask yourself these questions: What are your staff members expected to do in order to stay compliant? And how are compliance activities enforced, communicated and verified?
A good compliance program contains policies and procedures, training guidelines, and a program for compliance monitoring and testing. Of course, policies and procedures should be clear and detailed enough to implement. As elementary as this may sound, it is important to affirm the company's procedures address compliance with the specific laws and regulations that can impact your company.
This is not as easy as it sounds, as knowing and interpreting laws and regulations requires specialized expertise. If you do not have someone on staff that is well versed and experienced in interpreting laws and regulations, it might be a good idea to engage an organization that specializes in compliance. Pleading ignorance of new laws or regulations will not excuse you from compliance violations.
Of course, no program will be effective if it is not followed. A lot of violations occur simply because staff are not adequately trained on existing policies and procedures. Thus, it is crucial to put a formal training protocol in place. Each management and staff member should receive training that specifically incorporates requirements for complying with applicable laws and regulations.
If you are just dusting off your old training manuals, thinking they will still be current enough to pass the grade, you are opening the door to violations and problems during regulatory examinations. Adjust your training program regularly and frequently to address not only current consumer protection laws and regulations, but also your internal policies and procedures, as well as emerging issues in the public domain.
Remember, compliance programs evolve in response to your business demands and the shifting legal and regulatory landscape, and this constant state of change means you are opening yourself up to errors and oversights. Servicers that use the ‘set it and forget it’ approach to their compliance program are especially prone to risk in this area.
Most successful servicers use a combination of technology and human processes in their monitoring and testing programs. When the results of internal and external audits are returned, each deficiency should be addressed directly, and the board should be notified and consulted in order to resolve any deficiencies.
Those complaining consumers
It should go without saying that although consumer complaint response has always been important, it has become a major focal point, particularly with the Consumer Financial Protection Bureau. Therefore, any compliance management program should also have a formal process for handling consumer complaints.
First, the program should have a way to categorize all complaints. It is important to formalize the process for determining the level of the complaint, along with an escalation process, so you can ensure that all complaints and inquiries are addressed and resolved promptly. You do not want high-level complaints to get lost in the shuffle.
Then, pay close attention to complaints that can raise legal issues that involve potential consumer harm, such as unfair treatment or discrimination. Your compliance officer should be involved and made aware of all such complaints and should provide an evaluation of the cause of the complaint and document the actions that were taken as a result.
To safeguard your company, set up a system that documents all consumer complaint activity. Complaint data should drive adjustments to business practices and the compliance program when appropriate.
Know yourself
The final must-have element of a successful compliance management program is compliance auditing. You need to know where your company stands with its compliance efforts at all times. Make sure your audit program covers laws and regulations, as well as internal policies and procedures. Some servicers are so busy focusing on laws and regulations that they overlook their own policies and procedures.
Also, your auditors should have absolutely no ties to your business lines or compliance function. The safest way to ensure this is to hire a reputable independent audit group. You never want business objectives to compromise any aspect of your compliance efforts. In fact, your audit team, like your compliance team, should report directly to the board or senior management to avoid any conflicts of interest.
Again, action is critical. Have management establish follow-up procedures based on the audit's findings. Once the follow-up procedures have been implemented, monitor the results of the new procedures and verify to the board that corrective actions were both effective and lasting.
In reviewing your compliance management program, take note of how actively it is being managed. If there is any part that seems to be running on autopilot, delve deeper. There is likely to be a risk of non-compliance. With the high costs associated with compliance violations, servicers cannot afford to take a passive approach to ensuring compliance.
Loren Morris is the former senior vice president, general counsel and chief compliance officer at Irvine, Calif.-based Retreat Capital Management Inc. Ben Crosby is vice president and assistant general counsel at Retreat Capital Management.
