We live, as the saying goes, in interesting times. The dramatic changes in the regulatory environment for those operating in the mortgage realm seem unfairly skewed against the industry. What’s worse, the guidance that regulations typically provide is, arguably, absent. The politicization, gnashing of teeth and hand-wringing over our industry’s impotence to influence legislation has reached epic proportions. Should we be experiencing a sense of doom? I don’t think so … but maybe a short history lesson is in order.
In 2002, Congress passed the Sarbanes-Oxley Act (aka SOX). It set new and enhanced standards for the public accounting firms, corporate boards and top corporate management in terms of accountability and responsibility. Business raised a hue and cried then too in terms of the compliance burden and economic costs and how it threatened the United States competitiveness in the world marketplace. The bill was sponsored by a Republican (Michael Oxley) and a Democrat (Paul Sarbanes) and approved in near-unanimous fashion and then signed into law by President George W. Bush.
Do we remember why SOX was necessary? I do. It was because individuals, businesses, and their vendors quite simply lied and cheated with virtual impunity – and nowhere was there accountability. I know, hard to believe. Still, corporate America continued to clamor for self-regulation. But in light of the lessons learned from WorldCom, Enron, Tyco International, Adelphia, and a host of other companies, the government believed it needed to bring compliance into the 21st century. While the complaining continued, in case it escaped anyone’s notice, compliantly managed businesses survived and prospered – as did our economic way of life. Oh, and multiple countries from Germany, France, Italy, Japan, Australia, and India, to name several, have since adopted similar legislation.
I bring all this up because one might view Dodd-Frank and its spawn, the Consumer Financial Protection Bureau, as really just an extension of Sarbanes-Oxley. This recent dramatic regulatory legislation didn’t occur in a vacuum: there were instances where one could drive a bank – and sometimes a whole industry –through the gaps in compliance protocols. And best practices, they were what we said they were. As an industry, enormous resources in manpower and money have been channeled into ‘solving the compliance puzzle.’ I haven’t heard anyone yet ask this simple question: how could an industry with this much history and so many experienced people – with existing compliance departments – have had it so wrong that some updated legislation turned things upside down?
And that brings me to my heart of the matter: compliance and best practices. Over the last 3 months, I’ve made it a point to sit beside an alphabet soup of regulatory entities (OCC, CFPB, FDIC, HUD, FHFA) plus Fannie Mae, the Federal Reserve and the Treasury Department, whose representatives were participating in a series of panel discussions. What I believe I’ve learned is that compliance and best practices will become the bright line that separates not just winners and losers, but in some cases, who survives. I heard the OCC say that nothing was more important than choosing competent appraisers. I listened to the CFPB identify paying appraisers well as critical – and how lenders needed to look at how their AMC vendor partners determine reasonable and customary fees. Everyone was clear that selecting appraisers based on who made the lowest bid on an assignment was a flawed process. And at every meeting, this reminder was repeated: the lender is ultimately responsible for their vendors’ behavior and is required to audit them. We think many lenders will be compelled to re-evaluate who they use and what polices they allow a vendor to employ on their behalf.
In our little corner of the mortgage world, as an AMC, we at AXIS welcome the increased accountability because we already live there. We started with best practices and work hard to exceed them. We imagine ways the world could be different and we map out what those consequences need to look like. I suspect that six months from now, we’ll look back and wonder why it was so hard to see the bright lines.
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