The mortgage industry has always operated under compliance regulations, but in the past couple of years the level of regulatory oversight has become more onerous. For a better understanding of how the industry needs to deal with this regulatory regimen, we are speaking with Becky Pratt, chief risk officer at Altisource Origination Services.
Q: How can independent mortgage lenders protect their margins while complying with regulatory requirements?
Becky Pratt: There are a number of fairly cost-efficient resources that independent mortgage lenders can tap into to help controlling the cost of regulatory compliance:
Tone at the top. This is probably the most critical. Senior executives and boards of directors must set clear expectations that compliance is a part of everyone’s job and communicate this frequently at all levels of the organization. It is free, all it takes is time, but a compliance culture needs to be fully supported from the top.
Leverage industry associations and agency publications. National and state level mortgage bankers and bankers associations offer members valuable compliance resources and tools. These resources are often free or discounted for members. In addition, agencies such as Fannie Mae and Consumer Financial Protection Bureau (CFPB) offer specific roadmaps and guidance free via their websites. Stay current, and encourage your teams to stay current, by exploring association and agency websites, sign up for alerts, and develop relationships with association and agency staff.
Outsource. Partner with third parties that have experience in your business to fill in where you do not have capacity or expertise. Make sure you have robust pre-contract and ongoing due diligence processes to derive the most benefit from outsourcing.
Industry associations offer high quality, affordable training for members. Consulting and law firms also frequently offer free seminars for their clients, as do some outsourcing vendors. Lenders should ensure that operational and sales managers attend these compliance trainings on a regular basis.
One of the keys to having a profitable and compliant organization in this regulatory environment is having a team that understands how compliance affects their individual areas and leadership that knows what controls work most efficiently within their processes to help balance profitability and compliance.
Q: How can lenders effectively integrate compliance requirements with their business processes?
Becky Pratt: Many lenders choose to have an independent third party assess their compliance management system or other processes. Often, a different and independent set of eyes can help validate the effectiveness of existing processes or identify alternate practices that can reinforce both the compliance protocols and a compliance culture. Every lender should set clear expectations from the top of the organization regarding specific job responsibilities, the related compliance rules that effect that job, and how controls for ensuring compliance should be implemented. In addition, everyone in the organization should have compliance goals in their performance plans, incentive plans or both.
Q: How can lenders make sure they are covered regarding compliance?
Becky Pratt: Regrettably, there is no one-size-fits-all answer. It is an ongoing process, but a broad outline would start with lenders implementing a control self-assessment process where regulatory, contractual and policy requirements that apply in each department are documented. Documented controls should be in place to protect compliance with those requirements and managers should be prepared to review and attest to the strength of those controls on a quarterly basis, following up by testing controls areas according to risk and returning to further refine those areas where weaknesses are suspected or detected.
Q: How does technology fit in with the need for compliance?
Becky Pratt: There are software solutions and expert consultants using precision tools that can help develop and execute compliance and policy rules within certain processes to identify errors prior to final documents or closing a loan. These errors can then be corrected before becoming a compliance or policy exception or violation. These types of preventive controls are vital to balancing profitability and compliance. Using automated solutions and experts who have strong experience in the mortgage lending industry is recommended, so be sure to validate the credentials of potential partners and ask specific questions about how your protocols will be followed by a third-party partner during your due diligence process.
Q: What is something good that will come of the additional compliance requirements?
Becky Pratt: Increased transparency nearly always has a direct, positive effect on customer satisfaction. On the industry side, the level of detail now required to be compliant has improved the overall quality of the mortgages being originated. In addition, consumer feedback tracking and reporting enable product development and marketing departments to more fully integrate insights and inputs to help improve, develop and market future products.
Altisource Origination Services is online at http://www.altisource.com/MortgageServices/OriginationServices.aspx.
Phil Hall has been (among other things) a United Nations-based radio journalist, the president of a public relations and marketing agency, a financial magazine editor, the author of six books and a horror movie actor. Also, as you will discover, he is not shy about stating his views.