Never before has the mortgage world been as fixated on compliance issues as it is today. To get a cogent perspective on the compliance challenges facing the industry, we spoke with Brandon Kirkham, senior vice president at Carrollton, Texas-based VRM Mortgage Services.
Q: What do you see as the main compliance challenges facing mortgage banking today?
Brandon Kirkham: From my perspective in the servicing and default space, I think the biggest challenges center on the ability of organizations to align their compliance solutions vertically throughout the entire service delivery process. Compliance has to work both upstream and downstream. And, the platform integrations have to eliminate the possibility for error and provide unprecedented transparency regardless of who has control over the legacy platforms in the system.
There is a tremendous amount of talent working to create solutions that can be applied to the framework of compliance even as regulators continually tune requirements and provide additional guidance. While there is a concerted collaboration to redefine best business processes, the effectiveness of any compliance program is only as strong as the weakest component.
An effective compliance program looks beyond what is in your yard and looks over the fence to help understand what your stakeholders are doing as well. A weakness within their compliance program can have a domino effect. From what I have experienced, only regimented audit and stress testing can provide the success businesses are looking for, even in the face of changing definitions.
As a final note, for compliance to be successful — it has to be inclusive. As an outsourcer, we enable organizations to employ our direct to vendor model. We work directly within the communities we and our clients serve and employ a highly diverse network of veteran, disabled, minority, and women-owned businesses. This local, diversity-inclusive model takes into account each of those supplier’s unique challenges and needs. It provides more than just oversight. It empowers all stakeholders with technology, training and support to help ensure they are able to fully participate at maximum efficiency. This type of inclusive system is integral for any successful compliance program to mitigate the compliance burden impact.
Q: How did business service models evolve over the last few years in response to a heightened compliance environment?
Brandon Kirkham: As I see it, the new business model starts with a focus on the consumer and works inward. It’s no longer about just identifying a consumer need and implementing a solution to capture market opportunity. Now, solutions have to be designed to ensure more consistent, predictable and transparent results.
Having task-based process management applications with embedded audit checks only provides assurances that the imbedded business rules are following their intended design. This means the human element of understanding cause and effect and the ability to forecast event scenarios has become even more important. Bad design will only yield bad results. The models have to have greater thought, better execution and must include the impact on all stakeholders whether direct or secondary.
At VRM, we’re employing new approaches to defining and re-defining our processes. We developed a Change Control Board of experienced professionals from each service delivery team to weigh in on the process from multiple viewpoints. They include IT, audit, compliance, legal, operations, support, training and business development. We take this comprehensive, collaborative approach to process design because we believe it is the only way to ensure the best execution.
Q: Does the industry have enough properly trained compliance experts to help all of the lenders and servicers meet their regulatory requirements? Or do you see a shortage in this specialized profession?
Brandon Kirkham: I think the industry has done a remarkable job at redefining priorities and shifting talent to focus on the new, more compliance-centered processes and platforms. The technology is much more nimble and configurable than it was even a few years ago. The challenge is that they are still connected to legacy systems that typically deploy a one-size-fits-all approach.
Because changes within these technology platforms are often slow to materialize, there continues to be a need for experienced compliance talent. To me, the best use of the that talent is in the area of strategic structure, where they can look beyond the current tactical compliance needs and understand how to make compliance a competitive advantage.
Q: There were many dire predictions that QM would create significant problems for both lenders and borrowers. Now that QM has officially been in place, how has it impacted the lender-borrower relationship?
Brandon Kirkham: I don’t think the true impact will be realized for several more quarters after home sales moderate through the cyclical season. But early results, even prior to the QM being fully implemented in January, indicate a widening of the financing utilization rate within several key demographics. From a relationship perspective, the added transparency and disclosure rules are definitely a plus for consumers; but the rigid pass/fail methodologies and new underwriting requirements seem to be more difficult for borrowers to understand.
And, from my vantage point, seem to be constricting lender’s efforts to originate loans. That, added to the sluggish lending market, points to a long purchase market recovery as borrowers and lenders may find it more and more difficult to originate loans.
Q: There have been some rumbles out of Washington that servicers, as a whole, are not doing the best possible job in terms of compliance. Do you believe such comments are accurate?
Brandon Kirkham: Not from my perspective. I have had the privilege of being part of this industry for over 20 years now. Every day I see tremendous talent and passion being tirelessly applied to build more and more layers of processes, procedures and technology. The industry leaders I know have demonstrated a dedication to comply with an unprecedented level of constantly changing requirements.
I think many of the regulations were needed and have helped sharpen the consumer-centric delivery models. However, there are still a lot of unknowns with regards to how the final interpretation of these new rules will be applied. Undoubtedly, there have been gaps within our industry, but the commitment to identify and respond to these gaps has been exceptional. For the last four years, we have been in a cycle of constant change and I think the hard work that has been done has benefited our industry and our economy.
VRM Mortgage Services is online atwww.vrmco.com.
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.