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The Evolution Of Mortgage Banking Compliance

The mortgage document preparation was a simple process thirty-plus years ago. Within 48 hours, you prepared a set of documents on an IBM Selectric typewriter, sent them to a title company with a note to close, and then shook the hands of a happy new homeowner.

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In the same span of time that witnessed the typewriter’s evolution into a handheld supercomputer built for efficiency, the regulatory system in equal opposition swelled in complexity. For lenders, maintaining a profitable origination business is often hindered by the ever-changing and ever-growing regulatory landscape. Unable to keep up, lender’s tend to respond with knee-jerk reactive solutions that risk heavy fines for minor oversights.

The emerging financial tech (FinTech) and regulatory tech (RegTech) sector has produced a number of Software as a Solution (SaaS) products and tools to help compliance teams. But they too come with their share of challenges. For one, tools require people to learn, implement, oversee, and manage them, and human error is a natural result. Second, many legacy tools are maintained by companies whose primary expertise is in software, not compliance, which exposes users to potential compliance risks. On the flipside, outdated software exposes lenders to potential security risks. Both can result in millions of dollars of recovery costs.

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Unfortunately, the DIY solution to maintaining compliance would take thousands of hours of research and manpower to implement policies that adhere to federal and state regulations. The need for compliance, data, technology, and management to exist within the same ecosystem is greater than ever. The best-in-class solutions are cross-bred Compliance Management Systems (CMS) built by software engineers and maintained by a team of experts steeped in financial law and regulatory compliance knowledge.

Effective compliance management ecosystems can and have served the financial services industry for the better. They are also supported – and even encouraged – by the federal government. The more comprehensive a CMS, the more the CFPB says it will believe in a bank.

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With an all-inclusive approach, institutions can access a number of compliance solutions including dynamic document preparation, data validation and testing with legal backing and HMDA, CRA, REMA, geocoding, and Fair Lending. The right solution will improve the agility and speed of these diverse compliance solutions across an enterprise in a controlled, transparent, and organic way.

And while the industry thinks of CMS as being proactive and offensive, it is also a good defense. Think of it like a well-protected house: the more prepared you are for a break in, the less likely it is to happen.

For an industry that has been slow to innovate, the emergence of a sustainable, smart, and reliable compliance ecosystem fosters a pioneering environment in which to manage regulatory changes.

These expertise-fueled compliance ecosystems can empower financial institutions to respond agilely to the ever-growing regulatory landscape. And by alleviating the burden of regulation, banks can focus on profitability knowing it is no longer a weight they need to carry alone.

About The Author

Kathleen Mantych
Kathleen Mantych is the senior marketing director for MRG Document Technologies, a provider of legal compliance and dynamic compliant document preparation software technology to lenders nationwide. With more than 26 years experience in the mortgage industry, Mantych has held executive sales, product and alliance management positions with key mortgage technology providers. Dallas-based MRG is a document preparation practice group within the law firm of Middleberg Riddle Group putting the company in the unique position of its dynamic document content being created and tested by an in-house team of compliance attorneys. MRG owns its own legal content as well as its own calculation engine and compliance tests, ensuring accuracy for its lender customers.

MRG Responds To Significant Growth By Hiring Industry Vet

Dallas-based MRG, a mortgage banking compliance organization, provides the mortgage industry a blend of compliance, unique and tailored document preparation, and technology, products, and services, is proud to announce the hiring of Chris Anderson. Anderson will be responsible for handling the increased demand for MRG’s products and services through new client acquisition and adding value to the existing client base by delivering an extensive array of best-in-class compliance solutions.

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Anderson has more than 20 years of account growth and management experience in the financial services and software industries. A former chief business development officer at Lending QB, Anderson played a significant role in expanding LendingQB’s footprint in the mortgage industry. Most recently, he served as executive vice president of sales at ISGN, a leading provider of loan servicing and default management systems for the residential and commercial lending industries. Anderson’s previous roles include executive vice president of sales and marketing at Docutech, a provider of compliant document solutions for residential lending, and general manager and business head for WIPO Gallagher, a provider of technology and business outsourcing services for the mortgage banking and lending industries.

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For more than 35 years, MRG’s highly respected staff of compliance experts has been providing lenders with legally defensible compliance expertise. Their unparalleled compliance solutions combine years of real estate law experience, in-depth compliance insights with state-of-the-art technology to document mortgage transactions. Their solutions provide industry leading built-in compliance checks to mitigate risk and alleviate compliance guesswork.

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“Given MRG’s significant growth, we needed a mortgage technology veteran who understands the constantly changing compliance landscape and the demands of today’s lenders,” said Mike Riddle, managing director of Mortgage Resources Group, LLC. “Chris has extensive experience in helping lenders respond to changing market conditions through the use of advanced technology. I am confident that Chris will apply those skills as we proactively work with our ever-growing client base.”

“The regulatory environment for today’s mortgage lender has become exceedingly complex, lenders are looking for solutions to ease their compliance burden,” said Anderson. “MRG has extensive legal expertise and best-in-class compliance solutions to meet those challenges head on.”

Progress In Lending
The Place For Thought Leaders And Visionaries

Vendors Integrate Doc Prep And Digital Closing Platforms

Pavaso, Inc. (Pavaso), a provider of digital closing and collaboration solutions for the mortgage and real estate lifecycle, has partnered with Gregg & Valby, LLP (Gregg & Valby), a Texas law firm and technology provider with a 40 year history of representing financial institutions and independent mortgage companies.

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The partnership will integrate the technologies of both companies, allowing for a seamless transfer of nationwide closing documents into the Pavaso Digital Close platform electronically. Gregg & Valby serves clients across the country in document preparation and legal and regulatory compliance matters for both mortgage loan origination and servicing activities. The Firm also provides nationwide mortgage loan fulfillment services.

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Pavaso’s Digital Close is a powerful closing solution that enables mortgage lenders and their business partners and consumers to communicate, collaborate and work in one central virtual location. This alliance not only meets the demands of today’s tech savvy consumers, but it streamlines workflows, provides extraordinary efficiency and helps organizations increase productivity by eliminating manual steps.

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Gregg & Valby Managing Partner, Scott Valby, feels the partnership will create a powerful advantage for clients. “We represent firms and people seeking maximum results and superior service,” said Valby. “Pavaso is the proven industry leader when it comes to making the transaction seamless.  For our clients, that means optimal efficiency; a smooth customer experience, and, above all, the very best results.”

“Gregg & Valby is renowned for its service, results and integrity, which promises outstanding results for this partnership,” said Mark McElroy, President and CEO of Pavaso. “We eagerly anticipate delivering the tools and expertise needed for the Firm and its clients to evolve and achieve digital transformation. Partnerships like this demonstrate which firms are choosing to create a better path for consumers by providing a modern, transparent way forward.”

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Compliance Expertise Is In High Demand

Compliance experts are being sought out. For example, for over 35 years, Dallas-based MRG, a mortgage banking compliance organization, has provided to the mortgage industry at large a blend of compliance, document preparation and technology, products and services. To this end, MRG compliance expert Marsha Williams has been asked to share her extensive compliance expertise at the following upcoming industry events:

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Texas Association of Bank Counsel Convention – Bastrop, TX – September 20 – 22

“What’s Happening in Residential Mortgage Lending?”

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MBA Risk Management, QA & Fraud Prevention Forum – Miami, FL – September 24 – 26

“Construction Lending”:  Compliance and Risk Management”

In today’s constantly changing regulatory environment, MRG’s compliance expertise is in high demand. MRG’s team of compliance experts recognizes the business imperative of proactively monitoring and continuously analyzing regulatory changes, trends, and impending regulations that impact your business. MRG’s team of professionals is constantly on alert for changes from all federal, state, local and investor requirements to provide lenders with up-to-date compliance insights.

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As a lender, you should be focused on generating and maintaining a profitable business in this volatile market, rather than constantly worrying about the enormous and ever-changing regulatory landscape. Your burden is too great, and the risk is too high to rely solely on your internal staff to provide legally defensible compliance.

As a result lenders should turn to the experts that other leading providers and industry sources trust like MRG and others.

About The Author

Progress In Lending
The Place For Thought Leaders And Visionaries

The Old Doc Prep Roadmap Is Obsolete

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As a lender, we believe your focus is, increasingly, on generating and maintaining a profitable origination business in this volatile market. Constantly worrying about the enormous and ever-changing regulatory landscape can be an unwelcome interruption. Your burden is too great, and the risk is too high, to rely solely on internal staff, or outdated doc prep, to provide legally defensible compliance in the origination process.

As regulatory pressures mount, there is an immediate and compelling need to re-evaluate and update your institution’s capacity to continuously analyze and competently implement mandated changes. This impacts your ability to produce compliant disclosures and documents for all your lending needs.

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As a lender, document preparation is always a major concern. The smallest error or omission can lead to:

>>Regulatory Fines & Damage Settlements. Failure to prepare documents in a way that aligns with both local and federal regulatory requirements can result in fines from regulators as well as class-action lawsuits from borrowers. These fines could drain millions of dollars from a lender’s cash flow.
>>Reputation Damage. The inevitable negative press that accompanies any kind of lending violation could impact the lender’s public reputation. The specific effects of such a blow to a lender’s reputation will vary from case to case but could result in lost loan origination opportunities or drive away potential business partners.
>>Restrictions on Lending Operations. Some lenders may face official restrictions on their lending operations as a result of a regulatory compliance violation.

What Should a Compliant Document Solution Roadmap Include?

The ideal solution must include compliance and legal guidance, dynamic document technology, and industry expertise, to help you navigate these challenging market conditions.

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To be more specific, the ideal compliant document solution mitigates your risk and provides you with a competitive advantage by delivering:

Total Residential Loan Program Coverage

One major problem is that most doc vendors specialize only in a few document types or in one region—forcing lenders to retain multiple vendors to cover all of their verticals & markets.

The ideal solution provides a 360º solution beginning with initial disclosure and ending with post-closing services while encompassing everything in between. With this total coverage, lenders can simplify their processes because they no longer need to seek out multiple providers.

Specialization in a Wide-Ranging Product Mix

Using a special team of lawyers with long careers in the home lending industry, the ideal solution offers expertise in numerous specialty products (or common products with unique characteristics) such as:

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>>Texas Residential Loan Documents – Texas is unique in the nation because it requires home loan closing documents to be prepared by a Texas licensed attorney. The ideal solution has a team of Texas licensed attorneys who prepare all Texas document sets more efficiently than the competition and in perfect compliance.
>>One-Time Close Construction to Perm Loan Documents – The ideal provider works with lenders to customize their one-time close documents to fit their specific construction-lending program.
>>HELOCs – Each lender configures their HELOC program differently and the ideal provider can work with any lender to customize their document solution to adhere to their unique program. Many doc prep providers are unable to customize their HELOC documents.
>>Post-Closing documents– The ideal solution provides documents for loan assumptions, loan modifications, lien releases and FHA and USDA partial claim mortgages.
>>Complex characteristics – The ideal solution specializes in the unique and complex where other vendors cannot. For example, the ideal solution can provide documents for loans where the borrowers are a double trust.

This ability to focus on specialty products that other doc prep vendors often don’t carry helps provide complete compliance for lenders in different markets and verticals, while maintaining overall disclosure and document uniformity across the lender’s entire product mix.

Built-In Compliance Checks

The ideal solution runs compliance checks of each and every closing package it produces to ensure it is in compliance with the requisite federal and state regulations. These checks include (but are not limited to):

>>TRID

>>QM

>>HOEPA

>>State Consumer Credit Laws

The ideal provider creates, manages, and integrates these checks internally—many vendors have to run these checks through an additional, outsourced product such as Mavent, Compliance Analyzer, or Pred Protect.

The ideal provider is confident enough in this internal compliance system to warrant the accuracy of its calculations, disclosures, and document packages (and to back these warranties with $10 million in E&O insurance).

Seamless Loan Origination System Integrations

The ideal solution is integrated with the majority of the largest Loan Origination Systems (LOS) on the market and can integrate with any LOS provider.

No Redraw Fees

When a loan officer orders a closing package, there’s often a need to order another closing package a little later (usually because of user error or last minute adjustments) to complete the closing. On average, a lender will order about 2.5 closing packages per closing.

Most doc prep vendors charge a fee for ordering an additional closing package. This inflates the cost of each closing and, worse yet, these redraw fees cannot be passed on to the consumer. Lenders have to eat the redraw fees of most doc prep vendors out of their own pocket.

However, the ideal provider does not charge for redraws, so lenders are only charged once for a closing. This saves expenses and removes an element of stress from the process.

Not All Document Solutions and Vendors Are Created Equal

MRG Docs is our powerful platform for the dynamic creation and seamless delivery of perfectly accurate residential mortgage documents. Our disclosure, closing document and servicing document solutions combine years of real estate law experience and in-depth regulatory insights with state-of-the-art technology to competently document mortgage transactions. Each document package is delivered with a series of built-in checks to guarantee compliance with applicable state and federal regulation.

MRG’s team of attorneys and mortgage experts recognize the business imperative of proactively monitoring and continuously analyzing regulatory changes, trends, and impending regulations that impact your business. Our team of attorneys is constantly on alert for changes from all federal, state, local, and investor requirements to provide you with up-to-date compliance from a source you can trust.

About The Author

Michael L. Riddle
Michael L. Riddle is the managing director of Mortgage Resources Group, LLC., responsible for the overall operations of the firm. He guides the teams within the firm that develop and deliver “best in class” compliant disclosure and documentation systems to single family mortgage lenders throughout the country. Mr. Riddle is the co-founder and managing partner of the Middleberg Riddle Group, one of America’s preeminent mortgage banking law firms and, in that role, has spent much of his 40 plus year professional career providing advice and legal counsel concerning regulatory compliance, enforcement and litigation to clients including banks, mortgage lenders, insurers and related financial service entities.

Docutech Expands Its Operations

Docutech has expanded its operations with the opening of a new office in Scottsdale, Arizona. In addition to the corporate headquarters in Idaho Falls, Idaho, the new office will serve to support the company’s growth initiatives with key roles in Operations, Finance, Sales and Marketing.

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Leading operations for Docutech is newly appointed President and Chief Operating Officer Amy Brandt, who holds more than 20 years of executive level experience in the mortgage and software industries. As President and COO, Brandt oversees daily operations, including business strategy and optimization, innovation, product development and execution, go-to market strategies, and client and employee growth and retention.

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“Docutech is committed to continuing to innovate and provide the technology and services needed to help drive the digital evolution of the mortgage and consumer lending industries,” said Brandt. “Our operations expansion into the Scottsdale market is a reflection of our commitment to support the digital evolution of the industry and the growth of our leadership position.”

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Docutech’s innovative solutions enable lenders to quickly generate and customize loan documents, significantly reduce operational costs, improve overall productivity, and optimize the customer experience. Docutech’s flagship solution, ConformX, is a document generation engine that integrates with Loan Origination Service (LOS) platforms to seamlessly produce compliant loan origination documents. In addition, ConformX offers lenders a range of complimentary technology capabilities to optimize the lending process and improve compliance, including Solex eSign enabling documents to be signed anytime, anywhere, through any device.

“At Docutech, we are driven to deliver best-in-class enterprise digital lending document and compliance solutions and service. We carefully selected Scottsdale, Arizona for the expansion of our operations given the area’s depth of industry talent,” said Ty Jenkins, Founder and CEO of Docutech. “We are thrilled to be part of this community and look forward to ongoing growth and to continue to serve the evolving needs of the lending industry and their customers.”

Docutech’s new office will be located in the Lincoln Towne Centre building at 4250 N. Drinkwater Blvd. in Old Town Scottsdale.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Docutech Names Amy Brandt As President And COO

Docutech has named Amy Brandt as its new President and Chief Operating Officer. In this role, Brandt will be responsible for leading all aspects of daily operations, including sales, customer support, marketing and product development.

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Bringing more than 20 years of mortgage and software industry experience to Docutech, Brandt most recently served as President of Originations and Corporate Technology at New Penn Financial. At New Penn Financial, Brandt oversaw all origination channels, including direct-to-consumer products, third party originations and retail. Prior to New Penn Financial, Brandt served as Chief Operations Officer of Prospect Mortgage, where she enhanced day-to-day operations and transformed the lender’s technology infrastructure.

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“Docutech has experienced significant success by providing industry-leading document and compliance services to financial institutions over the past two decades,” said Ty Jenkins, founder and CEO of Docutech. “As we continue to expand our product and service offerings as an enterprise lending solutions leader, Amy brings the leadership and expertise needed to optimize Docutech’s operations to better serve our customers and realize our growth potential.”

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In addition to her executive career, Brandt is currently a Board Member of Sun to Water Technologies, and she is a Scholar Rescue Fund Advisory Board Member with the Institute of International Education. She is a former Board Member with Source Corp Inc. and a former Board Member and Capital Founder with Bluebeam Software Inc. Amy is also the former Chair of Your Music America and was a Federal Housing Policy Council Member with the Financial Services Roundtable. Brandt holds a Juris Doctorate from Arizona State University College of Law and a Bachelor of Arts in Political Science from the University of Southern California.

“Docutech is well-positioned to be the premier provider of enterprise-wide lending solutions to financial institutions of all sizes,” Brandt said. “I look forward to leading Docutech to provide the highest level of value, service and innovation to banks and lenders in the coming years.”

Progress In Lending
The Place For Thought Leaders And Visionaries

Certainty Amidst Uncertainty … Looking Ahead

The presidential election brought an end to a long period of uncertainty that caused market fluctuations and delayed business planning decisions as well as considerable speculation on what changes are in store. As we navigate the post-election landscape with the new administration, many questions remain uncertain for the mortgage banking and financial services industry.

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For example and as a very brief snapshot of the changes this industry may encounter, the presidential platform proposed and could greatly change or amend Dodd-Frank for starters. Along with that comes the possibility of restructuring and scaling back the CFPB’s authority, potentially replacing the single director structure with a commission and maybe reducing its funding. Technology will be of concern. Companies whose business depends in part or substantially on data might see increased and imposed regulation. Amending HOEPA…looking at HMDA reporting…FHA mortgage insurance fees…GSE reform…all this and much more is being scrutinized to facilitate and effect change for mortgage, banking and credit union regulation or deregulation as the case may be.

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The amendments and changes being discussed are sweeping and encompass the entire lending community. While policymakers on the hill decide on what that landscape may be, the lenders and third party providers will need ample time once again to prepare. They will need to adapt and update their LOS platforms as well their policies and procedures to conform and meet any new compliance requirements. Hundreds of thousands of hours in legal research, development and implementation over Dodd-Frank and the CFPB to deliver a worry free loan to the consumer will have to be reworked. All that said, the high priority of compliance and loan quality will and should remain even in the event of less stringent regulations. Continued focus on a compliant loan will mitigate risk and any undue scrutiny for fines or buy backs.

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Despite all the unknowns and uncertainty to follow, there is one certain element a lender can and should rely on – their compliance partner. In addition to the immeasurable time it takes to be in compliance today, the lending community has also spent significant money and effort expanding compliance resources to their back office operations to accommodate the swell of regulations. It is imperative through these changing times that lending operations remain steadfast to and build a tighter connection with their compliance partner, their document preparation partner and their legal and compliance services partner. There is no better time like the present to improve the consumer experience and pursue innovative and cost effective methods with a unique offering of all components of the compliance spectrum. A partner that will monitor and make all necessary compliant documents, calculations, state or federal changes for the lender, worry free, speaks volumes of certainty in an uncertain time.

About The Author

Kathleen Mantych
Kathleen Mantych is the senior marketing director for MRG Document Technologies, a provider of legal compliance and dynamic compliant document preparation software technology to lenders nationwide. With more than 26 years experience in the mortgage industry, Mantych has held executive sales, product and alliance management positions with key mortgage technology providers. Dallas-based MRG is a document preparation practice group within the law firm of Middleberg Riddle Group putting the company in the unique position of its dynamic document content being created and tested by an in-house team of compliance attorneys. MRG owns its own legal content as well as its own calculation engine and compliance tests, ensuring accuracy for its lender customers.

Compliance In A Post TRID World

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The regulatory environment for today’s mortgage lender has become exceedingly complex. Compliance becomes more difficult each day, as a cascade of new disclosure and lending requirements are imposed by federal, state and local regulators. With this avalanche of regulation it is becoming very difficult for mortgage lenders to gauge whether their internal compliance systems are functioning properly and whether the continuing cost, in both human and financial terms, of adopting and maintaining adequate regulatory controls can be sustained in a volatile origination market.

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At the same time, the absolute risk of non-compliance has become intolerable. Audits by regulators and investors alike are now commonplace and fines, penalties, and loan repurchase demands are escalating. As tough new regulatory standards increase the scope and absolute number of loans that must be evaluated carefully for compliance, investors have become acutely aware that several regulatory changes impose liability on the purchase of a mortgage loan for compliance errors made by its originator. It is no surprise that investors are increasingly demanding, prior to funding a loan purchase, that originators provide loan specific data in an electronic format complete enough to permit comprehensive automated compliance reviews on each loan to be purchased.

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Lenders, in order to cope with these added regulatory compliance risks, are faced with an immediate and compelling need to re-evaluate, and upgrade, the capacity of their internal systems to recognize and incorporate mandated regulatory changes. Static document systems and templates simply will not suffice to keep you compliant. To ensure compliance, mortgage disclosure and documents systems need to be dynamically constructed.

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For compliance professionals “letter of the law” compliance is no longer enough. For regulators, letter of the law compliance is a given. Lenders should be following the rules – period. The new standard for compliance is more rigorous. The CFPB has stated that it wants to see lenders going beyond what’s required by law, addressing the more esoteric aspects of mortgage origination with an eye towards improving the consumer’s experience. They are encouraging lenders to incorporate borrower satisfaction as a key component to their compliance strategy.

Of course, this is easier said than done. After all, so much of the impact of compliance on the borrower’s experience is outside of the lender’s control….or is it? The key to addressing the challenges of this enhanced regulatory compliance environment is to embed compliance within smooth electronic business processes. This enables a lender’s compliance department to manage regulatory risk and foster a culture of compliance across the organization, while, at the same time, enhancing the borrower’s overall perception of a positive consumer experience.

This involves creating and managing real-time software and delivery systems with programmed rules to get the right product, with the right mapping, into the right channel and deployed. If a lender is doing thousands of loans in multiple states and one state has changed its rules, it can be a major undertaking to adjust just a single form. Tools and software designed to completely automate that process, paper out, go paperless, or go e-mortgage are a necessity. Everyone in the lender organization gets the right forms, mapping, stacking order, rules, etc. and the lender can make adjustments to the form or package at any time.

Key elements of any such system involve:

>> The ability to program and enforce business rules and policies

>> Functionality to effectively manage compliance issues and changes in real-time

>> The flexibility to be the first to market with new product innovations

>> The ability to allow growth and improved volumes without adding staff

There will soon come a point when the CFPB begins to seriously audit lenders for TRID compliance. Many of the errors investors are citing, and subsequently rejecting TRID loans for, can be chalked up to lack of collaboration between the three major service providers in the transaction: the Realtor, the lender, and the title/settlement agents. The CFPB has said it will be sensitive to “good faith efforts” to comply, and it can be hoped that errors made due to lack of coordination will not be dealt with as harshly as would more egregious and/or deliberate attempts to circumvent the rules. However, if that overall lack of collaboration results not only in errors, but in a poor experience for the consumer, the CFPB may be less inclined to be lenient.

Consider the CFPB and its range of “Know Before You Owe” efforts. Two key components of their initiative have been TRID and the eClosing pilot. TRID is the CFPB’s attempt to improve the beginning of the transaction by providing consumers with easier-to-understand loan documents and more consistent pricing estimates. The eClosing pilot is aimed at demonstrating how to improve the closing transaction (a process that has remained largely unchanged for 50 years or more) via technology.

It’s clear from the CFPB’s findings after their evaluation of the eMortgage pilot project that eClosing provides consumers a better closing experience. Thus, eClosing adoption is a simple way to signal to the CFPB that customer satisfaction is a lender’s priority and, thus, earn the bureau’s goodwill. Furthermore, the functionality inherent in eClosing platforms can provide compliance professionals with much needed process efficiency and audit support.

So – what is an eClosing? On its website, Fannie Mae describes an eMortgage as one that entails electronic promissory notes, SMARTDoc Format, and other execution processes. The GSE exhorts lenders to consider eMortgages for their automation delivery, paperless trail, and reduced impact on the environment. The more radical notion is the all-digital eClosing. This involves a process that contemplates the electronic delivery, execution and recordation of all documents involved in consummation of the mortgage. Its mainstream adoption isn’t so far-fetched. Many lenders anticipate they’ll be closing mortgage loans entirely online in the next several years.

Compliance measures like TRID will tend to drive migration to electronic and virtual platforms. With the Federal Housing Finance Agency set to compel electronic delivery of the Uniform Closing Dataset next year, it’s all the more likely that lenders will want to manage its bureaucratic requirements with a virtual data solution involving all of the documentation generated in the closing process.

A complete eClosing anticipates at least the following lender driven elements:

>> Mismo 3.3 compliant XML data and doc exchange metrics

>> Bi-directional integration with leading LOS systems

>> Integrated eDelivery of borrower LEs and CDs

>> Continuous compliance and TRID tolerance monitoring for all disclosures and closing packages

>> eSignature architecture for all closing docs and CD

>> Automated event logging and audit train throughout the disclosure and closing process

>> Real time chat and instant message portal for Lender interaction with both the borrower and realtor, as well as doc prep and closing staff.

Regardless of whether one is simply contemplating a basic eMortgage or a complete eClosing, there are a wide variety of processes involved. For the purpose of this explanation, discussion will be limited in scope to the requirements to create documentation and apply electronic signatures. For the most part, the industry has adopted the eMortgage format and guidelines developed by MISMO as the accepted means of creating eMortgages. Fannie Mae and Freddie Mack have each published eMortgage Handbooks or Seller’s Guides which document their requirements for sellers of eMortgages.

Documentation Requirements:

Requirements surrounding the documentation are relatively straightforward. In the case of an eMortgage, Fannie and Freddie require that the Note (eNote) be in the form of MISMO SMART Document Category 1 (xml document) and that specific language is included in the eNote. MERS eRegistry requirements must also be met in order for the eNote to registered with the MERS eRegistry, as both GSE’s require this. Additionally, these investors require the Consumer Consent disclosure to have been provided to the borrower identifying the transaction as an eMortgage and obtaining their consent, and Freddie requires this document be retained as an electronic document in the file. The GSE’s permit the rest of the loan file to be paper based, resulting in a “hybrid” eMortgage, which are the most common form today.

Process Requirements:

The process requirements for an eMortgage are more complex. The basic process flow is:

1.) Electronically present and sign the eNote or other documents to be electronically executed

2.) Apply a tamperseal to the signed documents

3.) Close the transaction

4.) Package all the electronic documents in a form suitable for delivery, typically a “MISMO package”

5.) Register the eNote with the MERS eRegistry within 24 hours

6.) Transfer the eNote to a secure, approved “eVault” for storage

7.) Eventual transfer of the eNote to Freddie/Fannie (eDelivery)

At the highest level, a “click through” signature of the eNote, which satisfactorily meets the requirements of the law, is also sufficient for both GSE’s. At a lower level, each of the GSE’s has specific requirements, with some overlap, for applying a signature on an electronic document. Freddie is more specific in its requirements. Some of the requirements on how the signature must be applied include the following:

>> Not effected by means of video or audio recording

>> Not effected by means of object signatures such as biometrics or specialized signing pads (Freddie only)

>> Meet all ESIGN and UETA requirements

>> The signed documents/records must be “self contained” meaning all information necessary to reproduce the signed document is present

>> Some additional representative Freddie Mac specific requirements:

A.) Each document must be individually reviewed, signed, and modified by affixing all required signatures prior to moving on to the next document

B.) All signing parties must be physically present in the electronic closing location at the time of signing

C.) Signers must validate their credentials in the closing system by entering their user IDs and passwords

In Summary

TRID has dramatically changed the real estate closing process. Roles and responsibilities have shifted, the average time to close has risen significantly, and there is increased pressure from the Consumer Financial Protection Bureau (CFPB) to put the consumer first in the transaction. In order to meet the CFPB’s consumer-first mandate, real estate service providers need to adopt and implement “state of the art” digital closing platforms and conduct fully electronic mortgage closings (eClosings). It will provide ease and cost efficiency for the borrower, more accurate data management for the lender and an auditable electronic ability to examine the transaction and see what actually happened if a regulatory audit occurs.

About The Author

Michael L. Riddle
Michael L. Riddle is the managing director of Mortgage Resources Group, LLC., responsible for the overall operations of the firm. He guides the teams within the firm that develop and deliver “best in class” compliant disclosure and documentation systems to single family mortgage lenders throughout the country. Mr. Riddle is the co-founder and managing partner of the Middleberg Riddle Group, one of America’s preeminent mortgage banking law firms and, in that role, has spent much of his 40 plus year professional career providing advice and legal counsel concerning regulatory compliance, enforcement and litigation to clients including banks, mortgage lenders, insurers and related financial service entities.

New LOS/Doc Prep Integration Launches

MRG has completed a streamlined integration with both Integra’s Epic and Destiny Loan Origination Systems. Why? As the current governing environment continues to be increasingly demanding on lending institutions, business as usual is no longer an option.

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Mortgage lenders should be focused on generating and maintaining a profitable business in a volatile market rather than worrying about whether they are in compliance and further, if their internal loan origination system is keeping up to date with all the sweeping and mandatory regulatory changes. This integration between MRG and Integra directly addresses the unique compliance challenges that must be adhered to. Indeed, this partnership and interface was fostered by a top tier lender because of the complex regulatory environment they face. Top flight technology and unsurpassed compliance create an enormous safety net for the lending community.

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“With constant compliance changes taking place, Integra users have the benefit of real-time regulatory updates that can be accessed through their LOS,” said Kathleen Mantych, senior marketing director, MRG. “This partnership with Integra and the integrated legal and compliant document packages with compliance checks including calculations, eliminates lender risk – we alleviate that burden.”

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Jerry Pratt, Integra Software Systems’ President added “Integra has had a long standing relationship with Kathy Mantych and others at MRG. With the integration we have to MRG’s document solution, Integra is proud to offer lenders an excellent choice when it comes to a robust loan origination solution such as Integra’s Epic!”

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