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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 On the flipside, outdated software exposes lenders to potential security risks.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.”

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The Future Of Digital Compliance

As everyone talks about the digital mortgage, executives at the Seventh Annual ENGAGE Event held in Denver, Colo, looked to broaden the conversation. They discussed the future of regulatory compliance in mortgage lending in a digital world. Here’s how they see things:

The burning question was: Will the coming digital mortgage reshape compliance? “It already has. Pre-2007 we didn’t think about compliance until after the loan was closed,” said Keith Kemph, Managing Consultant at CC Pace. CC Pace is a boutique business and technology consulting firm which has been serving the mortgage industry for 37 years. Early in Keith’s career, he was a Retail Branch Manager and later Regional Manager with Dime Banks, North American Mortgage. He went on to serve as Director at Merrill Lynch for seven years where he implemented numerous business and technology projects for the mortgage division. The last 10 years Keith has been consulting with executive management teams of mortgage vendors and mortgage bankers nationwide on strategy, process, and technology while successfully guiding organizations through change.

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“We didn’t have to. Now, we have to think about compliance at every step of the loan process,” continued Kemph. “We just went through ten years of chaos as we stitched together technology tools, our loan process and navigated our way through relentless new compliance measures. In our recent survey we found that lenders have formally transitioned from extremely cautious to optimistic. They are less on defense and more on offense, able to focus on the customer experience. However, while lenders feel like they can finally breath, they need to remain somewhat cautious as they map out and implement their digital mortgage strategy.”

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The landscape is becoming much clearer. “The CFPB came out with things like TRID, HMDA, etc. to really set the rules,” said Leonard Ryan, Founder and President of Laguna Hills, Calif.-based QuestSoft Corporation, a provider of automated compliance review software for the mortgage industry. Since the company’s founding in 1995, Ryan continues to oversee strategic planning and the day-to-day operations for the company including business and software development, interface partners, sales and pricing. Under Ryan’s leadership, QuestSoft has received Mortgage Technology’s Top 50 Service Provider Award since 2009 and was named a Top Workplace by The Orange County Register in both 2013 and 2014 out of over 10,000 applicants.

“So, the CFPB is telling you who should get a loan and who shouldn’t. They are setting the rules. In some ways they are reducing the industry to numbers. Now lenders have to work within those rules to differentiate themselves, and that’s where technology can play a role,“ added Ryan.

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As a a result, the future of digital lending compliance will include a greater emphasis on data and bringing compliance as close to the front of the mortgage process as possible. “Digital compliance is evolving into a process that is embedded into every aspect of the mortgage loan lifecycle,” noted Michael L. Riddle, the Managing Director of Mortgage Resources Group, LLC. 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.

“Compliance will be essential. Further, compliance will be a key part of digitizing every part of the future loan process,” Riddle concluded. “Compliance will also be increasingly data driven. There will be no escaping embracing a more data-centric approach to mortgage lending.”

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.

Tackling Industry Change

We are gradually morphing to a more next-generation mortgage process and some say it’s about time. Lenders are notoriously slow to embrace change. So, why are things different this time? There are so many new outside factors that are forcing lenders to evolve. To discuss how change is impacting the mortgage industry we gathered a panel of experts that includes: (left to right) Neil Fraser, Director of US Operations at Paradatec, a mortgage OCR technology; Brandon Perry, President at TTP Enterprises, a leading CRM firm; Michael L. Riddle, the Managing Director at Mortgage Resources Group, LLC.; and Paul Wetzel, EVP, Product at Mortgage Cadence. Here’s how they see the future of mortgage lending:

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Q: How have recent mortgage technology vendor M&As changed the mortgage industry?

NEIL FRASER: It is common, and often a natural progression in many industries that they start out fragmented and consolidate as they mature. The purported advantages to consolidation can include: economies of scale, more resources for research and development, and better marketing and market reach.

Paradatec monitors the M&A activity of companies that we know well. The reality of consolidation, in many cases is very different from expectations. Just like in other verticals.

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The consolidations we see appear to be aimed at allowing the larger mortgage technology providers to become one-stop shops for all things tech and to move that technology further down the food chain to smaller banks and credit unions.

But M&A is a risky approach. Some recent consolidations have led to organizational confusion, and a general loss of focus.

Ultimately they find that the organizations’ cultures have little in common, and the perceived synergies between the two companies are illusive. In fact, in some cases we have seen this mistake repeated multiple times over several short years. Generally, a great deal of marketing hype follows such consolidations. So, the goal of increased marketing reach is often realized, but is only short term. However, the reality is that the loss of focus can be devastating to both their clients and employees.

We believe these risks are common in the case where unique and significant differentiators make a particular technology company’s products and services clearly superior. For a technology vendor in this position, there are many potential disadvantages to consolidation. In the recent past we believe we have been witnessing the negative results of some of these mergers, especially in our niche of advanced OCR technology for the mortgage industry.

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Paradatec has historically made its living by licensing our sophisticated mortgage OCR solutions to some of the largest banks and lenders in the country through OEM relationships with larger partners. Our solutions traditionally were only used in very large lenders. The net effect of the consolidation of the last few years is that our current and future re-sellers are able to leverage very sophisticated OCR technology to smaller organizations that never could support such platforms themselves.

PAUL WETZEL: Leading vendors are looking to add to their product offerings and/or customer base with acquisitions. Where the reason for the acquisition is augmenting the product offering, this can frequently be a faster time to market versus building the functionality natively. Having said this, acquisitions are not always guaranteed to be successful. Considerations like cultural fit of new teams vs. the acquirer, and compatibility of technology stacks are two key considerations among many others.

MICHAEL L. RIDDLE: I think it depends on whom you talk to and which specific companies that you are referring to. In some instances, larger technology providers have acquired smaller providers for a specific technology, market niche or just to gain market share. Traditionally, these types of M&A don’t always work out because there isn’t synergy between the technology platforms, corporate cultures don’t mesh, and customer bases don’t align.

However, when the right companies merge, ones that have a shared vision for the future, corporate cultures that align, technology platforms that easily integrate, and where the sum is greater than its individual parts, there can be significant advantages for industry participants. This type of merger or acquisition has the power to disrupt an industry.

Speaking from experience, the second example is what has transpired with our new merger. MRG has formed a partnership with Asurity Technologies (Asurity) that brings together Treliant Solutions, LLC, Risk Management Solutions, Inc. (RMS) and Mortgage Resources Group, LLC (MRG) into an integrated best-in-class compliance platform.

In addition to delivering legally defensible compliance expertise, in-depth compliance insights with state-of-the-art technology to document mortgage transactions, we can now also provide HMDA, CRA, Fair Lending, and Redlining solutions. This provides our clients with a significantly more comprehensive compliance solution.

BRANDON PERRY: The mortgage technology vendor space seems to be mirroring the mortgage industry in regards to M&A activity. With the mortgage lender M&A activity, the competitive landscape with technology vendors is extremely high. Smaller boutique vendors are strategically acquired by larger well-funded looking to expand or enhance their product offerings.
The current trend is for the larger vendors to serve as one-stop shops for mortgage lenders. This is good news for the mortgage industry as it nicely sets the table for further innovation by start ups or boutique technology vendors looking to plug the holes left by the larger players.

Q: How has new regulation changed the mortgage industry?

NEIL FRASER: Regulation equates to reporting in order to attain measurement and control. As regulation has increased in this market, the need for originators and services to quickly extract meaningful content from their loan files to support such regulatory demands has increased as well.

The Paradatec solution can assist with data gathering for many regulatory events, but one that’s especially burdensome in terms of executive liability is the Fed’s Comprehensive Capital Analysis and Review (CCAR). The CCAR is an assessment of the capital adequacy of thirty-four large U.S. bank holding companies and was introduced as part of the Dodd-Frank Act. The effects of the Dodd-Frank Act in general are widespread and relatively well known. CCAR is focused on, evaluating capital adequacy even under stressful conditions. Reporting for CCAR came through the FR Y-14M forms in June 2012 which support a dictionary of around 250 data fields to be collected and presented to the Fed.

One of the early effects of CCAR 14-M reporting has been that large lenders have taken extra responsibility for the accuracy of data presented to the Fed for their loans. That includes loans originated via the correspondent channel or acquired otherwise. For Paradatec, as a specialist in automatically reading mortgage documents via Optical Character Recognition (OCR), this presented an opportunity to provide automated audit of LOS data vs actual scanned images of original paperwork in order for entities to comply.

For 2017 CFOs of CCAR entities are obliged to attest that, not only is their CCAR 14-M data is “materially correct to the best of their knowledge” but also to “the effectiveness of internal controls and include those practices necessary to provide reasonable assurance as to the accuracy of these data”. In other words “I’ve checked all my data”. This is a big task especially for banks that acquire loans they did not originate. CCAR entities are effectively now required to check all their loan paperwork vs LOS data and attest that they match. That’s a huge undertaking without sophisticated OCR technology.

MICHAEL L. RIDDLE: 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.

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 en- sure compliance, mortgage disclosure and documents systems need to be dynamically constructed.

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.

PAUL WETZEL: New regulations and GSE requirements have pushed technology providers to look for creative ways to address both the ongoing release of requirements themselves but also what kind of technology upgrades might be necessary to better accommodate the strong likelihood that this level of change will continue for years to come. While new regulations must always be accommodated as a priority, customers will not tolerate regulation support being the focal point of a technology vendor’s roadmap. Leading vendors always need to be upgrading their technology platforms and better accommodating the ongoing drumbeat of regulation is one key driver for this. The pressure of regulation is also a key driver for ongoing consolidation of mortgage technology vendors as some vendors will look to exit the market by selling their business vs. investing to upgrade their technology per the above.

BRANDON PERRY: With the heightened awareness of compliance with new regulation in the mortgage industry, many lenders have paused delivery and implementation of solutions, which drive new business. I’ve mentioned “compliance doesn’t matter” quite often in the past couple of years and it still holds true today. While compliance can’t be ignored, lenders must not fall into the trap of hypersensitivity to rules and regulations and then completely ignore the basic need to grow your business. The most successful lenders have been able to find a nice balance between regulation and business growth.

Q: How has talk of and interest in the digital mortgage changed the mortgage industry?

NEIL FRASER: In this era where smartphone and tablet usage permeates nearly all of life, it only seems logical that the purchase of a home would eventually move in that direction as well. This certainly creates a situation where the loan package can be moved electronically at no cost, rather than printed (multiple times, most likely) and physically moved between geographies. Therefore, in-transit time and cost can be reduced, which is great for the market.

At the same time, we don’t believe the digital mortgage negates the need for certain underlying technologies, including OCR. While a borrower may be able to upload PDF copies of their paystubs and bank statements, as an example, the data must still be gleaned from those documents as part of the underwriting process. Without the aid of sophisticated OCR such as that provided by Paradatec, that gleaning process remains a manual process, even though the mortgage is “digital”.

Organizations looking to embrace the ‘digital mortgage’ concept should look to not only eliminate the paper that exists in their process today, but also lean-out their business processes with the aid of technology so the per-loan processing costs can be reduced.

BRANDON PERRY: I believe much of the interest and talk of digital mortgage rose from the ashes of the constantly fluctuation regulatory environment. With the birth of compliance as a new cost center in most lenders, the pressure to absorb these new expenses must be released. I previously mentioned the importance of new business growth, but pressure can be released internally by finding ways to more efficiently process loans. Mortgage executives challenging their current processes helped pave the way to embrace technology allowing for digital mortgage.
One of the biggest challenges with digital mortgage is information security. With the ever-growing list of data breaches, cyber security will never be more important to the mortgage industry as we enter the digital mortgage world. The nature of the extremely sensitive information held by mortgage lenders makes them prime targets for cyber attacks.

PAUL WETZEL: Core concepts related to digital mortgages of course are not new but there is certainly growing interest in these topics over the past couple years and that is a very good thing for the mortgage industry. Fintech has been an underinvested segment and lenders’ interest in spending to improve digital outcomes is driving investment into mortgage technology. When executed correctly by a vendor, digital mortgage becomes a menu of options open to each lender that improve borrower experience, speed time to close and staff efficiency, and increase the transparency and security of the transaction. This will help both the lenders top line and bottom line as well as improving their standing in the industry.

MICHAEL L. RIDDLE: The first thing that comes to mind is the user experience. All the talk of the digital mortgage has changed borrower expectations. Since that now famous Super Bowl Ad that launched Rocket Mortgage and borrowers expectations, consumers demand technology that delivers a quick and simple user experience that matches the type of every day experience that they have on the Internet with the likes of Google, Apple and Amazon.

This has forced the industry to focus attention on delivering a dynamic and mobile digital experience. Many companies have invested heavily in technology and on being able to provide the types of tools consumers are look for on the front end. But what lenders must realize is the fact that to truly deliver on the digital experience the entire mortgage process needs to be streamlined not just the point of sale.

This includes compliantly documenting each and every financial transaction digitally. To be able to maintain a competitive edge in the digital age requires an understanding of data-security, technical capability, industry experience, compliance insights, legal expertise, matched with seamlessly integrated systems and robust data interfaces to actually streamline the lending process while delivering on the digital mortgage experience.

Q: Lastly, how do you see the mortgage industry and the mortgage process of the future evolving as a result of these and other big changes?

PAUL WETZEL: It’s an exciting time to be in the mortgage industry with respect to how technology can be used to dramatically improve outcomes. Lenders should be pressing their mortgage technology vendor partners for their view and strategies related to the above. Healthy vendors who plan to not just survive but thrive need to be active in the M&A space, have new a creative ways to accommodate ongoing regulation, and established but growing digital mortgage capabilities. Seismic shifts like the end of paper won’t happen overnight for the industry but they won’t happen at all leading lenders being willing to be front runners and we’re starting to see more lenders being willing to be just that.

MICHAEL L. RIDDLE: As mentioned earlier, the regulatory environment has become exceedingly complex, and I don’t see that changing anytime soon. That will continue to put pressure on lenders to comply, which will highlight the need for an advance compliance ecosystem— One that is comprehensive, can track, monitor and provide real time insights for all of a lenders compliance needs.

In addition, borrower expectations will continue to push the envelope on delivering the digital mortgage experience that today’s borrower demands. That requires the right balance of advanced technology, deep mortgage expertise, legal insights, industry integrations, with the ability to constantly evolve.

BRANDON PERRY: We’ve become a culture accustomed to instant gratification with nearly everything in our daily routine. Rather than heading to the store, how about same day delivery? We’re upset when a website has a two second delay loading. I’ve heard countless radio commercials from car dealers touting how fast they get you in and out when buying a car.   We are kidding ourselves if we believe obtaining a mortgage is the only exception. The next big competitive environment is time. I believe the time to pre-approval, approval and closing in the next few years will be fractional to the current process timeline of today.

NEIL FRASER: This industry is experiencing an evolution through the aid of technology like many others before. While the regulatory requirements will certainly control what the experience looks like for the consumer, automation within the process will continue to expand…the increasing per-loan processing costs dictate as much. Industry leaders such as Amazon and Orbitz have made the self-service model albeit in other segments, much less daunting, and the speed at which transactions can be completed has decreased significantly through this evolution. While the magnitude of the buying decision for a home is obviously much greater than that of buying an airplane ticket or a box of diapers, the consumer has become comfortable with online transactions to the point that a paper-bound process is viewed as slow and stodgy.

The process will continue to evolve, both due to competitive pressures as well as consumer-driven expectations. But, like a lot of the other ‘digital transformations’ that have occurred, we believe the mortgage market will be “both…and” situation, as in both paper and digital, rather than an exclusively digital model, at least for the foreseeable future. Until the entire consumer community is ready to embrace a digital-only approach, paper will continue to be a part of the process, and therefore vendors that automate paper reading will continue to add value.

Progress In Lending
The Place For Thought Leaders And Visionaries

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

Land Gorilla And MRG To Guide Industry Leaders Toward Housing Shortage Solutions

Rolling with the momentum from March’s successful Construction Lending Summit in Denver, the construction loan management company Land Gorilla has organized a new summit for another housing-starved region: the Dallas-Fort Worth Metroplex. MRG is partnering with Land Gorilla to invite thought leaders in the mortgage industry to a ONE-DAY collaborative event on Aug. 22, 2017. Lenders, contractors, Realtors, and other professionals are expected to attend, all prepared to share strategies for easing the tension in a market growing by 400 residents per day.

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In April, media reports dubbed the situation in the Dallas-Fort Worth area as a “brutal market for new home buyers,” citing a historically low inventory of homes. High housing costs—increasing 50 percent in the last five years—and scant availability mark the major Texas metropolitan area as a region where individuals and companies poised to expertly navigate the market can seize the opportunity to create more inventory and realize significant return on investment.

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While the Dallas-Fort Worth area leads the country in numeric population growth, its challenges are not unique, but reflect a trend playing out in markets across the nation.

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The summit will cover the specifics of a market primed for collaborative efforts to build more housing, the key elements for a working Construction-to-Permanent Loan program, strategies for avoiding potential legal quagmires that can plague underwriting new residential construction loans, and ideas for partnerships devoted to growing a book of business.

Industry leading speakers for this event include Shannon Faries, Director of Risk Management for Land Gorilla, Christina Jenkins, Attorney and Director of Customer Support for MRG, Joaquin Tremols, Director, Single Family Housing for the USDA, Dan McPheeters, Program Development for Fannie Mae, and Paige Shipp, Regional Director at Metrostudy.

Fellow sponsors of the Texas summit are housing and residential construction industry information provider Metrostudy, FirstBank Correspondent Lending, and residential mortgage solution provider American Financial Resources (AFR). HousingWire is the media sponsor.

The Ground Up: Construction Lending Summit is set for Tuesday, Aug. 22, from 1:30 to 4:30 p.m. at Venue Forty50 located at 4050 Belt Line Road, Addison, TX 75001. A networking reception will follow from 4:30 to 6:00 p.m.

Ticket costs range from $85 for early bird registrants to $99 for general admission while supplies last and are available at this link: https://www.landgorilla.com/ground-up

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.

The Mortgage Industry Gains A New Compliance Heavyweight Player

The mortgage industry has a new compliance heavyweight player. PROGRESS in Lending has learned that Asurity Technologies (Asurity) has formed a new entity that brings together Treliant Solutions, LLC, Risk Management Solutions, Inc. (RMS) and Mortgage Resources Group, LLC (MRG) into an integrated best-in-class compliance platform. Asurity Technologies is an enterprise formed to provide the financial services industry with premier RegTech solutions built by true compliance experts with state-of-the-art information security and infrastructure utilizing leading edge technology. Here’s the details:

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The Asurity platform empowers lenders to establish compliance through RiskExec, a SaaS analytic solution, to proactively manage fair lending and redlining risk and submit for HMDA and CRA. The Asurity platform also provides an individual mortgage loan compliance solution, MRG Docs, which generates exceptionally accurate residential mortgage documents compliant with all local, state, and federal consumer compliance regulations. Asurity will be announcing the addition of new solutions to its platform in the months ahead.

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“By bringing RiskExec and the MRG mortgage documents and loan origination compliance solutions onto Asurity’s platform, we are advancing our goal to deliver leading compliance solutions to our financial services clients built in an advanced information security environment. We believe our Asurity solutions, developed on a strong technology platform and designed by experienced compliance professionals, will deliver significant economic value in a trustworthy, secure, and user-friendly way that helps our clients navigate the increasingly complex and difficult compliance challenges posed by the regulatory environment in which they operate,” says Andrew L. Sandler, chairman of Buckley Sandler, CEO of Treliant Risk Advisors, and founder of Asurity Technologies. “I am excited to be able to work with Dr. Anurag Agarwal, architect of the RiskExec solution suite, and Michael Riddle, founder of MRG, and his team of experienced mortgage lawyers, led by Marsha Williams, in this exciting venture.”

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“After developing RiskExec to address fair lending and CRA regulatory requirements and HMDA reporting compliance failures, reaching the next level required a level of compliance expertise, time, and investment that would have taken our small company years to develop. The opportunity to join the powerful platform being built by Asurity Technologies has enabled our RiskExec team to accelerate our vision and deliver to the financial services market a more dynamic and complete set of solutions through an exceptionally secure technology infrastructure,” says Dr. Anurag Agarwal, founder, president and chief architect of RiskExec.

“Prior to joining Asurity, our MRG team was able to offer the most complete and compliant mortgage documents available to the mortgage industry. Now we have the resources to add new and exciting compliance products and deliver MRG Docs on an advanced and fully secure technology platform,” says Michael Riddle, founder and president of MRG Docs. “Now that we are on the Asurity platform, we can offer our clients a much more robust and complete set of compliance solutions.”

Asurity Technologies formally debuts its compliance platform at the ABA Regulatory Compliance conference on June 11 in Orlando, Fl. For more information on the conference, please visit www.aba.com.

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.

Are You Ready For A CFPB Audit?

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On July 21, 2010, President Barack Obama signed into law the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Among other things, Dodd-Frank established the Consumer Financial Protection Bureau (“CFPB”), an independent government agency under the control of the Federal Reserve and charged with “conduct[ing] rule-making, supervision, and enforcement of Federal consumer protection laws.” Today the problem for the CFPB is that it has been overly effective at that job. There is clear political push back from financial service entities that feel the regulatory environment has become so tight and expensive that normal business operations are unduly constrained. According to a memo that emerged in early February, Jeb Hensarling, the Texas Republic who heads the House Financial Services Committee, has determined to move forward with legislation to weakening the CFPB and its enforcement powers. The basic fact, however, is that the opponents of the CFPB haven’t provided many details about how they envision what comes next. While future rule making could well be curtailed, the rules that are now in place will very likely continue to be aggressively enforced by an existing bureaucratic structure that resents having its powers curtailed.

The 924 page CFPB Supervision and Examination Manual has prompted much hand-wringing within the leadership ranks of those “supervised entities” subject to CFPB enforcement, namely depository institutions and non-depository consumer financial services companies. This article assumes that examination and enforcement will proceed unabated and is intended to illustrate ways to mitigate enforcement risk within those organizations.

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An Overview of the Examination Process

A CFPB examination process generally involves an on-site visit lasting approximately 4 to 6 weeks. An attorney from the CFPB may be present in addition to the examiners.

The examination centers around nine modules: 1) Entity Business Model; 2) Accuracy of Information and Furnisher Relations; 3) Contents of Consumer Reports; 4) Permissible Purposes and Other User Issues; 5) Consumer File and Score Disclosures; 6) Consumer Inquiries, Complaints, and Disputes and the Reinvestigation Process; 7) Consumer Alerts and Identity Theft Provisions; 8) Prescreening, Employment Reports, and Investigative Consumer Reports; and 9) Other Products and Services and Risks to Consumers.

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While future rule making could well be curtailed, the rules that are now in place will very likely continue to be aggressively enforced.

Although the CFPB has published an examination manual, one would be wise to focus on the “concepts” or those areas of particular concern to the CFPB.

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The stated objectives of the examination are to “evaluate the quality of a supervised entity’s compliance management systems …”, “identify acts or practices that materially increase the risk of violations of federal consumer financial law, in connection with consumer reporting …”, “gather facts that help determine whether a regulated entity engages in acts or practices that violate the requirements of federal consumer financial law …”, and “determine, in accordance with CFPB internal consultation requirements, whether a violation of federal consumer financial law has occurred and whether further supervisory or enforcement actions are appropriate.”

1.) Preparing For The CFPB Audit

Ever wonder why open book tests seem to be the most difficult? Perhaps because there is such a large volume of information but only a few isolated concepts are tested. Although the CFPB has published an examination manual, one would be wise to focus on the “concepts” or those areas of particular concern to the CFPB. For example, consumer protection – not profitability – is a particular concern for the CFPB. If organizational decisions or operations can be viewed as sacrificing consumer protection for profitability, an audit examiner will take notice.

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Generally, CFPB investigations begin with a Civil Investigative Demand (“CID”) addressed to an organization requesting various documentary material, tangible things, written reports, answers to questions, or oral testimony. See CFPB Rules Relating to Investigation, 12 CFR 1080.1, et. seq. (“Rules”). The following checklist is not exhaustive, but can help prepare you for the road ahead.

2.) Take a Deep Breath. You Can Do This.

>>Know that some organizations have done well on CFPB audits. So can your organization with adequate planning and implementation.

>>Assemble a Compliance Team.

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In short, organizational and loan compliance begins with the loan application. Time wisely spent on your organization’s policies and loan document systems pays large dividends.

Proactively creating best practices within your organization, supported by knowledgeable professionals, are paramount in mitigating lender risk of non-compliance or adverse findings.

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>>Begin to set aside the time, human capital, and financial resources to adequately prepare for an audit. Set aside amounts vary by organization, but are well worth the investment.

>>Internally, identify critical compliance management, operations, and IT personnel. Appoint a project manager (presumably, the Chief Compliance Officer) who will have direct responsibility for the audit process.

>>Externally, identify third party audit companies and attorneys who will provide compliance audits and/or legal advice relating to CFPB requests for documents and overall legal defense. Discuss with an attorney the need for legal representation before, during, and after the audit. Know that examinees also have rights that should be protected and deliverables that can be negotiated with the CFPB.

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>>Ensure that your compliance team does not report to the business unit. This will allow the compliance team to perform independently and avoid any appearance or accusation of undue influence.

>>Stress test and train. Identify strengths and weaknesses. Focus on –and commit to writing—a plan to address and mitigate weaknesses.

>>Prepare critical employees for side-by-side sessions with a CFPB examiner. Use a neutral third party to conduct the training.

3.) Devise a Process to Isolate and Transmit Reliable Data.

>>Work with internal IT to identify Electronically stored information or “ESI” (defined in the Rules as any information stored in any electronic medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form).

>>Understand what data can be converted, stored, and/or transmitted. Address technical issues and move toward the capability to be able to deliver ESI within 30 days of a request.

>>Use sample transmissions to ensure the data will reach and be usable by the end user.

4.) Review and Test Policy and Procedures.

>>Be prepared to provide written policy and procedures for every process in the organization.

>>Evaluate internal controls to ensure that daily operations are in sync with written policy and procedures. If not, revise policy and procedure to coincide with business operations.

5.) Capture and Resolve Consumer Complaints.

>>Develop a method for obtaining and reviewing consumer complaints.

>>Document the handling and resolution of all consumer complaints.

>>Ensure that organizational documentation reflects that consumer complaints are handled timely and efficiently. If not, make necessary changes to correct the problem.

Inconsistency and the lack of organizational cohesion are easy targets for an examiner. With the proper plan and demonstrated action, any organization can avoid these pitfalls.

Penalties For Non-Compliance or Adverse Findings

The CFPB has authority to assess a range of penalties for noncompliance with Federal consumer financial laws. Although they exclude the imposition of punitive and exemplary damages, the remedies available to the CFPB are significant. See Dodd-Frank § 1055, codified in 12

USC § 5565.

1.) Administrative proceedings or court actions. A court (or the CFPB) can bring an action or proceeding to address the violation of any consumer law. Any of the following legal or equitable relief may be imposed, without limitation:

>>rescission or reformation of contracts;

>>refund of moneys or return of real property;

>>restitution;

>>disgorgement or compensation for unjust enrichment;

>>payment of damages or other monetary relief;

>>public notification regarding the violation, including the costs of notification;

>>limits on the activities or functions of the person; and

>>civil money penalties.

2.) Recovery of costs. The CFPB, State attorney general, or any State regulator is entitled to reimbursement of its costs after winning an action to enforce any Federal consumer financial law.

3.) Civil Penalties. Monetary penalties issued by the CFPB are assessed according to the following tiers and are adjusted periodically for inflation. See 12 CFR § 1083.1.

>>Tier 1=$5,526 for each day a violation continues or remains unpaid. This applies to any violation of a law, rule, or final order or condition imposed in writing by the Bureau.

>>Tier 2= $27,631 for each day for a person who recklessly violates a Federal consumer financial law.

>>Tier 3= Up to $1,106,241 for each day for any person that knowingly violates a Federal consumer financial law.

4.) Notice and hearing. No civil penalty may be assessed under this subsection with respect to a violation of any Federal consumer financial law, unless i) the CFPB gives notice and an opportunity for a hearing to the person accused of the violation; or ii) the appropriate court has ordered such assessment and entered judgment in favor of the Bureau.

Civil fines obtained from administrative or judicial actions are collected and held in a civil penalty fund that will either distribute payment to victims or fund consumer education and financial literacy programs. http://www.consumerfinance.gov/pressreleases/the-cfpb-issues-civil-penalty-fund-rule/

Mitigating Lender Risk Requires Proactive Efforts

In the broadest sense, mortgage compliance takes two forms: organizational compliance and document compliance. The former generally references those policies and procedures implemented by your organization and governing loan officer compensation, scheduled time delays by which your organization issues disclosures and related material upon receipt of a loan application, and loan products marketed to differing locales, to name a few. Document compliance generally refers to inclusion of particular fonts and/or point types as may be required in the loan documents by the particular jurisdiction, inclusion of certain required language defining the borrower’s rights in the loan documents, or other legal mandates governing APR, points and fees, and the like.

While a CFPB examination is intended to address both areas of compliance, loan level data review comes from the compilation and analysis of those hundreds of data points assembled while building the document and/or disclosure package. Make sure the calculations, content, real time updates based upon changes to the law, and internal loan tests (to name a few) are appropriately represented and warranted by the document provider or the law firm preparing the documents.

In short, organizational and loan compliance begins with the loan application. Time wisely spent on your organization’s policies and loan document systems pays large dividends in preparation for the regulator’s arrival.

Conclusion

While news of an impending audit can instantly increase one’s anxiety level, it is important to remember the three main principles that guide the audit process: 1) “we will focus on an institution’s ability to detect, prevent, and correct practices that present a significant risk of violating the law and causing consumer harm;” 2) “the supervision function [of the CFPB] rests firmly on analysis of available data about the activities of entities it supervises, the markets in which they operate, and risks to consumers posed by activities in these markets;” and 3) “In order to fulfill its statutory mandate to consistently enforce Federal consumer financial law, the CFPB will apply consistent standards in its supervision of [depository and non-depository] entities, [using] the same procedures to examine all supervised entities that offer the same types of consumer financial products or services, or conduct similar activities.”

The first word of the Consumer Financial Protection Bureau is Consumer, which is that organization’s first priority. Proactively creating best practices within your organization, supported by knowledgeable professionals, are paramount in mitigating lender risk of non-compliance or adverse findings. At the same time, you are demonstrating a commitment to protect the consumer (and your borrower), which is the resounding principle of Dodd-Frank.

About The Author

Christina Jenkins
Christina Jenkins is an Attorney and Director of Customer Service for the Middleberg Riddle Group in Dallas, Texas, where she oversees day-to day loan document preparation and provides legal counsel to mortgage lenders. Before becoming a lawyer 10 years ago, she held various positions from origination to servicing- in loan operations for two large national banks, a small community bank, and a large non-bank mortgage lender.

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.