Ensuring Compliance


Michael L. Riddle spearheaded MRG Document Technologies’ development of systems that efficiently provide “state-of-the art” disclosure and documentation services to national mortgage lenders via the Internet. Under his guidance, the firm’s mortgage services set the national standard for quality and compliance in the mortgage banking industry. Mr. Riddle is the co-founder and managing partner of the Middleberg Riddle Group, a preeminent mortgage banking law firm. So, if you have compliance questions, Mr. Riddle is the executive to go to for the answers. In discussing the mortgage regulatory landscape, he told our editor this:

QUESTION: This year looks to be another year of huge compliance burdens for the mortgage lending community, particularly considering the August 1, 2015 deadline for implementation of the Consumer Financial Protection Bureau’s Integrated Disclosures. What do you think are the most pressing issues related to the implementation of these new rules?

MICHAEL L. RIDDLE: On August 1, 2015, the forms previously known as the Good Faith Estimate and the Truth in Lending Disclosures will be combined into a new form called the Loan Estimate, which must be provided to consumers no later than the third business day following the submission of a loan application. In addition, the forms previously known as the HUD-1 and final Truth in Lending Disclosure will be combined into a new form, the Closing Disclosure, which must be provided to consumers three days before the loan is consummated.

This mandates massive programming change for multiple legacy software systems.

>> Biggest programming challenges are fees, which are changed and expanded by the new regulations.

>> Dynamic documents are required in order to meet the new timelines for delivery.

>> Constant review of regulations during the implementation period will be necessary in as much as they are continuing to evolve.

The regulations are very detailed, with very specific format and calculation requirements. For every lender, a serious allocation of IT and Compliance resources will be required. As a start, numerous resources exist on the Consumer Financial Protection Bureau’s website to assist affected parties in implementing the Integrated Disclosure rules, including guides and sample forms.

QUESTION: Is there any other Compliance issue that will be particularly important as we begin 2015?

MICHAEL L. RIDDLE: I don’t believe there is any single item that takes precedence; rather, it is the cumulative effect of compounding regulations that is the mortgage lending community’s greatest challenge. It used to be that new statutes and regulations would be issued piecemeal, with time available for implementation and adaptation. Now, it requires a huge effort, and an equally large expense to absorb, test, and implement the volume of new regulatory edicts. Besides dealing with the Integrated Disclosures by August, it is, for example, extraordinarily burdensome for a lender to implement best practices on Fair Lending matters, concurrently evaluate and implement best practices on Loan Officer Compensation, Vender Management rules, and so on. Just when you believe one compliance issue has been successfully absorbed within your organization, another one will get issued, sometimes on the same subject matter. While larger lenders may have an easier time because of the depth of their existing infrastructure, the daily compliance pressure on management of lenders of all sizes is heavy and, due to the increasing propensity of various state and federal regulators to impose large fines for violations, more and more stressful.

QUESTION: The issue of whether a lender can be held liable for discriminating on the basis of race or ethnicity, without any evidence that the lender actually intended to discriminate, is heading to the U.S. Supreme Court. What are your views on how Fair Lending laws will affect the mortgage community?

MICHAEL L. RIDDLE: On November 7, 2014, Judge Leon, of the U.S. District Court for the District of Columbia, issued a rather colorful opinion that vacated the HUD’s Disparate Impact Rule, under which a lender could be found liable for violations of the Fair Housing Act based on statistics alone. Casting HUD’s efforts to impose disparate effect liability as “wishful thinking on steroids,” the Court left no doubt that HUD’s Disparate Impact Rule was, in Judge Leon’s view, completely inconsistent with the Fair Housing Act.

The U.S. Supreme Court has accepted and had oral arguments in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, in which Texas challenged the disparate impact theory of discrimination under the Fair Housing Act (FHA). Twice before, the Court granted certiorari on this issue, but in both cases the parties reached a settlement prior to oral arguments.

In their questions to counsel, the Justices focused on (i) whether the phrase “making unavailable” in the FHA provides a textual basis for disparate impact, (ii) whether three provisions within the 1988 amendments to the FHA demonstrate congressional acknowledgement that the FHA permits disparate impact claims, and (iii) whether they should defer to HUD’s disparate impact rule.

Regardless of whether the Supreme Court accepts Judge Leon’s reasoning, or that of HUD, data drives the lender’s defense to a Fair Housing claim. That data includes a review of the “Three L’s,” namely “Loan Data Points” (core statistics concerning the loan obtained from the document preparation system and loan origination system), “Lender Data Points” (matching closed loan data with purchased loan data), and “Location Data Points” (superimposing geography upon the first two L’s to “trend” the data and look for outliers).

In other words, whichever way the U.S. Supreme Court rules will not materially affect the manner in which a lender will defend these claims – to offensively use client data points in a way to advocate that either no Fair Housing violation occurred or that the effect is different from that which is asserted by the government.

QUESTION: What is technology’s role in addressing today’s compliance challenges?

MICHAEL L. RIDDLE: Can technology make a lender’s compliance efforts any easier? Absolutely, but only to a point. A loan origination system (LOS) feeds data to a mortgage document preparation system, which should seamlessly ingest that data and run continuous, multiple, compliance tests, both on the document content and on the embedded calculations. But the greatest LOS and mortgage document system will always fail real world compliance tests if the underlying programming logic becomes out of date, even by hours. To illustrate, at MRG our attorneys and compliance staff constantly scrutinize newly issued state and federal statutes and regulations to ensure that the multiple, redundant tests that occur within our document preparation system are in-step with today’s regulation, not yesterday’s. Where appropriate, document changes are inserted in real time, which is critical in maintaining a dynamic compliance system.

In our view, accurate and compliant mortgage documents and calculations are our work product … we defend that output from the computer room to the courtroom. The quality of intellectual capital must match the quality of programming. Technology will aid in the compliance effort, but human intellect and continuous review by trained eyes remain essential.

QUESTION: What can we expect from MRG in 2015?

MICHAEL L. RIDDLE: Lending has significantly changed over the past couple of years. The pressure on today’s lenders is enormous. This lending environment creates dramatic loan document challenges and risks for lenders. Changing rules, regulations, and the ramifications of non-compliance, including fees, penalties and the possibility of buy-backs make the origination process an escalating challenge. Traditional “doc prep” is no longer the answer when lenders are trying to handle these complex and ever changing requirements.

Most lenders, quite frankly, don’t have the time or resources to staff a compliance department that can constantly monitor and accurately interpret the vast number of regulatory changes that are being implemented on a federal, state and local level. Unfortunately, the same is true for many traditional “doc prep” providers. Those providers that rely on an antiquated forms library to deliver static documents, with limited legal compliance analysts, are no longer a prudent choice. Relying on outdated, traditional “doc prep” is a risk that lenders simply cannot afford to take in an increasingly “compliance-centric” environment.

To this end, MRG Document Technologies (MRG) delivers complete, real time mortgage compliance directly into the document process – no static document templates for the lender to choose and manage internally. MRG attorneys constantly monitor the ever changing regulatory landscape and provide dynamic document compliance. MRG does not license any third party content or calculations, which allows MRG to fully rep, warrant, guarantee and defend its product. The product is backed by an E/O policy from full disclosure through closing packages, including calculations. No more need for an internal compliance staff to manually manage package content or selection for fear of inaccuracy.

With true, state of the art, dynamic document technology, all document and calculation updates are compliantly and automatically delivered in real time. Together with the lender’s chosen LOS for a seamless, “lights out” approach, disclosure packages are drawn within 30 seconds and closing packages in just a couple minutes. Throughout the package request process, loans are checked with industry leading automated loan compliance tests, thus eliminating the need for additional 3rd party vendor software. MRG takes the anxiety and risk from over burdened lenders so they can spend valuable time elsewhere in their organization. In addition, MRG attorneys are available for services regarding general compliance advice, which is built into the overall compliant document solution.

These comprehensive document compliance solutions provide lenders with the ability to enhance their compliance initiatives. It also gives lenders the tools they need to increase loan production, speed up turnaround times, while significantly mitigating risk. By providing a staff of mortgage banking attorneys to lenders, MRG also delivers the support and regulatory monitoring required to ensure loans are meeting the latest regulatory demands. These are value elements missing from traditional “doc prep” solutions.

Lending has changed forever. So, too, must the lenders document preparation solution. No longer can lenders rely on antiquated form libraries and technology from traditional “doc prep” providers that have limited legal expertise and experience. The risk and exposure is far too great!


Michael L. Riddle thinks:

1.) The big story for the year will be dramatic growth in origination, spurred by an improving economy (think job growth) and interest rates held abnormally low by various geo-political forces.

2.) The legal and regulatory pressure on lenders will continue, with further stress involving the Integrated Disclosure conversion, the expansion of fair lending litigation, and an emerging range of borrower defenses and challenges to the collection and foreclosure process.

3.) A lack of resolution to the question of how to end the GSE conservatorships will continue to leave lenders with long-term concerns about the stability of the secondary market.


Michael L. Riddle spearheaded MRG Document Technologies’ development of systems that efficiently provide “state-of-the art” disclosure and documentation services to national mortgage lenders via the Internet. Under his guidance, the firm’s mortgage services set the national standard for quality and compliance in the mortgage banking industry. Mr. Riddle is the co-founder and managing partner of the Middleberg Riddle Group, a preeminent mortgage banking law firm.