As compliance becomes an increased focal point for mortgage lenders and investors, staying ahead of state and federal regulations can be the difference between a flourishing business and one mired in fines. SitusAMC’s Scott McNulla, Senior Director of Regulatory Compliance, and Sheila Meagher, Senior Vice President of Enterprise Sales and Account Management, weigh in on changes across the compliance landscape, what lenders need to know and how to best navigate regulatory pressures.
HousingWire: How have changes in White House and other agency leadership affected regulatory enforcement?
Scott McNulla: We expect the Consumer Financial Protection Bureau and other agencies to be more enforcement-oriented. The indication at this point is the Biden administration is going to be much more focused on consumer protection. Although the last administration did not dismiss or ignore consumer protection, there appeared to be significant focus on open markets for lenders.
Sheila Meagher: The Biden administration will also be looking more closely at the competitive landscape. The president issued an executive order on July 9th asking agencies including the CFPB, Department of Justice, Federal Trade Commission and others to work to promote competition in the American economy. It will be interesting to see what it will mean for mega companies in the financial sector.
HW: What should lenders prioritize in terms of compliance?
McNulla: The most significant area of focus will be direct consumer harm. The two biggest rules for the origination market in the last decade were TRID (TILA-RESPA Integrated Disclosure) and Qualified Mortgages/Ability To Repay (QM/ATR). Those were issued to give consumers more information and make sure they can afford the loans being taken out.
Institutions should get their ducks in row, be prepared for examinations and be ready to address any identified issues in a timely manner. The first time the agencies find something they may give a slap on the wrist – though fines could still be in the millions of dollars. But if they come back and the same problem is in play it can get cumbersome, possibly even including cease-and-desist orders.
Meagher: With TRID regulations specifically, for institutions who don’t have the compliance tools in place, TRID related errors can be significant – with penalties running as much as $400 per loan.
If you are using an automated compliance tool with the capability to view and delve into the details of your regulatory compliance findings data, you can uncover the cause(s) of a reoccurring failure or deficiency (e.g., a systemic issue related to process/workflow, a training issue, etc.).
McNulla: For example, one entity held its loans in its portfolio and eventually decided to sell the paper. They had not used an automated compliance tool, so they didn’t know what they didn’t know. During the sale, due diligence was performed at the loan level, which uncovered significant compliance exceptions.
These types of findings can be a rude awakening with significant impacts to the portfolio. It’s like driving a car without a speedometer – you know you’re going fast because you’re passing other cars, but you don’t know if you’re speeding over the limit.
I don’t fault an underwriter for trying to get a loan to close – they are under tremendous pressure to perform, and they want to be compliant. But if they don’t have systems and controls in place to help them, they may not know how fast they are going.
HW: How can lenders maintain efficiency amid increased pressure to remain compliant?
McNulla: Integrate a solution directly into the process so loans are tested for compliance throughout the lifecycle of a loan, from application through approval through preclosing and post-closing, because there are aspects of origination under TRID that require a post-closing disclosure.
Compliance tools give you real-time feedback, providing the opportunity to identify deficiencies on a specific loan as well as a system or process deficiency.
Meagher: Lenders choose when their loan origination system is going to submit a request to a compliance tool – some hit it at rate lock, others further down the manufacturing process. Regardless of when the reviews are triggered, the user receives real-time feedback on the loan. The savings can be significant if you uncover and address a systemic problem, so it doesn’t happen on future loans.
HW: How does SitusAMC help lenders navigate increased regulatory scrutiny?
McNulla: Our compliance automation system, ComplianceAnalyzer, instantly audits and identifies compliance issues, whether the issue is on one loan or indicative of a systemic or process breakdown.
We ensure lenders have visibility into their loans as they are being originated, to minimize regulatory findings that can be damaging from both a financial and reputational perspective. The cost to audit a loan is a fraction of the cost of potential fines and consent orders than can occur when regulators find issues.
Meagher: There are some entities still using spreadsheets to check compliance. Our software provides an objective third-party process that makes testing exponentially easier.
In addition, our platform is used by the CFPB and state regulators in performing their examinations. Lenders can review their loans with the same tool used by regulators.
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