Monthly Archives: November 2018

Relaxed on Compliance ? Beware !!

Servicers can’t slack on compliance as states step up oversight: S&P
While the foreclosure crisis is over and federal regulators are being less assertive on enforcement actions, mortgage servicers can’t let their guard down about compliance, according to Standard & Poor’s.

That’s because lax federal oversight is being supplanted by state regulators and attorneys general stepping up enforcement activities.

Some of the recent positive news for the “beleaguered industry” included: acting Consumer Financial Protection Bureau Director Mick Mulvaney’s statements at the Mortgage Bankers Association annual convention, the Senate Banking Committee’s approval of Kathy Kraninger for the permanent job, the dropping of Real Estate Settlement Procedures Act cases against PHH and Zillow, and Brett Kavanaugh’s elevation to the U.S. Supreme Court.

“While we believe the regulatory landscape has changed and that these actions offer some promising developments for servicers, this overture could still prelude some hurdles,” said the report, written by Steven Frie and Mark Shannon. “Additionally, since servicers have invested considerable capital — both financial and human — we expect them to continue to follow industry best practices despite the possibility of loosening regulations.”

But as the CFPB backs off from the level of enforcement under former director Richard Cordray, some state regulators are looking to fill the void. New Jersey hired Paul Rodriguez to be director of the Division of Consumer Affairs and turn it into a state-level CFPB. Pennsylvania Attorney General Josh Shapiro created a Bureau of Consumer Protection.

Other state attorneys general have also said they will step up their enforcement. Plus the Multistate Mortgage Committee remains active, pointing to a 2017 settlement with PHH on legacy servicing issues.

“We believe that the regulatory environment will remain uncertain as the CFPB establishes its regulatory routines and enforcement protocols with servicers,” the report said. “State governments and the MMC remain challenges for servicers as new state-level consumer protection units take form and as states continue to work together to investigate and bring about enforcement actions. Therefore, servicers will likely still be diligent in identifying possible regulatory issues at the federal, state, or municipal levels.”

Servicers also need to be concerned about reputational risk if some companies backslide into prior practices.

“If anything, a continuing trend of even minor violations of the law will have an unfavorable effect on a servicer’s reputation and could invite scrutiny by federal or state regulators, regardless of loosening regulations,” the report said.

There is $10.2 trillion of mortgage debt outstanding as of the second quarter, up from $9.4 trillion on March 31, 2016, according to the MBA.


The Latest on HMDA

The Calm After the Storm: Regulatory Relief in the Wake of HMDA

It’s no secret that mortgage regulations impact smaller lenders to a greater degree than they do larger ones. The time and expense of collecting, analyzing and submitting Home Mortgage Disclosure Act (HMDA) data for fewer than 500 loans can negatively impact a smaller lender’s profitability and efficiency.

In recognition of the specific needs of smaller lenders, Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act, which was signed into law in May. Section 104(a) of the law addresses HMDA compliance, granting institutions originating fewer than 500 closed-end mortgage loans in each of the two preceding calendar years with a partial exemption to reduce the regulatory burden.

Understanding the HMDA Exemptions

At the time mandatory HMDA compliance took effect in January, the number of required data fields more than doubled from 44 to 110.

For smaller banks and credit unions, efficiently managing these requirements can be very tedious, often requiring additional staff and higher compliance technology expenses. The partial exemption reduces the required data fields to be reported by smaller financial institutions, which, in turn, means that freed-up resources can be reallocated to customers.

In all, 26 data points are currently covered by partial exemptions. Because of that, The Bureau of Consumer Financial Protection in August released an interpretive and procedural rule to help affected institutions gain authoritative clarification and guidance regarding how to comply with these changes to HMDA, made by section 104(a) of the act. This rule should allow institutions that have these allowances to decide how to proceed with data collection and reporting.

These allowances should help partially exempt banks and credit unions alleviate the stress that comes with compliance changes, in turn, allowing loan officers to put their members and customers first and eliminate potential delays in the loan process. Note that for non-depository lenders of any size, this bill will not provide any additional relief.

Most Lenders Should Still Track Exempted HMDA Data
Most small credit union and bank lenders will still need to collect the new HMDA data, even if it is not required for the annual submission. One primary reason is that preparations for expanded data collection have already been done. Every major loan origination system has already rewritten their systems to include the new data fields, and vendors won’t create specific versions that exclude those fields.
Smaller banks and credit unions must also realize that while the exempted fields are not required for submission, fair lending reviews may still request all 110 data fields required under the new HMDA rules. Lenders that didn’t collect all the data may find it more time-consuming to verify that information in the heat of an exam than it would have been to collect the data upfront.

Also, if lenders anticipated being under the threshold for the year but end up exceeding 500 loans, they may find it difficult to retroactively obtain the required data fields for reporting.

Another consideration is the possibility of selling loans down the road. Financial institutions are required to report all 110 data fields for all purchased loans, even if the institution closes less than the 500-loan threshold. Therefore, if an institution sells one or more loans to another financial institution, the loan will no longer fall under that exemption rule, and the data that was at one point unnecessary then becomes a requirement for the completion of a HMDA submission.

It may be in the best interest of all parties to continue to collect all 110 data fields even though they may not all be required for the institution originating the loan.

Ultimately, the HMDA exemptions for credit unions and banks that close fewer than 500 loans per year can be beneficial. The submissions will be simpler with fewer data fields to scrub, and institutions can focus their resources on the loan business pipeline.
However, most lenders should still collect the expanded data to assist in fair lending reviews and simplify the sale of loans on the secondary market to investors that will need the additional data for their own compliance.


What To Do When You are Audited ?

Don’t Lose Your Cool When You Get Audited
There are ways to survive and thrive a gut-wrenching process
By Phil Mastin, assistant vice president and director of regulatory affairs, United Wholesale Mortgage; and Jeff Midbo, senior vice president and chief compliance officer/deputy general counsel, United Wholesale Mortgage | bio
You’re going to be audited. Those five words will make the hair on the back of any mortgage originator’s neck stand up.

Originators know they can be audited at any time and have come to expect it as part of their profession. Given current market trends and the climate of the Consumer Financial Protection Bureau right now, originators need to be more vigilant when it comes to examinations, both at the national and local levels.

For the first time in a long time, the industry is functioning as a true purchase market, with purchases making up over 70 percent of mortgage originations. That has cranked up the competition for business in a big way, which means intensified monitoring by national and state regulators to ensure that borrowers are protected.

Now, more than ever, it’s especially important for originators to be well-prepared and proactive in their compliance efforts. Following is an overview of what mortgage originators can do to make sure they remain compliant in today’s purchase-heavy market.
Key Points
Surviving your next audit
Build a relationship with the auditor.
Prepare ahead of time for the exam.
Be organized and diligent.
Show proper exam etiquette.
Determine the best person to answer key questions.
Ask lenders for an assist.

Prepare and organize
Mortgage originators know that relationships matter, both with their borrowers and real estate partners. They should take a similar approach with their regulators.

Regulators are not the “bad guys.” They are there to help professionals in the industry be successful the right way. Their rules are in place to protect the reputation and legal standing of businesses just as they are protecting consumers’ best interests.

Don’t be afraid to communicate with them. Regulators want originators to reach out if they have questions so they can get them the information they need. Regulators aren’t going to give you legal advice, but they will frequently provide feedback as to how they approach the various rules.

Set yourself up for success. Every originator is going to be subjected to an examination at some point, so be prepared. The 11th hour is not the ideal time to start focusing on compliance.

Originators need to prioritize compliance from the moment they are licensed to avoid being in scramble mode while preparing for an examination. Don’t hope for the best when it comes to exams. Being prepared is half the battle.

Make sure that you are organized. During an exam, there is always a back and forth between originators and examiners. Be diligent about what documentation you’re providing and what’s requested of you.

This ensures that you’re not missing things and you’re fulfilling all of your obligations to the regulator. Make sure you know where your loan files are, make sure they’re organized, and make sure you can provide a clean set of documentation to the regulator. If you give them everything in a timely, organized fashion, and it’s compliant because you’ve been doing due diligence all along, it’s going to make everyone’s life easier, especially yours.
Seek the right answers
When an exam is in progress and regulators are at your office, things can be a little awkward. But they don’t have to be. Being pro-active in communicating with your examiners will go a long way toward ensuring things go smoothly.

When the regulators are communicating with you, respond in a timely and accurate fashion. If they ask for something, and you don’t have it at your fingertips, let them know you’re working on it.

By showing a sense of urgency, you show the regulators that you’re taking the exam seriously. If you don’t, how do the regulators know that you’re giving compliance in general the attention it deserves when they’re not in your office?

When it comes to compliance, don’t try be a hero if you don’t have the cape. Meaning, if you’re not the best person at your company to handle compliance, then find somebody who is. It can be another originator, an office manager and so on.

You don’t need to be an attorney to be aware of how the business is being conducted, but it is important that someone is identified who can stay on top of it. Originators need to understand their strengths and weaknesses when it comes to compliance and act accordingly, so they’re set up for success when examinations occur.

If you have questions about any of the topics covered in this article, your lender may be able to point you in the right direction. Keep in mind, lenders cannot provide actual legal advice when it comes to compliance. As a trusted business partner who typically has more resources at their disposal, however, your lender can be a good source of information. Think of it this way: A lender can provide originators with the “why” behind the way things are done. They just can’t tell you how to handle those things.


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