As the regulatory landscape changes, the concept of compliance has broadened. Gone are the days of compliance staying in the background as production pushes forward. Compliance must now be an integral part of every business decision. The spectrum of the impact of compliance starts before a customer reaches an employee at the organization until the loan is sold or servicing ends and the customer parts ways with the company. So why keep compliance in the background? Push it to the front and make it part of the framework of the organization. Build the relationship with your customers with compliance in mind.
The concept of a “relationship” with the consumer should be considered in the true sense of the word. Our customers are not another hash mark on the company scoreboard. They are a homeowner that builds the framework of our industry. Their pride in owning their home is serious to them and should be just as important to our business. Compliance needs to step into this arena and execute the true meaning of the regulations. Does the borrower understand the loan they are applying for? Is the loan program the consumer chose optimal for their lifestyle and goals?
Compliance on its face can be viewed as a list of black and white rules. For instance, is the APR within tolerance or were the disclosures sent within three business days? Push compliance up to the next level. Review the loan from a higher elevation assessing if the loan was originated with integrity, full knowledge of the terms of the loan were communicated or if there are unintended consequences the customer needs to be versed on, as a few examples. The goals in originating a loan should include ensuring that all interactions with the consumer are legally compliant, integrity is crafted into the loan file and the documents provided are best suited for the consumer. With all of this in mind, the loan has operational integrity, adherence to state and federal laws, soundness in the underwriting decision and ultimately consumer satisfaction.
The basis of a compliant mortgage is integrity of the operations that process, fund and service the loans. A mortgage company is built off of individual departments specializing in each part of the loan process. This separation of duties creates operational integrity. Another way to envision it is a Ford Model-T production plant. Ford revolutionized the automobile market by breaking down the manufacturing of a car into more than 80 individual knowledge and skill sets. Therefore, instead of a plant worker needing to know 10 different skills, they were experts on one skill, and therefore, produced a vehicle with utmost quality. The same concept may be applied to the loan process. The division of duties creates specialists and those specialists instill integrity in the product produced.
Now, take the concept a step further. Add the notion of random assignment to the process. Now the company not only has specialization but also checks and balances. Random assignment could be applied between loan officer and loan processor as well as loan processor and underwriter. The Home Valuation Code of Conduct (HVCC) applied this concept through the forced separation between production and the appraiser. The prevention of a production employee, such as a processor, from ordering and speaking with the appraiser is meant to instill a higher level of integrity in the determination of a home’s value.
Random assignment also addresses predatory practices, fraud, steering and other abuses since these are typically associated with unethical agreements between individuals. By breaking down the ability to form routine relationships on loan files, the tendency of these situations occurring is greatly diminished.
State and federal compliance
The state and federal compliance landscape is changing on a daily basis. With the emergence of the Consumer Financial Protection Bureau (CFPB) and the implementation of the Dodd-Frank Act, a mortgage company needs to have a robust compliance department that has a clear and constant presence in all facets of the organization. Every member of the company needs to be versed on federal and state laws. For instance, to ensure that a customer’s information is properly protected and disposed of, they need to be educated on the Safeguards and Disposal Rule of the Gramm–Leach–Bliley Act. When a potential customer calls to apply for a mortgage, the call must be routed to a properly licensed or registered mortgage loan originator, and therefore, education on the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) is essential. How is your organization ensuring this is executed and maintained? Not only do compliance representatives need to be included in business decisions, but the members of the company need to be engaged in new hire training and continued training throughout their career at the company on state and federal compliance. Compliance needs to be ingrained in the company culture, not an afterthought.
Soundness of underwriting decision/product selection
In the industry, it is well-known that a loan may be compliant in technical nature, approved from an underwriting perspective, but inappropriate for the consumer. As such, mortgage companies should take steps to ensure that the overall transaction meets with the goals of the consumer and informs them of the risks, obligations and benefits of their product selection. To achieve this goal, several initiatives can be pursued including education through the company’s Web site, written materials during the origination process and a robust consumer education experience through direct conversations with the customer by front line personnel. There should be no hesitancy by a company in educating their customers on the loan programs and associated risks. Through enhanced communications the organization could reap the benefits of improved customer service ratings, lower early payment defaults and fewer consumer complaints to the CFPB and state regulators.
Constantly monitoring the pulse of the consumer and ensuring that issues are brought to the management team for understanding and resolution is essential to maintaining compliant originations. The customer is often the first line for identifying potentially unsound practices or unscrupulous origination behavior. By using an effective and comprehensive customer contact system, a company ensures issues are escalated as appropriate and initiates an unbiased review of the situation.
Customers should not only have the ability to, but should be encouraged to contact supervisors of staff they are unhappy with and every e-mail sent by staff should include contact information for their immediate supervisor. Again, the policy is effective for its actual application, but it also helps to prevent problems as the staff knows that customer service issues get escalated very quickly for resolution. In light of this, front line staff is careful to ensure they do not occur or are addressed immediately at their level.
Compliance requirements in the industry are increasing. In reaction, the number of compliance professionals on a company’s roster has risen. Is this a bad trend? If in the end, the consumers are placed into better-suited loans and the industry becomes more stable, everyone wins. Imbed compliance into your company culture and build long-standing relationships with your customers.
Melissa Koupal is vice president of loan integrity for loanDepot.com LLC, a full-service direct lender located in Foothill Ranch, Calif. Melissa oversees licensing, quality control and operational compliance over more than 2,500 corporate and loan officer licenses across all 50 states and the District of Columbia. She may be reached by phone at (888) 337-6888 or e-mail firstname.lastname@example.org.