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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2013

Meeting the Compliance Challenge

Planning and willingness are key to keeping up with regulations

Industry analysts have dedicated quite a bit of time, thought and energy to discussing the impact that any number of rules and regulations could have on the mortgage landscape this year. The new qualified mortgage definition, liability for service partners, social media monitoring and myriad other shifts in the regulatory mosaic have imposed an onerous burden on many participants in the industry today. Although most of the conversation has revolved around the impact such regulations are having on mortgage banks and lenders, it’s mortgage brokers who have been placed in an even more precarious position.

Like lenders, mortgage brokers are now exposed to a large number of regulatory risks, and they’re expected to do whatever it takes to become compliant. This process can require significant costs, however, so much so that some brokers may doubt that they have the resources to cover them. Nonetheless, there are ways for high-quality brokerages to become compliant without breaking the bank. Most of all, this begins with a good plan and the proper mindset.

Embrace compliance

For mortgage brokers, the path to being compliant obviously begins with having a keen awareness of the regulatory and enforcement changes that are taking place in the industry. Perhaps more than ever before, federal and state enforcement bureaus are working in lockstep with each other, sharing information and moving quickly against perceived rule breakers.

Even more important to a brokerage seeking to stay off the regulator’s radar screen is that brokerage having a collective mindset when it comes to compliance in general. Surprisingly, there are still some brokers who choose to ignore the entire issue, taking compliance day by day, issue by issue. Others believe that they cannot afford to take on a comprehensive approach to compliance, believing that the costs are too high or that their companies are too small to merit regulatory scrutiny. These organizations think that there’s simply no way to stay up to speed, and even more problematic, they believe that regulators will somehow understand and forgive this.

"Like it or not, compliance must now be perceived as a key part of a business’s operation."  

In truth, all of these excuses lack merit, and they will do little to help the brokers who take such an approach if and when they find themselves in the cross hairs of an enforcement agent. Mortgage compliance simply must be built into every brokerage’s business model. Like it or not, compliance must now be perceived as a key part of a business’s operation. The good news, however, is that there are cost-effective ways for mortgage brokers and originators to plan and implement such strategies. Even so, brokers must first accept and embrace the perspective that compliance is just as important as accounting, production and marketing.

Start with a plan

Regardless of the size of your brokerage, compliance success starts — as any business process should — with assessment and planning. In this regard, your organization almost certainly will want to take a systematic approach. Begin by identifying the risks that face your business. Be sure to clarify to your management team the consequences of failing to manage risks. This likely will entail a review of existing policies and processes. Ask yourself: Do these processes still meet your risks?

Next, centralize your policies. Scattershot approaches to compliance likely will fail, so it’s important to keep your policy statements in one place. They should be current, and they should not be redundant. Finally, incorporate these policies under a single master policy, and ensure that this master policy identifies the “owners” of each and every area of risk.

Putting this new strategy into place invariably will involve your organization’s management team. Bring them together, and have each member build a list of known and potential operational risks. These risks should be detailed and the consequences of risk failure made clear and discussed frankly in a team setting. Further, these lists — after they’ve been discussed — should be built into a master list. From there, the appropriate mitigation strategies should be built and then applied to each risk. Every task on the master list should have an owner, and the team should meet regularly to review the overall process.

Find help

Even if all of this sounds simple enough, it admittedly may not be. Nonetheless, mortgage brokers should know that they’re not alone in these endeavors. There are several resources that can help a brokerage of any size build and implement a feasible compliance policy.

First and foremost, brokers and their management teams should stay on top of compliance matters. Education is available through lectures, conferences, webinars and various other resources. A word of caution, however: Be wary of “one-size-fits-all” content. Your state, city and business model simply may not be what a given webinar speaker has in mind when offering advice.

Many brokers fear the concept of retaining a consultant, but there are cost-effective options available in this regard. In this day and age of swift and certain enforcement, the alternative could be much costlier — as costly as losing your entire business. If you are going to use a trusted adviser, be sure to find a company or consultant that has specific knowledge of your market segment and business model. Check the consultant’s resources and kick the tires. After all, you are putting the very life of your business in that consultant’s hands.

Finally, a broker’s pool of lenders can be a resource when it comes to compliance. That said, your organization must be certain that a given lender has an organizational emphasis on compliance. Further, do not make a lender your only source of compliance expertise. Many brokers are hesitant to spend on consultants or law firms, which sometimes makes lenders their default experts. This can be risky, however.

Lastly, you should never assume that only the lender should be concerned about compliance once an application leaves your hands and goes on to the lending phase. Mortgage organizations have seen repeatedly in recent months that many agencies now are reaching out to all aspects of the origination process to ensure compliance — even to the point of sale. 

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When it comes to compliance, building and implementing a thorough plan is a good first step — but it’s only a start. Simply having a master policy or handbook will do a brokerage little good if it cannot demonstrate to an enforcement agency that it routinely monitors its risk, corrects missteps and adjusts its strategy to adapt to change.

A policy or procedure should be a living process, and you will be expected to prove that you apply your company’s policies every day throughout your operation. Almost all compliance actions will leave a trail. It’s nearly impossible to cover up mistakes and mishaps, and doing so can bring terrible ramifications.

Mortgage brokers have not been handed an easy task in keeping compliant in the current mortgage landscape. Unfortunately, this is no excuse for failing to address the issue of compliance. Brokerages that want to succeed will have to begin with an accepting, collaborative mindset. By taking the perspective that “compliance is what it is,” a brokerage can set about mitigating its risks and ensuring that compliance issues will not damage its business in the future. 

This article draws on an interview with Jonathan Foxx, president and managing director of Lenders Compliance Group and Brokers Compliance Group.


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