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   ARTICLE   |   From Scotsman Guide Residential Edition   |   July 2014

Beyond the Title

Improve compliance and staff management with a quality manual

It’s no secret that one buzz word for 2014 is “compliance.” Whether your company is a one-person shop or a large institution, business likely will come to a halt if you cannot provide your investors and regulatory agencies with your company’s compliance manual.

The Consumer Financial Protection Bureau (CFPB) has been busy in the past few years, issuing thousands of pages of directives, requirements and guidelines. One key detail that affects many mortgage organizations is the expectation for a policy-and-procedure manual. Lenders are ultimately accountable to the CFPB for verifying that a service provider (i.e., a third-party originator or correspondent) applies and understands all consumer-lending regulations when dealing with borrowers.

To make sure that service providers have written policies in place, the CFPB expects that a lender will review a service provider’s manual as part of that lender’s thorough due diligence. Mortgage companies should be sure that their manuals do all of the following:

  • Set policies for communicating with consumers, protecting their nonpublic information and handling their complaints;
  • Provide guidance to company staff members so that they can perform their job responsibilities in compliance with company, program, federal and state laws;
  • Provide guidance regarding what to do if a loan file appears to involve identity theft, money laundering, fraud or misrepresentation;
  • Ensure that staff members fully understand compliance and documentation requirements for disclosure forms, advertising materials, high-cost loans and loan denials, as well as properties located in flood-hazard zones; and
  • Detail a quality-control plan that includes the review process of completed loans.

Training is a key component of the CFPB’s regulations related to employee management. After all, how can your staff comply with specific requirements if they have not been properly trained? In light of this, lenders also are expected to review their service providers’ training materials, as mandated by the CFPB.

Related requirements

Invariably, detailing your company’s policies will involve compliance with a number of pieces of legislation, all of which are focused on protecting the consumer. For one, this includes employee policies related to handling nonpublic borrower information — that is, remaining compliant with the Gramm-Leach-Bliley Act. Recognizing money laundering or identity theft requires that your employees alert the right individual within their company who is responsible for investigating such matters and reporting negative results, which, in turn, demands compliance with the Bank Secrecy Act and the Financial Crimes Enforcement Network’s reporting system. Disclosures, meanwhile, must be accurate, complete and delivered in accordance with pertinent federal laws.

Communication with borrowers about available loan programs also must follow specific standards established in a policy prohibiting unfair, deceptive, or abusive acts or practices (UDAAP). Consumer complaints are to be taken seriously and follow a process of recording the information, responding in writing and meeting a deadline for resolution.

Stringent quality control (QC) is new for some mortgage brokers, although many companies are familiar with these processes since their investors audit a percentage of closed loans. Of course, post-closing audits are allowed to be handled by an outside organization, which is often done if the company is a small business. A certain number of loans (usually 10 percent of closed loans) should be reviewed to verify the information in a file was completed in a timely manner and in compliance with federal and state laws, as well as program requirements.

How to begin

All of this bears mentioning because these requirements — and more — determine much of the content to be included in your company’s manual. Mortgage companies must either create their own manuals or get an employee management, compliance and QC plan that incorporates all of the categories that a mortgage organization must comply with. To view the CFPB’s actual requirements for service providers, visit

Unsurprisingly, many mortgage organizations simply opt to buy a company manual, as this can give a bank or brokerage everything it needs for its staff to comply with rules and regulations. Even so, a few points of advice should be kept in mind when shopping for a third-party manual.

Don’t get taken in by a manual’s title, for instance, only to discover that you need to get two other manuals (or sections) to have a complete set of standards for your staff. Further, always request a copy of the manual’s table of contents, a sample paragraph or two, and the manual company’s guarantee on updates. If a company won’t give these materials to you, don’t proceed with the purchase.

Finally, whether you spend $200 or $1,000 for a manual, it should be a worthwhile investment that allows your company to have solid policies in place that are easy to read (i.e., free of regulatory or legal language) and are easy to follow and understand.

Mortgage banks and brokerages that follow these rules of thumb can be sure that they’re getting the most bang for their buck — and staying compliant in the process.  


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