Monthly Archives: October 2015

The Key to Compliance Success – Getting your Staff on Board

I’m too busy.busy

In the mortgage industry as with few other industries, the work day is driven by “fire drills”. The days are filled with emergencies on loans that require immediate attention. Employees are caught in the crossfire of directives coming down from on high, translating strategies into action plans and then making things happen on the ground. It isn’t that the middle managers are opposed to meeting compliance objective, it’s more that these initiatives just aren’t making their way through the immediacies of the day-to-day operational duties and responsibilities.

Ethics and compliance programs are as essential to the operation of a mortgage company as processing, originations, and marketing, though they have only in the past 5 years been squeaking as loudly as the others. By codifying compliance processes and content and instilling accountability, clarity and ease of accessing the information, compliance managers and business owners can leave behind those static three ring binders of policies and procedures that are collecting dust on office shelves and implement them into a dynamic, interactive content driven workflow.

Accountability

There is truth to the adage that says “that which gets measured gets done”. Work that requires updates and progress reviews get completed. Work that is assigned by never followed up on usually gets ignored.

Clarity

Managers are busy people, keen on working as efficiently as possible. They have little tolerance for ambiguity. Drop the legalese and be direct as possible on your expectations.

Ease

Make compliance as easy as possible for those in the field. Complicated instructions are a sure way to set up resistance. A centralized on-line approach to organizing and disseminating compliance information makes life easier for all.

A time proven way to insure that your compliance program will be successful is to bring in a third party that does compliance work as their primary job. There would be no need to spend the time and money “reinventing the wheel” and your staff will be able to devote their time to doing what they do best.

Contact Becky Watson, Ameritrain’s Director of Compliance and Licensing, for all your compliance needs. bwatson@ameritrain.com

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Best Practice Lending, what is it?

There has been a lot of talk latelybest practice about “best practice lending”. Compliant lending means that you follow all the relevant rules. Best practice lending means you provide the best product for that particular customer’s needs and ability to repay the debt. For example, if the customer’s ability to repay the debt is not properly determined, one can be a compliant lender but not operating in a best practice environment

The CFPB by definition was designed to protect the consumer from irresponsible players and lending in this industry as well as many others relative to consumer finances. The CFPB has been revolutionary in regard to “transparency” when performing rulemaking. Granted the Dodd-Frank Act spelled out the requirements for the rulemaking, but the CFPB also uses its discretionary authority when they feel it necessary. The mandated education requirements, as well as, the plethora of other rules effective this year can lead you to believe the goal is not for basic compliance with the rules but a focus on doing what is right for the consumer. The industry has been through a lot over the past five years. Stepping up, being compliant, and understanding why the rules are in place will have the effect of best practice  lending in addition to improving the reputation of the industry over time.

Why is it important to follow best practices to remain CFPB compliant? What do organizations gain?

Best practices are really “Tried and True” practices in the industry. Sometimes they come as a result of litigation (not doing what got that company into trouble) or as a result of regulatory examinations or simply a reliable way to be compliant and responsible. Organizations can gain insight, streamline processes, and most likely have less risk by paying attention to best practices of their peers.

Best practices are generally developed by what works for some institutions in meeting compliance after trial and error in some cases. Knowing other institutions are following similar practices can prevent you from standing out from the crowd in a bad way. Organizations can gain the knowledge of what seems to work for others, modify them for what may work better for them, use them to structure policies and procedures to help the organization make mortgage loan efficiently and compliantly.

Putting those practices into writing and insisting that your staff follow those practices  is critical to maintaining a best practice environment and will go a long way to protecting your company’s bottom line as well as your peace of mind.

 

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QM/Ability-to-Pay News – A Matter of Perspective

house-837758_640Last week brought important news relating to qualified mortgage (QM) and ability-to-pay issues. Some in the industry are undoubtedly excited, and others not so much. As with any news, it seems, it is all a matter of perspective.

Firstly, the CFPB announced September 21 that it has finalized a rule that will make it easier for some community banks to make qualified mortgages. The rule will take effect January 1, 2016, and will allow more lenders to be defined as “small” or “rural” creditors. As a result, this will allow these lenders more flexibility in making loans that will be granted QM status.

Under this new rule, lenders will be granted “small” status if they keep their first-lien mortgage loan rate under 2,000 rather than the current number of 500. Moreover, any area that is not specifically deemed “urban” will fall under the “rural” category. The CFPB did put various safeguards in place, however, so lenders will want to study the new rule in detail before assuming they will be granted “small” or “rural” status.

Secondly, on Tuesday, September 22, in the Federal Financial Institutions Examination Council’s annual report on the Home Mortgage Disclosure Act, it was noted that the CFPB’s ability-to-repay and QM rules (which took effect in January 2014) did not have a significant impact on mortgage lending. Specifically, the report noted, “The HDMA data provide little indication that the new ATR and QM rules significantly curtailed mortgage credit availability in 2014 relative to 2013.”

The report was hailed by many as great news. Stated Sasha Werblin, Economic Equity Director for the advocacy group Greenlining, “The pushback from the private sector was that this was going to completely limit any ability to lend, and we’re seeing that now, as they’re getting in line with understanding these new regulations and the new market, they’re maybe doing better than they expected.”

On the other hand, many had reservations – about the data, as well as the fear of jumping to conclusions too quickly. Even the report itself was cautionary, noting, “There are significant challenges in determining the extent to which the new rules have influenced the mortgage market, and the results here do not necessarily rule out significant effects or the possibility that effects may arise in the future.”

Bob Davis, Executive Vice-President of American Bankers Association, made it clear that not everyone is convinced of Ms. Werblin’s interpretation of the report. “Maybe someone’s trying to jump to the inference that, because there was not a big change, there must not have been an effect. . . . Our bankers disagree with that. They [the bankers] think that using the HMDA data to make that determination is a misguided effort. While Davis admitted the effect has not been drastic, he stressed that the current demand for loans remains higher than the number of lenders willing to lend. He suggests that something is causing this, and he says that bankers are telling him it is the QM restrictions.

Clearly, both of last week’s developments appear positive at first glance. The industry can only hope the news holds out to be positive for all in the long run. As always, time will tell.

Sources: 1) Clozel, Lalita – Sep. 21, 2015 – “CFPB Finalizes QM Rule Expanding Small Lender Exemptions – (www.nationalmortgagenews.com) and 2) Heltman, John – Sep. 22, 2015 – “Mortgage Rules Not Chilling Market as Feared, Data Shows” – (www.nationalmortgagenews.com)

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