2021 will be a very different year for the mortgage and real estate industry than 2020, and not just because we are entering a year Purchase market. Everything indicates that compliance and enforcement will once again feed into the strategic discussions of owners and executives.
This does not only apply to the origination side of the mortgage transaction. In some ways, providers focused on title and settlement services are facing even more pressure to accelerate their compliance programs.
While mortgage lenders would do well to heed the statements made by the company Consumer Financial Protection Office that it will be Monitor fair lending closely and Maintenance problemsWith the likelihood of default spike in particular, title and settlement firms will be keeping an eye on more than just the CFPB. You will also measure new laws / regulations and potentially increased enforcement from various state insurance departments, state bar associations, and more.
This does not mean that the CFPB is no longer a unit to be considered by third parties. TRID is still the law of the country, and nothing to suggest that title and graduation providers will stop shouldering the brunt of this compliance requirement.
While the closing is usually in the hands of title providers, lenders (as always) will keep a careful eye on them. A standard peak always increases the risk of surrender claims if it should lead to a foreclosure peak. Mistakes, errors, and even bottom line fraud can result in a loan that cannot (or should not) be sold in the secondary market. There are few more serious sins in the credit industry than a buyback demand.
The lesson is not that title and settlement firms are responsible for ensuring that their clients, as mortgage lenders, remain compliant in the eyes of various enforcement and regulatory elements. Rather, everyone should take a moment to review their programs and make sure they are up to date. This includes several strategic aspects.
First, is there a formal, written program? Second, is this program informed (and regularly updated) from knowledgeable, up-to-date and qualified sources? Third, are there documented training and self-enforcement mechanisms? Finally, and the most neglected aspect of a good compliance program, are there mechanisms in place to continuously monitor the performance of the company (and its partners)?
Unfortunately, it is the final pillar of good compliance that causes heartburn in most businesses. It is continuous, which means that to some extent it is an ongoing expense for something that most do not consider a “revenue center”. That is, it also requires continuous attention, which in and of itself requires continuous manpower and regular maintenance.
Like it or not, a compliance program is not an effort to forget about it. While there are some instances in the enforcement industry where a company faced with enforcement action is given some leniency because of its good faith efforts to mitigate its violation, this is almost never an excuse when the leadership team accuses the supervisory authority of ignorance of the violation. An effective oversight mechanism can therefore sometimes offer the potential for some leniency.
More importantly, however, the use of surveillance and control provides an opportunity for a company to correct course when the main problem is a bad apple or two. After a violation and penalty, how many business leaders have complained that their first lead on the problem came from law enforcement agencies? A good oversight program can avert massive penalties before they’re on the table.
Finally, what is often overlooked in the cost of a robust compliance program is that it can also serve as part of a QA program. At the lending level, a loan officer or branch that commits fair lending violations is not just breaking the law. They’re also missing out on legitimate sales opportunities or most likely contributing to a higher failure rate when promoting loan products that don’t suit the borrower (or don’t offer quality alternatives).
On the settlement side, TRID violations lead to healing problems or worse, leading to awkward conversations with loan customers. There is also a sales impact on the front page for inadequate compliance programs. Lenders simply expect every title or graduation firm they work with to have a full view of the compliance page. This is just one box that needs to be ticked for a lender to consider working with a new title firm.
Granted, few decision makers enjoy spending time (or real dollars) on compliance efforts. However, a brief activation of your compliance program can in extreme cases cost you your company. Full, updated compliance programs can actually aid your sales and quality assurance efforts in some cases. In any case, this year is turning out to be a year in which it is not worth making compromises.