Be prepared to address additional requests for information and verification of policies, procedures and controls on your next state mortgage origination examination. In addition to the previous examination requirements determining proper disclosure, underwriting standards and actions, quality control findings and originator licensing, today’s examiners are covering a much broader review of company activities, services and business dealings in the marketplace.
No doubt recent media reporting of enforcement actions—which include significant penalties and sanctions—have signaled the change in the overall examination perspective. Increased legislative and regulatory efforts across this board to protect consumers is a large contributor to this changing focus.
In the landscape of examination we are also seeing a redefinition of who and what we are— in many cases, your company is either labeled a “depository” or “non-depository” institution.
Unfortunately, many small or medium-sized companies lack appropriate staff compliance personnel and may not have built sufficient budgets and financial resources to keep up with changing compliance and risk requirements. So how does a small or medium-sized mortgage broker or banker address the changing examination environment?
Perhaps the best starting point is to test the confidence of what you already have in place, even though your written policies, procedures and controls may look great in the folder or manual your company maintains.
Here are three basic questions you should be asking:
(1) Are they up-to-date?
(2) Do they meet the requirements for the states you are licensed in?
(3) Can you prove they are effective?
Answering these questions may prove to be a very detailed (and daunting) task. As a starting point, approach the task of making sure you have “the right stuff” by committing to a review plan before you rush to implement specific processes or changes. One of the best ways to organize and prepare for potential audits and examinations might just be utilizing a common mindset to what we do every day—why not underwrite your company for risk?
There are numerous choices and resources to assist your company with compliance and risk. Each of these components provides added value to your overall efforts, however, at the end of the day, you need to own your risk and compliance process. A big part of the examination process is the determination that management has both the knowledge and skills to meet the challenges of originating mortgages.
To get started, why not:
-Gather a small group of key team members together to commit and conduct your risk underwrite.
-Begin by providing each manager with a copy of the company’s state examination manuals for the states you are currently licensed in. (Suggestion: Download the most current copy of each from your regulator’s website.)
-At your initial meeting, review the CFPB examination manual, which can be downloaded from the bureau’s site (consumerfinance.gov/guidance/supervision/manual).
-Take the time to review the CFPB’s focus and process in the supervision and examination manual by area of focus.
-Have your team develop a group checklist. First determine the large-ticket items that the examination focuses upon.
-Have your team members take ownership of the large categories you have defined on your developed company checklist of categories.
-At your next meeting, overlay any additional categories or items of focus from the review of state-specific licensing examination manuals previously provided.
-For your next meeting, review what you currently have in place with regard to policies, procedures and controls. Assign each of these documents or items to the respective large categories your team has identified from the examination manual review process.
