2021 is already shaping up to be a vastly different year than 2020 for the mortgage and real estate industry, and it’s not only because we’re entering a purchase market. All indications are that compliance and enforcement will again move into the strategic conversations of owners and executives.
This won’t only be true for the origination side of the mortgage transaction. In fact, in some ways, title and settlement services-focused providers will be even more pressed to accelerate their compliance programs.
While mortgage lenders would do well to heed the statements from the Consumer Financial Protection Bureau that it will be carefully watching fair lending and servicing issues, especially with the likelihood of a default spike, title and settlement firms will be keeping an eye on more than just the CFPB. They’ll also be measuring new legislation/regulation and possibly greater enforcement by various state departments of insurance, state bar associations and more.
This doesn’t mean the CFPB will stop being an entity to be heeded by third-party service providers. TRID is still the law of the land, and nothing suggests that title and closing providers won’t continue to bear the brunt of that compliance requirement.
Additionally, while the closing tends to be in the hands of title providers, lenders will (as always) be keeping a careful eye on them. A default spike, should it lead to a foreclosure spike, always raises the risk of repurchase demands. Errors, mistakes and even fraud at the closing end can lead to a loan that can’t be (or shouldn’t have been) sold on the secondary market. There are few more serious sins in the lending industry than earning a repurchase demand.
The lesson is not that title and settlement firms bear the responsibility for keeping their mortgage lender clients compliant in the eyes of various enforcement and regulatory elements. Rather, everyone should be taking a moment to review their programs to ensure they’re up to date. That includes several strategic aspects.
First, is there a formal, written program in place? Second, is that program informed (and regularly refreshed) by knowledgeable, up-to-date and qualified sources? Third, are there documented training and self-enforcement mechanisms in place? Finally, and the most often neglected aspect of a good compliance program: are there mechanisms in place to continuously monitor the performance of the firm (and its partners)?
Unfortunately, it’s the last pillar of good compliance (oversight/monitoring) that gives most firms heartburn. It’s continuous, which means it is, to some degree, an ongoing expense for something that most don’t consider a “revenue center.” That means it also requires continuous attention, which requires continuous manpower and regular maintenance in and of itself.
Like it or not, however, a compliance program is not a “set-it-and-forget it” endeavor. While there are some instances in the enforcement arena where a firm facing enforcement action is given some leniency because of its good-faith efforts to mitigate its infraction, it’s pretty much never an excuse when the executive team pleads ignorance of the infraction to the regulator. So having an effective oversight mechanism in place can, at times, offer the potential for some leniency.
More importantly, however, the use of monitoring and oversight allows a business the chance to correct course if the main issue is a bad apple or two. How many business leaders, after enduring a violation and penalty, have lamented that their first indication of the issue came at the hands of the enforcement agency? A good oversight program can avert massive penalties before they’re on the table.
Finally, and often overlooked in the cost of a robust compliance program, is that it can serve as a bit of a QA program as well. At the lending level, a loan officer or branch that commits fair lending violations isn’t only breaking the law. They’re also missing legitimate sales opportunities or, very likely, contributing to a higher fall-through rate when they push lending products that don’t fit the borrower (or fail to offer quality alternatives).
On the settlement side, TRID violations lead to curative issues, or worse, which leads to uncomfortable conversations with lending clients. There are sales ramifications for inadequate compliance programs on the title side, too. Lenders simply expect any title or closing firm they choose to work with to have a complete grasp on the compliance side. That’s just a box that must be checked for a lender to consider working with a new title company.
Admittedly, few decision-makers enjoy spending quality time with (or real dollars on) compliance efforts. Nonetheless, short-arming your compliance program can, in the extreme, cost you your business. And complete, updated compliance programs can, in some cases, actually support your sales and QA efforts. Either way, this year is shaping up to be one where it’s not worth the risk to cut corners.