The headlines make it clear that it’s time for the mortgage industry to be sure their compliance programs are in order. And there have been quite a few headlines about that lately.
Some are predicting “a return to a Cordray-era CFPB” approach. More than a few suggest that the incoming administration “more than likely means more regulations, including a more active CFPB…”
The acting director of the CFPB is promising, in no uncertain terms, “aggressive action” to ensure mortgage servicers follow the law. He’s also “calling out the (mortgage) industry for slow complaint response times.”
Now comes word that the CFPB has filed suit against a lender in Connecticut. Keep in mind that the number of enforcement actions brought by the Bureau more than doubled from 2019 to 2020.
I will suggest now that a good compliance program isn’t just hiring a compliance officer or a compliance firm, although that’s certainly not a bad start. And policies, procedures, rules and penalties for breaking those rules are all a part of that. But, as we venture deeper into the space with our partner, Mortgage Sentinel, we’re seeing that many are lacking a key ingredient: active and continuous oversight.
Many of the regulatory violations we’ve heard about through the years may or may not start in the board room. But most of them do manifest themselves on the front lines—at the point of contact between the consumer and the mortgage business. Whether it’s a rogue L.O., an AE making an honest mistake or a rep unwittingly carrying out a bad practice, many of the firms we’ve seen hit by compliance violations did have some kind of program in place. But they weren’t actively tracking or monitoring the part of the process most likely to be used by a regulator against them.
None of us are joyful or excited to hear that regulators are about to get more active. Compliance can be a real headache. The mountain of unintended consequences from many otherwise well-intentioned rules and regulations is very real. The costs are real too. But I’m not just talking about fines and penalties, although there may be no more painful cost. Instead, consider that some lenders may also be leaving legitimate money on the table by not keeping an eye on their frontline interactions with potential customers.
Mortgage Sentinel helps mortgage lenders pre-emptively avoid compliance violations and improve sales by using a “secret shopper” approach. Our specialists contact various loan officers or account reps, at the behest of our client (usually their employer) and pose as potential clients. What we’ve learned and heard on some of our calls in the first year has been, at times, eyebrow-raising. While the compliance concerns of such behavior are real, the far more likely costs to lenders are lost sales and dissatisfied consumers.
One theme we’ve run into that we never expected was that too many lending reps either fail to cross-sell when they do have a qualified prospect on the line, or worse, try to jam them into products that just don’t fit. Between the opportunity cost of LO time and decreased sales closed rates, they’re costing their employers money. This could be easily fixed with oversight and training.
Anyway, like it or not, brace yourselves for another active enforcement season. But don’t just cross your fingers and hope everything’s going well out there. Do something about it! There are plenty of ways to do it.
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