As scrutiny around data privacy and transparency mounts, mortgage providers have to pay special attention to compliance management in 2023. A survey from last year found that 70% of lenders are worried about compliance, particularly when it comes to small business data collection. On top of this, new rules such as Loan Level Price Adjustments (LLPAs) add to the complexity while leveling the playing field for homebuyers from marginalized backgrounds.
So, how do you keep up with mortgage compliance requirements? Here are six actionable strategies:
1. Remove bottlenecks in your compliance management workflow
Mortgage compliance laws are not going to get simpler anytime soon, which means that lenders must adapt. In a climate of seesawing federal rates and a governmental focus on income redistribution, lenders must go the extra mile to stay compliant. You cannot afford to have any bottlenecks in your workflow, whether that is data silos or confusion among stakeholders. Therefore, the first strategy to action is removing bottlenecks — through the integration of your tech stack, removing duplication, and automating or outsourcing your most repetitive tasks.
2. Make compliance a deciding factor when choosing mortgage process outsourcing partners
The industry has traditionally relied on outsourcing to reduce in-house work burden and to take advantage of the best-cost outsourcing locations through offshoring. However, your offshore partners are not always 100% compliant with US mortgage mandates and may add to your risk vectors. Further, not every mortgage outsourcing firm has the capacity to keep up with changing regulatory norms. Make mortgage compliance a deciding factor when selecting your offshore outsourcing partner, in addition to cost and credibility.
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3. Double down on your reporting capabilities
Compliance management is not sufficient unless you can demonstrate that you have met or exceeded the guidelines. This requires a strong data function and digitally-enabled reporting capabilities that relies very little on human effort. You will wait to generate scheduled reports on costs incurred, operations executed, and the borrowers you work with. Event-based reports are also important — for example, reports on good faith settlements, mortgage service disclosures, servicing transfer statements, and so on. A manual reporting process can cause delays and make it harder to meet deadlines, which makes automated reports a must-have for mortgage compliance.
4. Consider using a cloud-based compliance management solution
Mortgage compliance laws such as the Real Estate Settlement Procedures Act (RESPA) are subject to frequent change. For example, just a few weeks ago, digital mortgage comparison shopping platforms came under RESPA scrutiny. It is unsustainable for you to manually update and reconfigure your workflows with every new regulatory revision. Instead, consider using a cloud-based solution that can be updated remotely and in a dynamic manner. The solution vendor can provision updates over the air without burdening your in-house IT team, simplifying compliance management.
5. Define accurate compliance metrics
Mortgage compliance will require all the stakeholders involved to perform the right actions within the right timeline. To achieve this, you need clearly defined metrics that help you standardize compliance management processes. How long does it take for a particular workflow to complete? What are the compliance risk scores associated with different products? What are the appropriate intervals for quality control audits? By quantifying these measures, you can turn mortgage compliance into a real, actionable function and not just an item on the back burner.
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6. Stay up to date on mortgage compliance news
One of the main challenges around mortgage compliance is its ever-evolving nature. Therefore, lenders and servicers must know the precise laws they have to comply with, even if they use separate in-house or outsourced legal counsel. It is also useful to train teams on select laws so that they can factor these into daily workflows; the most areas critical to note are:
● TRID (TILA-RESPA Integrated Disclosure)
This regulation is meant to protect borrowers and requires lenders to combine Truth in Lending Act data with RESPA data. The disclosure includes all the necessary information that a customer must mandatorily receive when they apply for and close a mortgage and when the loan is settled.
● Home Ownership Protection Equity Act (HOPEA)
As part of mortgage compliance, lenders must provide additional information to borrowers who purchase high-value homes. Keep in mind that different states may also have specific rules around lending for high-value properties.
● Consumer credit laws
These are regulatory restrictions meant to curb predatory lending practices, typically by placing a cap on fees and licensing. Again, different states have different rules around this, so a large mortgage business will need an agile compliance management function to keep up.
● Good Faith Estimate (GFE) rules
As part of this regulation, mortgage companies must provide borrowers with a good faith estimate of the total closing costs of a transaction within three days of receiving the application. This includes title searches, property inspections, document preparations, etc., all of which must be furnished within 72 hours.
● Home Mortgage Disclosure Act (HMDA)
The HMDA dictates that you must report to the regulatory authorities whether you offer credit in the location where your office is situated.
Businesses must stay up to date on all the news surrounding these five legal areas to avoid mortgage compliance issues. You also need to be able to collect data and report on them.
Avoid mortgage compliance issues by partnering with Nexval
At Nexval, we help US mortgage leaders strengthen their digital and operational infrastructure through industry best practices, automation, and cutting-edge technology like artificial intelligence. Our team of 1000+ subject matter experts is fluent in the current regulatory landscape, and our cloud-based risk management platform limits your exposure to non-compliance risks. As the mortgage industry goes through another period of upheaval and change, robust compliance management is essential for success.
Ask our Tech Gurus how to get there.