The mortgage sector has always been heavily regulated, particularly since the financial crisis of 2008. It is vital for lenders to understand and adhere to mortgage compliance norms to protect themselves as well as their borrowers in the long term. Compliance in mortgage also makes it easier for organizations to stay agile. As new regulations emerge to cope with a dynamic and often volatile market, these regulations compel the timely transformation of operations, processes, and products.
What is the State of Compliance in Mortgage in 2022-2023?
The last two years have seen sweeping regulatory changes impact mortgage providers. This was in part due to the COVID-19 pandemic and the disruption it caused in personal and macro finances. More recently, geopolitical pressures and rising inflation have driven regulators to further increase the scrutiny on mortgage. The changes span diverse areas like fair lending procedures, foreclosure norms, consumer data protection, etc.
For instance, the Consumer Financial Protection Bureau (CFPB) has issued new regulations around qualified mortgages in order to ensure that borrower has the ability to make regular payments, based on their debt-to-income (DTI) ratio. The CFPB also introduced changes to the Home Mortgage Disclosure Act (HMDA), increasing the reporting burden on lenders. The Equal Credit Opportunity Act (ECOA) has also been amended this year, with the aim of promoting greater browser diversity and equality. Rising property prices have also pushed the loan confirming limit upwards.
While regulatory changes like these are inevitable in a growing economy, they also add to lender workloads. Primarily, it is the effort needed for underwriting due diligence and audit/reporting that goes up. That is why it is so important to have a robust mortgage compliance practice, which helps you navigate the complexities while staying efficient, compliant, and ethical.
5 Reasons Why Mortgage Regulatory Compliance is Important
There are several reasons why it is crucial to adhere to industry laws, regulations, and norms:
- Avoiding heavy penalties: Mortgage providers that do not comply with regulatory norms can be fined heavily. This often happens in an indirect manner – for example, when non-compliance leads to a cybersecurity oversight, causing a data breach/exposure that invites fines of millions.
- Mitigating loss of revenues: Mortgage compliance is a precautionary measure that protects lenders from fraud and other loss-making scenarios. For example, due to the lack of regular reviews, a California homebuyer would postpone foreclosure for 13 years, tying the property up in a complex dispute. By staying compliant, lenders maintain constant 360-degree visibility into their operations.
- Providing ethical products: Ethical business practices are central to compliance in mortgage. They ensure that eligible buyers are not denied access to funding, but borrowers also do not overextend themselves and acquire insurmountable debt. For instance, a 2022 regulation requires lenders to perform additional due diligence in the case of condos that are 20 years or older to ensure sufficient attention to property preservation.
- Keeping up with a dynamic market: In a rapidly evolving market, mortgage providers must constantly update their products and policies. Regulatory change is one of the ways in which lenders can respond to market movements such as fluctuating property prices, changes in disposable income, etc.
- Simplifying organizational change: A strong mortgage compliance practice also prepares lenders for organizational changes like mergers & acquisitions. Thanks to regular audits and ready documentation, organizational restructuring can happen faster and more smoothly.
Tips to Strengthen Mortgage Regulatory Compliance in 2022-23
There are a few strategic measures lenders can take to up their compliance game in the next few quarters.
1. Invest in a risk management platform
A risk management platform is a ready-to-deploy application that checks your compliance with various regulatory standards like CFPB, FNMA, FHA/HUD, USDA, VA, SCRA, MERS, and COVID-19 norms. It has prebuilt templates as well as workflows to help multiple stakeholders collaborate on a task so that there is always regulatory oversight.
2. Migrate operations to the cloud to remove silos
When data and processes exist in silos, there is a risk of duplication, errors, and non-compliance. One of the most effective and sustainable ways to remove silos is through cloud adoption. Cloud-based mortgage solutions let you connect multiple systems on the lending and servicing value chain, with the proper checks and balances in place to prevent non-compliance.
3. Outsource to a 360-degree partner instead of multiple contractors
Outsourcing is an excellent way to achieve operational efficiency, but working with too many vendors can introduce third-party risk. Instead, a 360-degree partner can help you optimize a wide range of services, from due diligence at origination to title search and property preservation management. It is also helpful to choose a partner with technical expertise in order to automate compliance checks.
4. Use AI and automation to manage documents
As mortgage compliance regulations become more complex, there is a growing chance of human error due to neglect or fatigue. Artificial intelligence (AI) can process documents at a pace unmatched by human executives, and machine learning (ML) also allows it to accommodate new exceptions, laws, and compliance rules.
Read More: 5 Ways to Streamline Default Servicing
Meet Nexval, the Certified Mortgage Compliance Expert
As your regulatory burden increases, it is vital to work with the right partners that can ease compliance without hindering operational efficiency and productivity. Nexval is a US-certified outsourcing partner that offers tech-empowered solutions to streamline mortgage processes – ranging from intelligent data extraction to cloud integrations and AI. Nexval’s Veritiq platform can automate audits based on 20,000+ rules and compliance norms. Speak with our Tech Gurus to know more.