Jonathan Foxx
President & Managing Director
Brokers Compliance Group, Inc.
Perhaps the most difficult task of the independent mortgage professional is to obtain and maintain a full set of policies and procedures. Too often, a broker’s approach to compiling adequate policy statements is reactive; that is, the demand comes about in order to meet a regulator’s expectations or in anticipation of a forthcoming examination.
Many brokers simply make it their business to always be prepared, especially in this highly regulated financial services industry. I have said many times, preparation is protection! Indeed, I have written extensively on this theme.[1]
Nevertheless, all the policy statements in the world will not impress a regulator if that policy’s stated requirements are not really implemented. In other words, the examiner will determine if a firm’s procedures are actually being followed.
Let’s put it this way: a policy statement, without implementation, is merely pontification!
Examiners have long since past the point where they’re seriously willing to accept as viable a standardized policy from a ‘manual mill.’ In fact, some examiners keep a list of these one-size-fits-all policies, and they are keenly aware of the stratagem of using an off-the-shelf policy to satisfy a regulatory mandate.
I have a friend who is now a senior regulator with a federal agency. These days, he does not go to field examinations. However, he once told me that, when he previously conducted banking examinations, sometimes he would go from one institution to another and he found the same policies – only the company name had changed on the documents! When he saw that happening, it vexed him sorely, and he would then challenge the institution to prove that it was in fact following the guidelines specifically stated in the policy statements. Needless to say, the results were – to put it mildly – quite a bit mixed.
In this article, the first of a two-part series, I am going to provide a chart of certain core policies and procedures that a mortgage broker should obtain and continually update, as regulations change. I will also provide some useful policy implementation guidance relating to preparing for a state banking examination.[2] In part two of this series, I will address the central policies and procedures that are needed by mortgage bankers.
Before getting started, I feel constrained to offer a Caveat Emptor! (Buyer Beware!) Obtaining a boilerplate document with your company’s name on it is regressive, and it is a tactic that Examiners are now regularly criticizing in adverse findings. As I have intimated above, these days regulators are fully aware of this objectionable ‘short cut’ to compliance.
An insufficient policy statement may cause adverse examination findings.[3] Indeed, in some cases, template-driven policy and procedures may cause Examiners to escalate their regulatory review. Drafting and implementing a policy statement that conforms to the way an institution does business is a priority responsibility of management, where the purchase price of a policy and procedure should not be an operative consideration.
Policies and Procedures
Mortgage Brokers
This table[4] provides an overview of core policies and procedures needed by mortgage brokers.[5]
Regulatory Area
|
Mortgage Brokers
|
Table-Funding
Mortgage Brokers |
| Lending Regulations | ||
| TILA |
√
| |
TILA – Loan Originator Compensation
|
√
|
√
|
HMDA[6]
|
√
| |
RESPA
|
√
|
√
|
Flood Insurance
|
√
|
√
|
Appraiser Independence
|
√
|
√
|
Mortgage Insurance
|
√
| |
SAFE Act (NMLS)
|
√
|
√
|
Discrimination
| ||
ECOA
|
√
|
√
|
FCRA
|
√
|
√
|
Fair Housing Act
|
√
|
√
|
Fair Lending
|
√
|
√
|
Subprime
|
√
|
√
|
Advertising & Marketing
| ||
Advertising
|
√
|
√
|
Telemarketing
|
√
|
√
|
Consumer Protection
| ||
FDCPA
|
√ if a debt collector
|
√ if a debt collector
|
Privacy Issues
|
√
|
√
|
Homeownership Counseling
|
√
|
√
|
Anti - Money Laundering (BSA)
|
√
|
√
|
UDAAP (FTC)
|
√
|
√
|
Legal and Liability Issues
| ||
Lender Liability
|
√
|
√
|
Quality Control[7]
|
√
|
√
|
Environmental Protection
|
√
| |
Bankruptcy
|
√
|
√
|
Electronic Services
| ||
EFT Act
|
√
|
√
|
Internet Services & Websites
|
√
|
√
|
State Laws Banking
|
√
|
√
|
Preparing for an Examination
Most state banking departments prioritize their administering of licensees on the extent to which these institutions implement their own policies and procedures. High on the list of such priorities are compliance with licensing regulations and specific mortgage acts and practices, such as the Real Estate Settlement Procedures Act (RESPA, Regulation X), Truth in Lending Act (TILA, Regulation Z, Loan Originator Compensation), Equal Credit Opportunity Act (ECOA, Regulation B), and the other alphabet soup of federal and state guidelines.
Generally, banking departments consider themselves to be consumer advocacy agencies and, as such, they approach examinations in a threefold process: (1) examining the licensee, (2) investigating allegations from consumers relating to the licensee, and (3) on-site or off-site visitations to audit a licensee’s operations or its implementation of previously identified corrective actions.
The primary means of monitoring the licensee is through examinations. Therefore, banking departments seek to evaluate the following elements:
- Conduct a compliance review to determine implementation of relevant laws and regulations;
- Audit and assess the integrity of the compliance management with respect to implementing state and federal consumer protection statutes and regulations; and,
- Issue supervisory and administrative actions when compliance is defective, deficient, or actually produces significant violations of law.
