Adjusting Your Compliance to the Digital Mortgage Landscape
Leonard Ryan is Founder and President of Laguna Hills, Calif.-based QuestSoft Corporation, a provider of automated compliance review software for the mortgage industry. Since the company’s founding in 1995, Ryan continues to oversee strategic planning and the day-to-day operations for the company including business and software development, interface partners, sales and pricing. The company website is https://questsoft.com/.
When it comes to mortgages, digital is quickly becoming king.
The Mortgage Bankers Association estimates that within three years, most loans will be completely underwritten electronically, with only loans that deviate from standard parameters being reviewed by experienced underwriters.
The evolution to digital has been embraced by lenders and borrowers alike. Most parties benefit from a mortgage process that is faster, more efficient and available online 24/7.
While much attention has been focused on the customer perspective of the digital mortgage, the growth of digital mortgages has also had a significant impact on compliance workflow and processes. Regulators are quickly adapting to the capabilities of a fully digital loan file. At the recent AARMR Conference, many of the sessions were 100% focused on the digital mortgage.
Regulators Love Data-Driven Digital Mortgages
Regulators love the native data environment of digital mortgages. Data driven processes tend to have more accuracy, and the rare exceptions are typically the result of intentional fraud or misrepresentation. As a result, regulators can share information and data while applying analytics to more loan files.
What does this mean for lenders? The burden of compliance is shifting away from post-closing reviews to pre-closing. This also means that lenders need extensive fraud prevention and detection processes to ensure that data is not being deliberately altered to fool compliance reviews.
Lenders are also interested in technology offerings that allow them to cut down the cost of traveling and other expenses. By being able to access a digital platform to audit loans, the process is more streamlined and can be better managed by everyone.
As a result, there are three key questions every lender should ask as they continue to implement a digital mortgage workflow:
1. What changes are required to the lender’s lines of defense?
2. What changes are required to monitor for compliance?
3. How will the new data sources impact compliance?
Lines of Defense
There are three main areas lenders should evaluate to ensure their compliance programs are keeping up with the shift to digital mortgages. The first is looking at the policies, procedures and training required for staff. Data collection, data security and data analysis now all play a much more significant role in the modern mortgage operation.
Next, lenders should evaluate the level of compliance reviews they currently conduct. Are they scanning every loan file, or are they relying on old-fashioned sampling?
Finally, lenders should consider the scope, focus and methodology of audits. With more data being available to the regulators, it is crucial that lenders know ahead of time that the data is accurate and compliant. When it comes to fair lending reviews, it is also important to put the data into context for the regulator so that you can demonstrate how the lending program is equitable for all potential borrowers in the market.
Compliance Monitoring
Digital mortgages present regulators the opportunity to leverage data analytics to get a more complete picture of a lender’s business. Instead of auditing a sample of a lender’s loan files, they can download all the loan data and run analyses to ensure that all loans meet underwriting requirements and comply with fair lending rules.
Another aspect that is helpful from a compliance standpoint is utilizing tech partners that have robust programs that notify your institution of potential risk by catching errors in the loan file before and after closing. Programs can provide a pass, warning or fail check on the review of loan information to help catch errors before they become costly compliance complications.
Impact of New Data Sources
Compliance software also must be able to handle data from outside the application. For example, the system should monitor compliance in the areas of verification of programing logic, validation of calculations and testing for fraud. The software should also oversee appraisals, electronic delivery of documentation such as verifications of assets & employment and income verification tools like W2’s and electronic deposit histories.
These programs can also provide a detailed explanation of the errors and how to fix them.
When dealing with the taxing process of compliance in the digital age, it is important to team up with the right partner that takes the pain of compliance away from everyday operations. By focusing on ways to adapt to the new compliance environment, lenders can better focus on customers and the operations that help keep the institution profitable and competitive.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)
