Rafael DeLeon of Ncontracts: 3 Things You Should Know About Fair Lending Compliance

Rafael E. DeLeon is a spokesperson with a wealth of knowledge on issues of regulatory compliance and risk management for financial institutions. Prior to joining Ncontracts, he served as the Director for Banking Relations in the Office of the Comptroller of the Currency, as well as an OCC National Bank Examiner, trainer, and industry analyst for over 30 years. As SVP of Industry Engagement, DeLeon is responsible for outreach to regulators, industry leaders, and association partners, training and educational initiatives, and thought leadership.

Fair lending is one of the highest risk areas for any mortgage company. The risks for non-compliance are immense, including fines and reputational damage.

Here are three key takeaways that mortgage companies should know to help meet compliance requirements and protect borrowers and their organizations in the process.

1. Regulations Shape Fair Lending Practices

Lenders should be aware of regulations that impact fair lending. While you don’t need to memorize the complex details of every law, you should understand their purpose and influence on your own mortgage company’s practices.

Over the years, the federal government and states have enacted many laws to promote fair lending. These include the Fair Housing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act, among many others. Each regulation requires specific actions from lenders to ensure that consumers are protected.

For example, the Home Mortgage Disclosure Act requires the collection of transaction-specific mortgage factors for mortgage loan applications and originations. Specifically, lenders must report the ethnicity, race, gender and gross income of applicants. HDMA’s goal is to help determine if lenders are serving the housing needs of the communities they are in, identify possible discriminatory lending patterns, and enforce anti-discrimination statutes.

HMDA reporting can be a monumental task for mortgage companies, especially when they have an expansive mortgage portfolio. Manual reporting can require costly investments in staffing and time.

To better meet these challenges, innovative lenders are moving towards automation. Technology can simplify reporting by automating as many manual tasks as possible. Automated tools can also batch import data, correct errors across multiple records, and easily generate reports – significantly reducing HMDA processing and submission time and freeing up teams to focus on revenue-generating activities.

Moving forward, tech solutions will play an increasing role in helping mortgage companies maintain regulatory compliance.

2. Mortgage Companies Need a Strong Culture of Compliance

Every mortgage company needs a strong culture of compliance, which should come from the top down. Leadership needs to set the tone and encourage staff at all levels to prioritize compliance daily. This includes defining best practices, including compliance in strategic priorities, and providing resources that staff need to stay educated.

You can help put your company’s policies and procedures into practice by:

• Regularly reviewing your organization’s compliance guidelines and educational resources;
• Having candid conversations with colleagues about how to navigate compliance challenges in your daily tasks;
• Reading and sharing news about major industry policy changes; and
• Recording all borrower complaints about potential compliance risks.

Ultimately, practicing compliance means you can confidently make decisions that put your borrowers’ needs first and align with your company’s risk tolerance.

3. Fair Lending Violations Can Be Unintentional

It’s not uncommon for mortgage companies to unintentionally commit a fair lending violation. For example, if you have pricing discretion that results in white applicants receiving better pricing than Asian applicants, that might be considered comparative evidence of disparate treatment.

While it may be unintentional, lenders should be wary of such violations – they can still result in serious consequences.

To combat this, your mortgage company should use compliance management software to analyze loan data and locate potential issues.

Ideally, mortgage companies need a solution that maintains an up-to-date library of the thousands of pages of federal and state regulations. It should provide alerts for changes to laws, upcoming deadlines, and action plans to ensure activities are 100 percent compliant.

Critically, a compliance solution will monitor for any potential compliance risks in your portfolio. This gives you the ability to identify, prioritize, and address specific risks. It also tracks compliance implementation across departments to be sure your entire organization is on the same page.

The Impact of Fair Lending Compliance

Keep in mind that fair lending compliance evolves with time, especially as regulations and new technologies change how lenders traditionally operate. But staying aware of the latest compliance practices can help you identify red flags and mitigate risks before regulators ever have to get involved.

(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.)