A Better Compliance Training Program: A Guide for Mortgage Lenders by Ncontract’s Michael Berman
Michael Berman is Founder and CEO of Ncontracts, Brentwood, Tenn.
Imagine your mortgage company is feeling generous this holiday season and you send gift cards to the real estate agents who brought your company business as thank-you gifts. That’s a nice gesture, right? Sure. Legal and above board? Not necessarily.
According to Section 8a of the Real Estate Settlement Procedures Act (RESPA), if gifts or “things of value” are accepted “as part of an agreement or understanding, for referral of business incident to or part of a real estate settlement service involving a federally related mortgage loan,” it’s a violation of the act.
Experienced mortgage lenders know ignorance is not an excuse for a failure to adhere to compliance standards, which means they must ensure their compliance training programs are up to par. But how can mortgage lenders ensure their employees and third-party providers are informed in a constantly evolving compliance landscape? What are the most essential components of a robust compliance training program?
Let’s discuss.
Compliance training and the regulatory landscape
Compliance training isn’t just best practice in lending; it’s a regulatory obligation. Laws, including the Bank Secrecy Act (BSA) and the Fair Credit Reporting Act (FCRA), mandate training.
According to regulators’ manuals and guidelines, a successful training program considers several critical factors, such as the comprehensiveness of the training, accountability for attendance and achievement, the alignment of training timelines and frequency with both objectives and regulatory mandates, and whether the training is customized to specific job responsibilities and compliance risks. The manuals provide more insights into the specifics of each regulator’s examinations.
Critical components of an effective compliance training system
While every institution’s compliance training program will look different, some best practices extend to all lenders and financial institutions so they can stay compliant and relevant with the latest training methods.
Effective delivery method. Choose the training format that best suits your institution’s needs, whether online or in-person. If you have the resources to create internally, you can customize the lessons based on your company’s needs and nuances. However, outsourcing training to consultants or companies is also a great option.
Comprehensive training. Institutions complying with fair lending need to offer all employees training. While training for specific roles is a must, it’s often ideal to give everyone an overall understanding of fair banking and lending issues and specific compliance regulations that apply to your institution, such as Unfair, Deceptive, or Abusive Acts Or Practices (UDAAP) or Regulation B.
Board-specific training. Training isn’t just for the first line. The board and senior management have unique compliance responsibilities (and liabilities) and influence the organization’s culture, so they must be trained and updated on the latest regulations and best practices.
Role-specific training. It is important to target training for lenders, loan assistants, collections, processors, closers, underwriters, and other employees involved in the lending process, as each has unique risks associated with their duties.
Attendance tracking. Understandably, not everyone will be available for training at the same time. If you don’t have one already, implement a system to track attendance, including dates, topics covered, individual participation, and make-up sessions for missed training.
Performance assessments. It’s not enough to implement training; your employees should have a solid understanding of the material. Assess individual comprehension through tests or evaluations during or after training sessions.
Management reporting. The board and management team should remain informed through the training program. Establish a process for reporting training schedules, attendance records, and assessment results for the leadership team’s review.
Repercussions for non-compliance. Training is a legal requirement, so its importance can’t be overstated. As such, there should be clear consequences for individuals who miss or fail to complete training. Also, consider rewarding those who perform well or exceed expectations.
Written training materials. Documentation is crucial in compliance, and that practice should extend to the training program. Create and maintain comprehensive documentation of training materials, initiatives, and updates for easy reference later and to ensure consistency with regulations.
Common compliance training program mistakes
A compliance training program is like a recipe. You can have all the right ingredients, but the result can be disastrous if you don’t follow the directions or add extra ingredients. With this in mind, let’s examine some common mistakes lenders make when implementing a program and how to avoid them.
A lack of scalability
You’ve heard the expression, “Too many cooks spoil the soup,” but the opposite is true when creating a compliance training program.
Too often, financial institutions depend on a single compliance officer to handle all training tasks, which leads to limited training sessions throughout the year. As a result, some new employees may have to wait months for training.
The fix: Explore methods to scale the program without losing hands-on discussions and activities, which are crucial in team members’ understanding of lending risks and compliance. This might require additional internal resources or outsourcing parts of the training.
Using an out-of-the-box solution with no customization
Ever watched an outdated training video in preparation for a new role? That happens when companies use third-party content without customizing it to reflect their specific compliance methods. While your team members may come away with some basic takeaways, they will need detailed insights into the compliance risks tied to their roles.
The fix: When using third-party content, ensure the information reflects specific, updated compliance requirements. As part of creating a scalable solution, consider the content that may need to be updated in the future so it can be updated quickly and efficiently.
Providing no practical examples
Context is key when creating effective compliance training materials. If your training content provides no relevant stories or situations that connect to your employees’ day-to-day activities, it won’t be helpful. Moreover, the effectiveness of compliance training as a control is reduced because team members lack the information they need to make better decisions.
The fix: Seek to tell a story that applies to employees and their roles. Use various examples for the multiple roles within your organization to reflect the different compliance risks they will face.
An effective compliance training program is essential for mortgage lenders navigating an increasingly complex regulatory landscape. While compliance training may seem like a necessary evil, when appropriately implemented and updated as needed, it can be a valuable tool for elevating your institution’s culture of compliance. When everyone is on the same page regarding compliance, that commitment can domino into other areas for the betterment of the entire organization.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
