TheMReport — News and strategies for the evolving mortgage marketplace.
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Th e M Rep o RT | 19 Feature W ith the advent of the QM, ATR, and other new Dodd-Frank rules, most lenders have made changes and have learned to do business a little differently. We all would like to do a little more volume, but the struggling economy has taken its toll on consumers and lenders alike. So with the refinancing boom long gone and less opportunity for loans, it's now more important than ever to find ways to garner as much business as possible while making the most of each loan closed. Successful lenders have found ways to maximize income from each loan originated while minimizing their costs to do business. We got some help from an unexpected source: the Consumer Financial Protection Bureau. Yes, the same gang that gave us all those new rules and regulations provided a blueprint for success. The new rules and the threat of enforcement have pushed lenders to manufacture a better quality product. One for which the consumer must have the ability to repay (a novel concept), but also one that created a better security for investment. Loans that can be originated and processed quickly, closed on time, and sold into the secondary market without delays in funding and the additional costs resulting from errors made in the production process increase investor confidence. In the past, lenders operated mainly under a "sales" culture, with most decisions primarily based on the potential effects on production. It was assumed that more production meant more income. After all, sales drives the business. Decisions made to increase production by easing credit and underwriting standards cost the industry a fortune. Today, there needs to be the proper balance of sales acu- men and operational fortitude to bring in the business. Stay within the lines. I n today's lending environ- ment, it's all about coloring between the lines, the lines of compliance. Recently all we hear and read about is compli- ance. But, in fact, compliance is just another word for doing it right. While there's no mystery or special formula for doing things right, just following the rules and directions can be a challenge. Lenders should ensure consistency and develop a com- petency for compliance. They need to develop a com- pliance culture throughout their organization so that all employ- ees are vested in the process of performing their duties to ensure compliance with the rules and regulations governing their activi- ties. This must start at the very top and permeate down through- out the company. Everyone must buy in. Compliance must have a seat at the senior manage- ment table with input, advice, and feedback on all areas of the operation. No more should reviews and audits be done as a way to merely satisfy regulatory require- ments. Processes, procedures, and loans should be reviewed on a regular basis to ensure that each loan originated takes the proper steps to ensure information and disclosures are being provided when required and systems are in place to actively identify potential problems so that timely corrective action can be taken. "Detect and correct!" Do this early and often to identify prob- lems that can be corrected prior to closing and avoid the addi- tional time and expense of doing so after loans close. In addition, the CFPB requires that lenders have a Compliance Management System (CMS) which ensures that they: • Determine and establish compliance responsibilities throughout the organization; • Clearly communicate these re- sponsibilities to all employees; • Incorporate the responsibilities for meeting legal requirements and internal policies into their business practices; • Review operations to ensure responsibilities are being car- ried out as assigned and all legal and regulatory require- ments are met; and • Take any required corrective action, while also updating related tools, policies, proce- dures, material, and systems as necessary. The CMS must incorporate board and/or management over- sight, a documented compliance program, a process for compli- ance audits, and a process for adequate response to consumer complaints. Less is More: Reducing Defects to Increase Profits Greater regulatory scrutiny has complicated the way lenders do business but it has also provided an opportunity to correct potential issues that cost more to repair down the road. By Mike Vitali, SVP and Chief Compliance Officer for LoanLogics