Everett Ives and Associates
Building Your Compliance Department
These days, even the smallest mortgage companies must have a Compliance Department. You might start with one employee and then add staff as you increase your business. This is not the same as your Post Closing Quality Control. The compliance department must not report to a production manager. They should report to you or in a large firm the senior Operations Manager..
This department should be involved in these areas of compliance review:
1) Initial Disclosures
This could be actually preparing the disclosures or just reviewing them. This person would also be the final arbiter of Change of Circumstance for your company. Minimum duties would be to run daily reports to make certain that any loan that qualifies as an application has full and correct disclosures issued and sent on time. Most states require that the MLO be licensed at the time of application so this would be a good time to pull a fresh copy of the licensee's NMLS standing and place it in the file, particularly for the first 30 days of January when licenses are supposed to be renewed. This person would also send out ECOA Reg B notices (Adverse Action) on files that stall.
2) Pre-Close Review
This is a review immediately before closing for the purpose of making sure that the proper disclosures were done and that the proper waiting times have run. This person would also do the VVOE.
You should be looking at Fair Lending issues here. We are in a Disparate Impact world where fair and balanced policies may have different impacts on various segments of the community. Make certain that you are not inadvertently declining one segment of your community more than another and make certain you are not charging one segment of your community more than another segment. There may appear to be a difference based on sound business factors, like FICO scores, but it is your burden to document those facts and sound business reasons. That is a lot easier while you are processing the loan than a month after it closed - or a year after it closed - or two years later when an examiner or lawyer is asking about it.
3) Post Close Review
This is a complete file review after it is closed and sold to your investor. It should be done just under 30 days from closing. Recent regulations give the lender a period of 60 days post closing to fix errors. By doing this file review after the loan is purchased, you likely have every document associated with this file and you can review the file as if you are the regulator auditing the file. You should use your state's regulator's Audit Guide at the minimum as your check list. CFPB has also posted their file audit checklist and you should use it as well. This review also makes certain that all documents are scanned and labeled properly, the file is flagged properly in your database as completed, and your HMDA data is complete.
4) Compliance Reporting
Your compliance officer will be responsible for at least two reports:
HMDA Reporting - Several data fields are being added to the call reports and many smaller lenders will now be required to report that were not required to in the past. HMDA is pretty simple if you stay on top of it weekly or even monthly in small shops. If you ignore it until the report is due, you may have to shut down your operations for a week to find and enter all the data you need.
Call Reporting - Nearly everyone is required to file Call Reports quarterly. In years past, you could upload your data and walk away. Now, if you don't clear every exception, you may find that your company license is not renewed at year end. Someone needs to go in and balance the reports each quarter by explaining the exceptions. Most exceptions are a result of a loan that closed at a different amount than the original application that was reported in the previous quarter. We have learned that the servers that accept call reports often get overloaded and crash 24 hours before the deadline for reporting and several lenders have failed to file on time as a result. You should require your staff to file at least a week before the deadline.
5) QC Reconciling
Somebody needs to interface with your Post Closing QC vendor. The QC company will need a list of loans to pick from and after making their selection, needs someone to make the files available, whether paper or electronic. At times, there may be a question about a file being processed by the QC company and this person will handle it. Then, upon completion, your Compliance person should verify the findings. At times you may find that a QC finding was a matter of interpretation or perhaps your company made a mistake. In any event, this person would present to you (and any board or upper management you may have) both the QC findings and your company response. You must formally review both and decide if any action by your company is required. Your options are: a) change company policy or procedures; b) train or reprimand one or more employees; c) deal with a vendor as appropriate; or d) decide that no action is necessary. Both your year end Auditor and your investors will ask for these documents so, stay on top of them.
2015 - Everett Ives and Associates