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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.
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