With the mortgage industry becoming more heavily regulated in the last four to five years, those who work within the industry have had to place an increased emphasis on compliance. But compliance does not come without a steep price – it takes a great deal of time, effort, and money.
That was the issue at hand as several experts gathered on stage at the Compliance Lab in the Five Star Conference on September 15 to discuss "The Costs and Consequences of Compliance." The subject of compliance seemed to be a recurring theme throughout the day, as a major part of the FSC's Foreclosure Lab earlier in the day concentrated on how compliance is affecting the foreclosure process as more regulation has been enacted to protect consumers in recent years.
The Consumer Financial Protection Bureau (CFPB), which was formed after the passage of the Dodd-Frank Reform Act in 2010 to be a watchdog for the industry, has acted swiftly and some believe harshly to punish those servicers who are found to be in violation of lending regulations.
Whether industry professionals believe CFPB's punishments are harsh or not, they all agree on one thing – sevicers are aware of CFPB's presence and therefore on guard to make sure their businesses comply with regulations.
"Everyone's familiar with the Sherwin-Williams logo, a can of paint covering the earth," Don Lampe of Morrison & Foerster told the audience. "I think of the CFPB as the Sherwin-Williams of regulators."
One of the things that has made compliance costly and difficult to execute is the sheer number of statutes that have either been passed or are in the works.
"You'd be surprised to find out how complex some of the states are," said Maria Moskver, chief compliance officer for the Walz Group, which prominently features on the home page of their website the slogan "Compliance is mandatory. The pain is not. "
Moskver said states are constantly introducing new bills that complicate the issue, but many of them are simply revisions.
"They're not new requirements," she said. "They're just adjusting them any way they can."
One of the panelists, Michael Greenbaum of Safeguard Properties, said he needs to see proof of compliance in order to believe it. And in order for your business to be completely compliant, it needs to have the right controls in place, he said.
"When it comes to compliance, you can say you do it, but I'm not going to believe you until you show me that you've done it," Greenbaum said.
Marc Hinkle of Mortgage Contracting Services, another panelist, said the process is "on steroids" compared to what it was even a couple of years ago.
"We have to have a tremendous amount of documentation prepared to respond to all of the questions that we're asked in the audits," Hinkle told the audience. "There has to be input from many different groups in the organization. It's a very rigid process. Without the documentation, you really can't answer their questions."
Lampe provided an analogy to illustrate the enormous percentage of a business's resources that are being used in compliance.
"How many in the audience feel like you're a compliance company that performs real estate on the side?" he asked the audience, to which they responded with a chuckle.
Regulators such as CFPB require a single point of contact (SPoC) for every delinquent borrower, which in a perfect world would streamline compliance and make it easier - but instead, the SPoC was in reality "a brilliant idea that was completely unmarketable," one of panelists, Barry Hays of Televoice, told the audience.
"If a SPoC agent is on a 15 to 20 minute call with a borrower seeking a loan modification and two other borrowers assigned to that SPoC call in, they either have to wait on hold for a lengthy span of time, leave a voicemail, or be transferred to another agent, defeating the design of SPoC," Hays said. "Consequently, SPoC implementations often do not accomplish the purpose for which SPoC was designed. To be in compliance with the SPoC requirements, many servicers have overstaffed to reduce the ratio of loans to SPoC agents. That improves performance, but it’s not economically viable over the long haul. The solution has to be in rethinking telephony and workflow systems to build in greater efficiency for SPoC agents. New call management solutions that are specifically designed for SPoC can greatly improve effective contact between borrowers and their assigned SPoCs."
Hays suggested technology to support the SPoC that would keep comprehensive data for each time the borrower contacted the SPoC, and it would include information such as the time the borrower spent on hold waiting for the SPoC, how many voicemails were left, and details on what was discussed during the interaction between the two. Such data would allow the servicers to defend themselves should the borrower complain to CFPB, Hays said.
"As with other compliance issues, SPoC is a critical operational requirement that servicers must address," Hays said. "The consequences of non-compliance can be pretty painful."