How To Make Sure Reward Follows Risk

How To Make Sure Reward Follows Risk

TAKING ON NEW INITIATIVES MEANS TAKING ON NEW RISK. BE READY

By FELECIA BOWERS, MORTGAGE BANKER MAGAZINE CONTRIBUTING WRITER

Every year brings with new companywide initiatives. You have heard me and a plethora of other compliance professionals mention that, as the compliance manager for your company, you should ensure you have a seat at the table to understand the initiatives, the design, and the flow if processes are changing. While you are listening, take notes because those notes will come in handy later.

For example, does your company have an initiative to modify current staffing models? What exactly does that mean? If it means the company is considering outsourcing underwriting, this initiative has a lot of underlying vetting to consider.

With no disrespect to the C-Suite, the idea of getting more loans through underwriting is the vision before them and not the underlying review process. The S.A.F.E. Act requires the licensing of independent contractor underwriters or processors if they perform certain tasks. If the company is engaging the services of a third-party company to handle underwriting overflow, you now must look at vetting that company through your third-party vendor management program.

Chances are the one-off 1099 independent contractor does not have a contract, but they too must be vetted under your vendor management program as they are a vendor performing a service. Do not forget privacy, data security (think automated activity timeout), internal controls, background checks for LDP, EPLS-SAM, FHFA, and OFAC.

If you are licensed in Georgia, that background check’s look back is almost back to birth! An exaggeration, but it does cover an extensive period. And, if you are licensed in Washington, underwriters and processors are required to report to a licensed loan originator. That LO can be licensed in any state, but it must be a licensed LO. Plus, WA requires a supervisory plan for these individuals.

Loan originators are the target of headhunters offering the latest, greatest, and sometimes non-compliant compensation proposals. The C-Suite wants to retain these individuals for obvious reasons, but you will become the “heavy” when you tell them that their proposal is not legal. Sign-on bonuses, percentages of profits, LOs with their own balance sheets, and net-branching are all being offered. If you are not proficient in compensation law, then you should encourage, if not insist on, engaging a third-party attorney proficient in the rules.

THE WHOLESALE MARKET

Maybe your company is considering entering the wholesale market to work with brokers. If so, we must circle right back to that third-party vendor management program because they fit the definition. Contract, privacy, data security, compensation options for lender paid compensation or borrower paid compensation, and the disclosures process are but a few of the things to consider.

Remember, the broker must perform a minimum of services to receive compensation under RESPA. And remember TRID disclosures: if the broker issues them, the lender name at the top must be your name or blank. What if the disclosures are grossly understated, will you reject the submission? Or will your company require submission of a skinny package of the six items to issue TRID disclosures 24 to 48 hours after receipt of the application.

Be prepared for grousing from your retail channel if you are approving brokers within their market. They are basically competing against the broker for the same business which will end up with your company through one channel or another. Been there and done that and it is difficult to work with.

‘FULFILLMENT INTELLIGENCE’

I heard a new term a few weeks ago called “Fulfillment Intelligence.” I listened intently as if I knew what they were talking about while on my second computer screen, the internet was hard at work finding me a definition I could understand. I felt pretty darn intelligent at that moment because I had requested three computer screens to work from and IT thought I was crazy. It seems this term is not just a passing catchphrase. It has some meaning behind it with the top of list being automation.

Automation includes finding the best products that can integrate into all of your service channels and programs. Seems simple enough in theory, and automation is obviously the way to improve efficiencies. However, as compliance geeks, the back of our minds is still remembering that automation cannot and will never substitute for knowledge.

An example of this one is that your organization has an automated process in place to issue disclosures within three business days of receipt of all six items required under TRID. What happens if there is a power outage and the program stops functioning or there is a programming hiccup that corrupts the calendar? Leap year comes to mind or even the hoops we jumped through for Y2K. Backup processes, including manual intervention, should be in place to ensure compliance requirements are met. I am still thinking through the additional sub-concept of “Fulfillment Intelligence” that includes “final not finalized reports.” Wouldn’t that be a preliminary report?

THE THREE C’S

Communication—Compliance communication begins at the top. An organization’s leaders must establish its ethical tone and state its values, then communicate these clearly to all personnel. Employees must receive a clear and consistent message.

Confirmation—Automated business systems function as they are programmed, without regard to error. A financial institution must make a commitment to building checks and balances into systems for accuracy and completeness. Confirmation contributes to confidence that the compliance system is performing as desired and that bank staff is performing suitably.

Correction—Financial institutions must put processes in place to effectively handle compliance incidents that are detected, identify root cause(s) to violations or operational errors, and address the root cause(s) of each problem to preclude recurrence. Robust processes for correction build integrity into the compliance culture.

Everyone at a financial institution is responsible, in some part, for the strength and integrity of the compliance culture. While automation rises with the demands of consistency, cost effectiveness, and efficiency, compliance culture boils down to people.

So, while the C-Suite is investing in sales and operations, make sure you are investing in yourself. We need to be aware of the initiatives so we can dedicate our continuing education and growth on the background compliance aspects of those initiatives. Risk management is foremost the most important thing a company can invest in -- or at least in my mind it is.