Mortgage Compliance: The New Four Letter Word

I received the following email today from one of our readers:

These compliance checks are killing my productivity.

The environment is crazy.   I just got a repurchase demand on a loan that {edited} bought THREE YEARS AGO and then subsequently sold in a small servicing sale.  The servicer who purchased the loan identified an        under disclosure on the TIL of $117 and is demanding repurchase for non-compliance with Federal disclosure law……..!!!  THREE YEARS AGO!!!!

How are we supposed to operate with that kind of foolishness going on…..!?!

We’ve talked about trailing risk before.  Every loan a mortgage banker sold in the past and sells in the future is not really a loan sold without recourse.  Mortgage bankers have continuous risk that they might have to repurchase loans because of a major or even minor defect.  In fact, if a loan is in default or delinquent, chances are the servicer or investor will do a deep audit to see if there is any issue with the loan that they can enforce the repurchase clause in the loan sale agreement.  They don’t want to have to deal with a delinquency or a loan default.  It is better to pass that onto the original seller and let him deal with it.

We know it’s tough and it’s probably going to get tougher. 

If you are a mortgage banker, you know what the new four letter word is: COMPLIANCE. Investors, regulators and consumers will be using compliance violations as a way to extort money from mortgage bankers or exert profound pressure.  This is Darwinism at its best. Some mortgage bankers will adjust, adapt and prepare for it and some will complain, ignore and die.  I know this is harsh, but these changes create opportunities for mortgage bankers to exploit the dramatic changes evolving from the mortgage meltdown.  Companies that adjust will survive and thrive. Companies that don’t adjust will lose money and eventually be forced to give up, creating more market share for the remaining players.

Some of the companies we’ve audited recently have hired a full time compliance officer to manage and monitor loan and corporate level compliance.  Loans are reviewed during various processing stages to ensure there is loan level compliance. This might be a good solution, but it can be expensive.

Others are outsourcing compliance reviews with companies like ComplianceEase.  The cost is variable and every loan is reviewed to ensure a loan is in compliance.  We like the outsourcing variable cost approach.   ComplianceEase offers several types of compliance products for mortgage bankers.

Adapting to change is a must for mortgage lending participants today.  The head winds are too strong to fight it.  Embrace compliance and make it a way of life in your organization.