For mortgage brokerage firms, compliance is expensive and frustrating.
Unfortunately, compliance is non-negotiable. As you know, mortgage companies face a large number of both federal and state regulations. So, what can your firm do to promote and maintain regulatory compliance across the organization?
As a risk management and compliance partner, Compliance Core is well-equipped to serve your mortgage company in its regulatory compliance pursuits. To start, we'll share a list of the four major mortgage broker compliance requirements that your company must comply with.
4 Major Mortgage Broker Compliance Requirements
Simply following the "letter of the law" set forth by federal and state regulators is not enough. These days, a mortgage broker's way to move forward in compliance is to follow the same protocol required for major financial institutions engaged in mortgage-related activities. In this pursuit, brokerage firms must conduct due diligence, assess and quantify risk, maintain a compliance program, and train employees in compliance matters.
Mortgage brokerage firms should pay attention to these four major compliance and regulatory requirements:
1. Marketing and Advertising
In 2011, the FTC issued Regulation N (Mortgage Acts and Practices - Advertising Final Rule). This rule outlined major rules and regulations related to advertising or commercial promotions, including social media marketing. For better or for worse, social media is a favored tool by firms to interact with prospects.
When using this medium, social posts advertising the mortgage company and associated services must incorporate the active NMLS number on all advertising. There are additional requirements in some states, so it's best to consult individual state guidelines in this pursuit. These outlets include, but are not limited to: ads in magazines or newspapers, promotional flyers, television ads, radio ads, internet websites, direct mail, printed information, and telephone solicitations.
In all of these marketing activities, firms cannot make false claims related to "no fees charged." Additionally, the firm should not use the word "fixed." For example, if the firm is advertising an adjustable-rate loan, but offers a fixed rate for the first three years, technically, it's an adjustable rate mortgage, and it must be advertised as such.
2. Record Keeping
The Consumer Financial Protection Bureau's Regulation Z or Truth in Lending (12 CFR Part 1026) outlines the general rules and guidelines related to documentation and record keeping. Creditors are generally required to retain the following records:
- Records of actions as well as required disclosures.
- Records sufficient to evidence loan origination compensation.
- Evidence of compliance with minimum standards for credit transactions secured by a dwelling.
The takeaway here is that for every transaction you complete, you must maintain a paper trail that evidences the transaction. As you know, mortgage companies facilitate one of the most significant transactions that a person will make in their lifetime. Most governing bodies require organizations to maintain written records for up to three years. This kind of documentation is especially important during regulatory exams or in times of dispute.
3. TILA-RESPA Information Disclosure
TILA-RESPA Information Disclosure (TRID) informs consumers applying for a mortgage and defines the unique compliance requirements for lenders. TRID is a consolidation of Truth in Lending (TILA) and RESPA (Real Estate Settlement Procedures Act) disclosures. After years of poor mortgage practices, CFPB developed regulations to prevent the sub-prime mortgage crisis from ever happening again.
In short, this program intends to help borrowers better understand mortgage options. TRID is typically referred to as "Know Before You Owe" rules because they address information related to mortgage, credit, and associated fees in advance of receiving a loan amount. Under TRID guidelines, lenders must provide a loan estimate, as well as a closing disclosure.
Some mortgage brokers are self-employed and contract with various companies to close mortgages. Generally, they’re commission-based earnings. Understanding compensation requirements is critical. Without this understanding, a mortgage broker risks non-compliance and potential loss of its license.
Loan Originator Compensation Requirements under the Truth in Lending Act (Regulation Z) sets forth regulatory expectations on how compensation is paid to a loan originator in most closed-end mortgage transactions, including:
- Prohibiting a loan originator’s compensation from being based on the transaction term or a proxy for a transaction term.
- Permitting certain methods of compensating loan originators using bonuses, retirement plans, and other compensation plans that are based on mortgage-related profits.
- Prohibiting loan originators in a transaction from being compensated by both the consumer and another person, such as a creditor.
Putting it Altogether
Compliance Core manages all aspects of enterprise compliance and risk management, giving organizations the ability to focus on their core business activities. We’re here to help you with your compliance and risk management concerns.
How mature is your compliance and risk management program? Our self-assessment will show you how your business is performing against risk management and compliance best practices. Use these findings to identify your gaps and possibly weak areas, helping you to take your mortgage broker business to the next level.