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The dictionary defines compliance as “the means in which a business meets the accepted and standard set of practices or regulations.” It also means conforming to a rule, policy, standard or law. Compliance is the aspirational goal of every regulated business, as it is essential to stand in accordance with relevant laws and industry policies in all of their efforts.
In business contexts, compliance can mean many things depending on a person’s viewpoint, knowledge and training within a company. A manager’s view will differ from a staff member’s, and a sales manager may have a different focus than an operations manager. Although points of view may vary, it takes every individual within the company, regardless of their role, to ensure that the business maintains its objective to remain in compliance. It is also important for every team member to understand how compliance will negatively or positively impact a borrower’s experience with the company.
Financial institutions, including lenders, are highly regulated by the government, internal processes, vendors and customer advocacy groups such as the CFPB. Reverse mortgages may be even more complex, as regulations are typically written using forward mortgage rules as their mainframe. In some ways, it’s up to reverse mortgage companies to interpret forward mortgage guidelines for the HECM world.
Let’s take a look at loss mitigation options as an example. Reverse mortgages may or may not fall directly under the guidelines outlined by certain regulators. Since HECMs are non-recourse loans, the terminology “loss mitigation” may not apply. A modification cannot be created for a reverse mortgage, but a short sale or a deed in lieu may be completed. There are many different opinions within the industry and the legal community as to whether certain regulatory definitions of “loss mitigation” apply to HECMs. And this is just one example of several! It becomes incumbent upon each company to interpret regulations to the best of their ability and then apply these regulations to the processes and services it performs.
Loans can fall out of compliance when the servicer is not diligent in its follow-through, misinterprets the regulations, is inconsistent or unfair with its servicing standards, or has a lack of control throughout the life of the loan. Misinterpretation of the guidelines and non-compliance with those regulations may result in large financial penalties, possible prosecution or, at the very least, reputational risk.
The compliance process essentially protects the borrower and the servicer from harm. As an example, the borrower may have been misinformed when the loan was originated or during the servicing of the loan, resulting in the borrower or servicer making a decision that is unfavorable to the borrower. This is one of the crises today regarding non-borrowing spouses or a spouse that was removed from title at the time of origination for various reasons. The non-borrowing spouse could claim that this has caused them hardship. On the other hand, the company is protected from prosecution and from borrower statements of unfair treatment when we adhere to the applicable regulations and provide fair and consistent treatment to the borrower. Following regulations and guidelines protects the company from harm and, more importantly, ensures the borrower is safe from any mishandling of their loan.
Compliance begins on the day the borrower first inquires about taking an application for a reverse mortgage. An originations compliance officer balances the adherence of processes and regulations to the borrower’s needs and desires, just as the operations compliance officer balances the adherence within the servicing arena. As Celink’s compliance manager, it is my task to evaluate the applicable regulations and test those guidelines against the processes through auditing, new policy recommendations or by reviewing upcoming operational changes that may negatively impact our compliance goal. My job is made harder if I don’t understand the implications for the originator or how those implications may affect servicing.
It’s easy to say we’ll work together, but at times it is very hard to do. As originators and servicers, we are in the business of assisting real and potential borrowers obtain their dream of owning a home, refinancing their debt or, in the case of a reverse mortgage, assisting with future living expenses by utilizing the house as a revenue stream in the later years of life. We all want the same thing, but our focus can vary significantly.
In many ways, sales and servicing are on opposite ends of the spectrum. Sales is a revenue stream and servicing is a cost factor. Originators assess the borrower’s desires, factor in age and property value, and provide funds to the borrower to make their dream a reality. Servicers may, at times, be assessing the ability to repay the tax and insurance default, working on collecting the signed yearly occupancy certification, or dealing with a remaining spouse or estate due to the death of the borrower. Originators work with the happy borrower who is looking forward to utilizing some of their hard-earned money from their home. At times, servicers must work with a borrower who is confused about the process, may be unable to pay their taxes and are worried about losing their home. Both the originators and servicers, however, are instrumental in creating a good or bad experience for the borrower.
In Part II, we’ll explore how compliance presents an opportunity to strengthen and grow the relationship between origination and servicing. Find it in the June 2015 issue.
