Procrastination, Homework, and CFPB Compliance

I’m going to take you back a few years in my life when there were four words that when combined could strike fear into the heart of this high school kid every time they were spoken aloud: “Pass your homework forward.” I hated those words! I knew there was homework that would be due at some point, and I knew I should complete it, but I was so busy with life that I had no time to give homework the attention it required. I had a job, karate, a rap group I was in (yeah, let that sink in), but I didn’t have a whole lot of time for anybody else, and besides… it wasn’t due until Monday! I can remember my parents asking me if I had any homework, and I can clearly remember my usual response, “Don’t worry, I got it,” in the hopes that I would communicate with such confidence that they would not ask any follow-up questions. Back at school I would show up for class a few minutes early and sit
outside the door finishing…. Ok, starting and trying to finish my assignments, just hoping I could get it knocked out before those horrible words were uttered… “Pass your homework forward.”

Where am I going with this trip down memory lane? I am watching our industry’s response to the compliance storm, and I see a little bit of high school Ken in each of the companies I watch. We have more homework than ever, and it seems too overwhelming to tackle. In some cases, we have been assigned group projects and are in a group who doesn’t know enough to help. So we do what we can, and we tell ourselves and the executive team around us, “Don’t worry, I got it.” Let’s take a look at the homework I am referring to and spend some time being real about where we are.

My team at The Knowledge Coop and I have watched this industry react to the overwhelming amount of regulations that has swept through the mortgage industry over the last eight years. We have a unique view of this industry as we stand next to our compliance friends but far enough away to see it through a lens not clouded by the stress of an impending CFPB examination. We can see where things are going and what needs to be done to prepare for this new normal that is this compliance-ran industry.

We read everything the CFPB releases, mortgage industry related or not, to get a better understanding of their expectations and areas of focus. We hang out with state regulators and in turn have been able to watch the formation and activation of the Multi-State Mortgage Committee. We have watched as they have changed the examination process for large companies with a new process that turns one state violation into fifty in just one multi-state exam. Thanks to the state and federal enforcement actions, the last few years have seen millions of dollars going back to consumers and into federal and state budgets. It is from this independent perspective, unfettered by fear, I bring you a very simple guide to reducing uncertainty and become the company everybody expects us to be through a more realistic plan for compliance success.

The CFPB examination manual provides a guide for completing your homework. That’s the test key! They released it so we would have a clear understanding of what we need to do. Let’s break some of these things down. As we do this, I encourage you to step back and take an honest look at just how successful your company is. Don’t take the easy road and look at it all as a checklist. Look at the quality and effectiveness of each of these things in your organization. The CFPB has made it clear in almost every one of their supervisory highlights documents that they are finding inadequate compliance management systems in many companies. From the Winter 2016 release:

“At one or more institutions, examiners concluded that a weak compliance management system allowed violations of Regulations X and Z to occur. For example, one or more supervised entities failed to allocate sufficient resources to ensure compliance with Federal consumer financial law. As a result, these entities were unable to institute timely corrective action measures, failed to maintain adequate systems, and had insufficient preventive controls to ensure compliance and the correct implementation of established policies and procedures.”

These supervisory highlights releases include data from their exams, which are still some of the largest mortgage origination companies in the U.S. Even the bigger organizations are having trouble keeping up.

I am going to be your tutor momentarily in hopes that when your next regulator walks through the door, you are ready to turn in your assignment. Here are some quick tips and questions to ask yourself but they only work if you choose to set aside time each day to get them right.

• Review your policies and procedures and make sure they make sense and are unique to your company. No more using templates! Make sure they spell out how your company functions and ensure that everybody in your business has reviewed them.
• Look at the training you are providing for your people. Are you assigning one-hour modules that have nothing to do with your daily operations and are so annoying that nobody will ever go through them? Are they annual classes you purchased or do you combine some general training with very specific company training, so people understand how the information applies to their job? Do you train your underwriters, processors, and everybody else? Are you listening to the learning style of your employees? Can you prove it?
• Check on your monitoring program. Would you find a mistake? How? Do you have a system for catching errors and fixing them?
  Review your retraining plan. When you find errors and issues do you have a way to correct that behavior and use the situation to help your employees all learn from those problems?
• Sit down with management to make sure they are a driving force for a more compliant culture. Meeting with executives is not about getting management “buy-in.” Meeting with executives is about getting them to believe in it so much that they own it and will not put up with a lack of compliance.