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Special Reports
Recruiting & Training:
Renaissance Professionals
MBA Institute Seeks to Teach Regulatory Compliance
National lenders face a 'significant challenge.'
By Jennifer Harmon
FREDERICK, MD -- The Regulatory Compliance Institute for CampusMBA, which is sponsored
by the Mortgage Bankers Association, is designed to provide guidance and education on compliance with federal and
state laws that affect mortgage lenders.
The instruction is geared to those already in the industry with day-to-day accountability
in regulatory compliance. Attendees learn the legislative history, definitions, technical requirements, best practices
and the most recent requirements of core compliance regulations.
"It's a survey level class or seminar I would characterize as 'introductory
level' but it is very broad-based. Virtually, it falls into two categories - consumer credit protection and anti-discrimination,"
Bill Richards, director of risk management at RSM McGladrey Inc. here and an instructor at the institute
While the four-day course addresses recent regulatory changes in HMDA, RESPA and
Truth in Lending, a "predatory lending survey" discussion also covers the current trends and compliance
"musts" for the new wave of state predatory lending laws.
"Our primary focus is federal laws and regulations. Maybe a fourth of the
time is spent discussing state laws and regs," Mr. Richards said. "Federal law is a body we can deal
with. State law is changing all the time. That is why we try to present what we have, the common characteristics
about the state laws. Be general and specific. Typically, we have an attorney or state law expert come in."
The class characterizes what a predatory lending loan is under certain state laws
in terms of high interest rates and onerous terms, large prepayment penalties and the inability of borrowers to
get out of a loan, Mr. Richards said.
"As time goes by, attorneys general read opinions from other states and decide
to enact similar laws in their own jurisdictions. They have a threshold and measure what they believe is a high-cost
home loan. And they have restrictions on what mortgage bankers can do under these loan terms, which varies from
state to state. Even county and city jurisdictions are getting involved," he said.
"Some federal laws are similar to these state laws. If the cost of a loan
exceeds the threshold measured by the interest rate, annual percentage rates, fees associated with a loan, it is
considered high cost or potentially predatory," Mr. Richards said.
Mr. Richards tells attendees that he is less interested in them memorizing the
laws and regulations than gaining a general understanding of where to get information.
"I want to leave them with the tools they need to be able to manage the associated
risk, talk to them about what they should be doing," he said.
"Any one particular law to deal with is not that difficult, but it's hard
to keep up, especially if you're a national lender. They have a significant challenge to deal with."
Mortgage bankers should have written policies and procedures in place that are
handed down from the board of directors, and lenders should perform some type of internal testing, Mr. Richards
advised. "Those results in compliance ought to be reported far up the food chain to the board of directors.
They should result in some sort of steps to change behavior."
Additional training can sometimes be necessary. "That could mean my sitting
down with an employee to say, 'Don't do this anymore.' Puppy training. Or it could be a classroom situation where
we sit down with them and spend a half a day talking about what is important."
Mr. Richards mentioned how important it is for mortgage companies to name a person
who is responsible for regulatory compliance. It may be more than one person, depending on the complexity of your
business, he said, and some regs require an individual to be responsible for a specific part of the law or reg.
"Often, there is a person who is identified as responsible. They have the
right background, he or she has the responsibility and authority granted by the board to carry out those responsibilities
and duties. To make things happen. And they have adequate staffing underneath them," Mr. Richards said.
To a large degree, risk managers get "on the job" training.
"We've gotten to the point where in days gone by, it was common to take 'Joe,'
who has been doing a great job in the purchasing department for 15 years. We now want him to be our compliance
officer. He wore the hat, but he had no background for it," Mr. Richards said.
"A lot of people named somebody for the job and stuck them there. Now, there
are legitimate skills that a compliance officer possesses. It is a professional position with formalized training,"
he said.
Part of the reason for that is regulatory agencies are enforcing laws and mortgage
bankers are doing more due diligence than they had to do 20 years ago, according to Mr. Richards.
"Lenders are selling products in the secondary market, and Wall Street firms
in purchase and selling agreements, require a certificate. They want to know what you're selling them is not predatory.
From an economic selling point, you are causing lenders to pay attention. To certify what you're selling them is
'clean.' Loan quality no longer means good credit risk, it means a whole lot of other things - compliance risk,"
he said.
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