Mortgage Industry Shows Growing Concern for Managing Loan-Level Compliance Risk

SAN FRANCISCO--(BUSINESS WIRE)--ComplianceEase^®, the nation’s leading provider of mortgage risk management solutions announced today that, despite an overall downturn in the mortgage finance industry, the company experienced unprecedented adoption of compliance technology in 2008. Attributing the growing interest to complex new legislation and increased regulatory oversight seen by the mortgage industry in 2008, the company’s continuous monitoring of regulatory developments across the country indicates that the trend is likely to continue in 2009 as part of a continuing response to the global credit crisis.

“With the industry facing a perfect storm of challenges including decreasing margins, lack of resources, and increasing regulatory oversight, technology appeared essential for the industry to manage loan-level compliance risk”

Despite a lagging global economy and an overall downturn in the U.S. residential mortgage market, in 2008 ComplianceEase added close to 150 new financial institutions and service providers to its growing list of ComplianceAnalyzer^® customers. The company also saw regulatory agencies in ten states pilot with a technology-based mortgage lending examination initiative that is eventually expected to be adopted across the country. Leveraging patented web-based, software-as-a-service technology, ComplianceAnalyzer automatically conducts regulatory compliance audits on every loan an institution originates or acquires, in real-time.

“With the industry facing a perfect storm of challenges including decreasing margins, lack of resources, and increasing regulatory oversight, technology appeared essential for the industry to manage loan-level compliance risk,” said John Vong, president and co-founder of ComplianceEase. “New Federal and state legislation aimed at protecting consumers and increasing regulatory oversight will help the industry to regain credibility. However, lenders and originators must prepare themselves to operate in this relatively uncharted regulatory environment. The 2009 compliance landscape is going to be much more intense for the industry than years past. Lenders will need to leverage technology and automation in order to mitigate the regulatory and litigation risks,” noted Vong.

Without question, concern for increasing regulatory requirements and enforcement drove much of the compliance technology adoption in 2008. According to ComplianceEase’s research department, which continuously monitors current and pending regulation across the country, the group tracked more than a hundred different pieces of legislation governing the terms of mortgage loans in 2008. That legislative activity spanned 34 states and represented about a 30% increase over 2007. Adding to the complexities at the state level was a myriad of additional legislation governing mortgage lender and broker licensing and business practices. ComplianceEase and its team of legal experts expect the trend to continue in 2009 amidst growing public opinion that a lack of regulatory enforcement is to blame for many of the lending practices that went unchecked in prior years and may have encouraged the present mortgage credit crisis.

Don Lampe, outside regulatory counsel to the company and partner at Womble Carlyle Sandridge & Rice, PLLC, explained some of the trends he and his firm are observing, “What you saw in years past was a focus by the states to curb the so-called high-cost lending, effectively placing ceilings on the total rates and fees that lenders could charge. We expect the states to dig deeper below the surface of what is charged on a loan.” Mr. Lampe and ComplianceEase expect that the industry will face new restrictions that zero in on what specific types of rates and fees are charged, how they are charged, and whether they are deemed appropriate for the borrower and loan in question. This all adds up to a new standard that many in the industry refer to as “suitability”, placing the burden of proof on lenders to demonstrate that each and every loan they make is “suitable” for their borrowers. The combinations of fees and terms that can be included on a loan are virtually endless, necessitating the use of technology to place automated compliance controls on every loan that’s originated or acquired.

In 2008 sweeping changes were also made at the Federal level to the three most significant pieces of mortgage lending regulation: The Home Mortgage Disclosure Act (HMDA), the Real Estate Settlement Procedures Act (RESPA), and the Truth-in-Lending Act (TILA). The Federal government also effectively imposed its own set of reforms on mortgage licensing and oversight at the state level by passing the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (commonly referred to as SAFE Mortgage Licensing Act or simply the SAFE Act). In addition to setting minimum standards for mortgage lender and originator licensing, the act calls upon states to grant their regulators authority to examine, in detail, the books and records an originator keeps concerning its operation. States are likely to spend more time looking at the overall lending operation of licensed originations, not just how much they are charging on individual loans.

For Franklin American Mortgage — one of the fastest growing mortgage companies in the United States — the choice to place automated compliance controls on every loan they originate was an easy one. Increased legislative activity across the country made automated compliance technology the only way to continuously adapt their business to the changing lending environment. Burton Embry, vice president - compliance and quality assurance at Franklin American Mortgage explained, “Without technology in place I don’t see how any reasonably-sized lender could be sure that their loan production was 100% in compliance with all of the applicable Federal, state and local laws and regulations. With far fewer outlets to sell our loans and much stricter guidelines, it’s more important than ever for us to maintain a reputation for quality in the industry. ComplianceAnalyzer enables us to do that without additional manpower.” With no signs of slowing in mortgage lending regulation, increasing numbers of mortgage industry participants are expected to follow suit and turn to compliance technology in 2009.

ComplianceEase’s comprehensive compliance solution has not only allowed the mortgage industry to adapt quickly to new types of legislation, it has facilitated the monitoring of lending trends at a much more global level within organizations. ComplianceAnalyzer, now used by some state regulators in examinations, produces dashboard reports that enable lenders and regulators to analyze trends at a high-level, drilling down to individual loans where needed. The move towards a more “global” view of lending and compliance will be a natural response to mortgage regulators’ desire to examine the entire lending operation.

About ComplianceEase

ComplianceEase, a division of LogicEase Solutions Inc., headquartered in the San Francisco Bay Area, is a premier provider of intelligent business solutions to the financial services industry. ComplianceEase's patented platform includes ComplianceAnalyzer – the mortgage industry's leading automated compliance solution. ComplianceEase combines industry and regulatory compliance expertise with innovative technology to power beginning-to-end solutions in a fraction of the time and for a fraction of the cost of traditional approaches, while providing high levels of accuracy and integrity. ComplianceEase's significant and growing client base includes four of the top five mortgage lenders in the nation, and over 250 financial institutions, service providers, and regulators. Managed by a team of highly experienced and innovative mortgage professionals, the company is funded by the First American Corporation, the WI Harper Group, and the senior management team. For more information about ComplianceEase, visit www.ComplianceEase.com.