Image: Thinkstock
Image: Thinkstock

The CFPB recently released its 800-plus-page enforcement manual, in which it lays out its expectations for mortgage banks and brokers. A review of the enforcement manual shows that the mortgage business is about to change forever.

The Consumer Financial Protection Bureau now expects companies to invest in compliance infrastructure to enable them to identify and fix their own problems. Across the board, it will be mandatory to retain some form of on-going compliance staff-whether it be part-time, full-time, internal or outsourced. There will need to be ongoing training of all lending personnel, ongoing reviews of policies and practices, complaint channels, identification of potential compliance problems, and constant interaction between management and independent compliance staff.

Ongoing reviews of data, affirmatively determining whether complaints are being issued, seeking out potential compliance concerns and ensuring that the infrastructure of the company-from job applications to exit interviews-all will have compliance components built in to these processes.

In essence, the CFPB expects that if you have problems, you are going to have to be able to catch them and fix them yourself.

Without doubt, the days when compliance was a discreet function limited to discreet times, issues, or positions are over. It will now be a part of daily life for every lender and broker-and every person employed by one.

Although as an industry we have as of late been justified in complaining about a lack of clarity, this is not something that can be said with respect to the CFPB's enforcement approach. The CFPB has spoken: Brokers and banks must begin assembling appropriate compliance teams and strategies to be able to police and regulate themselves. It is not the CFPB's job to ensure you follow the rules-it is your job. Indeed, the CFPB's position is that if a company is remiss in its responsibilities with respect to establishing sufficient compliance infrastructure-its role is not to educate-but to enforce.

When one looks to the vast arsenal of potential sanctions the CFPB may impose, including extinction level damages, cease and desist orders, and other extreme penalties, it is obvious that this power is now being used to alter the mortgage industry's underlying view towards compliance.  Specifically, the CFPB is now focused on creating a culture where each person has a responsibility toward compliance, overseen by staff dedicated to ensuring this culture is followed. In other words, compliance is no longer about "herding cats"-it is about setting up an overall infrastructure such that loan officers and others know that following the rules is an affirmative and paramount responsibility-not an inconvenience to be tolerated.  Moreover, the CFPB is clear that this infrastructure must be independent from management so as to avoid compliance taking a back door to profitability.

Fortuitously, the CFPB does recognize that the compliance needs of businesses will be impacted by their size, the complexity of their products, and complexity of operations. Hence, many businesses may be able to get by with outsourcing all or part of their compliance functions to an ongoing consultant and/or hiring part-time staff. Still, those persons and the company's investment in compliance must be sufficient and adequate from the CFPB's perspective. Undoubtedly, the determination as to the adequacy of compliance infrastructure will be born out by the extent to which it actually prevents and corrects violations. Hence, those companies whose violations are brought to the attention of the CFPB will have far more to answer about overall compliance infrastructure than simply responding to an isolated incident.