The Mortgage Bankers Association hosted its annual Legal Issues and Regulatory Compliance Conference from May 20 to 23, which is one of the association’s largest. And although more than seven hundred industry professionals enjoyed the beautiful desert resort in Palm Springs, California and no doubt benefited from the array of issues covered—including the Consumer Financial Protection Bureau, the Real Estate Settlement and Procedures Act, the Truth in Lending Act, and examination and enforcement—some of the industry’s biggest concerns regarding legal issues and regulatory compliance remain largely unknown.
Despite the wealth of analysis and discussion of today’s issues, what we don’t hear about on conferences calls, in the news, in lunch seminars, or in the hallways of industry conferences is what risks lie ahead.
The discussion topics for panels and forums at MBA’s conference covered current litigation challenges for the origination of loans, defending your company against cases brought by individual borrowers, and discussion of the most “ubiquitous” claims and how to defend yourself against them.
The problem is that the future is unpredictable: just as we can’t always foresee what will be on the litigation panels or general sessions, neither can we police for all the potential fraud trends on the horizon. So how can lenders defend themselves from the unknown, and what can vendors do to support their customers?
As mortgage fraud by both industry professionals and borrowers continues to burgeon—the FBI reported over 93,000 mortgage-related Suspicious Activity Reports and more than $3 billion in associated losses in 2011 alone—the industry cannot afford to sit idly by.
A good place to start is also one of the most fundamental: know who you’re doing business with. If the legal risks of the future remain to be seen, then the least lenders can do is be prudent when selecting borrowers.
There are a variety of products on the market that range from the very basic to the more comprehensive that can assist in this effort.
Credit check products from Equifax and other agencies have been fundamental tools in the industry for decades. While these products are key to catching credit red flags from a borrower’s past early in the loan application process, they also provide useful information to support or disprove critical borrower-supplied information concerning residency, income and debt loads.
Widely accepted underwriting standards and automated underwriting systems, such as Freddie Mac’s Loan Processor and Fannie Mae’s Desktop Underwriter, also reflect the importance of knowing who your borrower is via their employment and banking history, and verification of the borrower’s social security number and employment.
Of equal importance for a lender seeking to prevent fraud is the need to “know” the other participants in a loan transaction. To assist in that effort, Interthinx recently introduced a new comprehensive product that evaluates all of the participants in a loan transaction.
Gayle Shank, senior product strategist, noted that the other participants represent the area where “much of the risks in the mortgage loan transaction rest.” The Interthinx Watchlist Review Module checks loan participants’ qualifications for compliance with Fannie Mae’s Loan Quality Initiative, the Bank Secrecy Act and the rules and requirements from the Office of Foreign Assets Control.
So while we wait to see what will be on the agendas for future legal and compliance conferences, it’s back to the basics until then.
