Mortgage companies have a number of federal and state regulatory matters with which to comply. At times, it may seem difficult to keep it all under control. But when it comes to mortgage compliance, what you need to know is that you don't have to go it alone. We put together a list of eight tips to help you.
TRID Disclosure Audits
TRID (TILA-RESPA Integrated Disclosure) is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. TRID requires mortgage companies to combine the Truth in Lending Act information they provide consumers when they apply for and close on a mortgage with the Real Estate Settlement Procedures Act (RESPA) information lenders now must provide borrowers at settlement.
These disclosure rules are a big challenge to the mortgage industry and they apply to most closed-end mortgages. The Consumer Financial Protection Bureau promised another rule on this issue in April 2017 that will clarify some of the points commenters raised during the open comment period.
Home Ownership Protection Equity Act (HOPEA) & State High-Cost
In 2013, Congress passed the HOPEA, which requires mortgagees to provide additional information to consumers who buy high-cost homes. The types of mortgages covered by HOPEA include purchase-money, refinance, closed-end home equity loans, and open-end credit plans. States also have rules that apply to the lending involved with high-cost homes.
State Consumer Credit & Fee Restrictions
States and municipalities often pass consumer credit laws against predatory lending. They often contain fee restrictions. They also control licensing laws and regulations with respect to lending. With so many state laws, financial institutions that operate in multiple jurisdictions sometimes find it difficult to comply with all the different rules.
RESPA GFE and HUD-1 Disclosures
RESPA revised the Good Faith Estimate (GFE) rules that mortgage companies must provide borrowers at settlement. Mortgage companies must provide a good faith estimate of the total closing costs in a real estate transaction within 3 days of receiving the loan application. Such costs include legal fees, title searches, title insurance, recording fees, notary services, pest and house inspections, document preparation, taxes, and fees for surveys.
RESPA also forbids lenders to take kick-backs on the loans or require borrowers to use a specific title company.
HUD-1 Disclosures, on the other hand, contain the actual closing costs (compared to the Good Faith Estimates), and the lender must allow the borrower to review the HUD-1 form for 24 hours before settlement.
HMDA Filings and Data Analysis
The Home Mortgage Disclosure Act (HMDA) requires mortgage companies to report to their regulators data that shows whether or not they provide credit in the geographic area where they locate their offices. The data also lets government officials target investment dollars to areas that need growth investments.
Flood Zone Determination
The Flood Insurance Reform Act of 1994 provides disincentives for property owners to live in flood-prone areas. The Act ties flood insurance premiums to the flood risk, so flood-prone areas mean higher premiums for those property owners. The law requires lenders to use flood insurance maps to identify whether the property the borrowers want to buy lies in a floodplain. If the property is in an area prone to flooding, the borrowers must buy flood insurance (which may include higher premiums) to protect their investment interest.
Due Diligence and Audits
Compliance for mortgage companies encompasses more than following the "letter of the law." The way forward for mortgage companies is to follow the same level of compliance required for banks. That means conducting due diligence, assessing risk for fraud and identity theft, assigning compliance officers, and training employees in compliance matters. It means complying with Anti-Money Laundering laws and Suspicious Activity Reports.
Mortgage companies today need to take advantage of cloud services in order to stay on top of the ever-increasing regulatory requirements. To talk more about compliance challenges and how ABT’s suite of cloud IT services can help, please contact us.