Back when I got started in this business, I was lucky enough to have been hired by a multi-billion dollar financial service giant; they had a large and competent legal & compliance department. Back then; I watched the legislators and regulators put forth two major laws. These were earth shaking at the time, changes so profound countless companies went out of business because they couldn't or wouldn't comply. The ground-breaking Federal Truth in Lending Act (TIL) was the first big one I remember (all about revealing to customers the salient facts about their loan, a new fangled thingy called APR, new lawful advertising standards (trigger words), etc.). Then a half dozen years later, our favorite enforcement friends at U.S. Department of Housing and Urban Development, brought us the Real Estate Procedures Act (RESPA) (recently popularized by one illegal referral/kickback scheme after another being uncovered; with numerous people and firms fined and some jailed). To truly understand how far reaching these two laws go, is a full time job for many lawyers all across the Nation. On both a State and Federal level, how are you expected to keep up with these and one new law after another; seemingly every other month? I guess we all need to be quasi-attorneys, or something.
Also, in addition to guidelines from the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) (these written guidelines are in 4-inch thick binders each BTW), which many wholesale funding sources closely follow, both in their product offerings and others. Originators need to be up to date to stay in compliance, but how? There's plenty of liability to flow down to originators when there's problems, that's for sure.
We've also got the Office of Federal Housing Enterprise Oversight (OFHEO) coming regulation to require Fannie Mae and Freddie Mac to report mortgage fraud or possible mortgage fraud to OFHEO in a timely fashion, how's that going to effect you? And what about the Office of Thrift Supervision (part of the Department of the Treasury) and their Home Mortgage Disclosure Act (HMDA) are you in full compliance? Or what about the Department of Labor and their Federal Wage & Hour Act and the havoc it's playing with LO compensation these days? How about the Office of the Comptroller of the Currency (OCC) Guidelines to Prevent Predatory Residential Mortgage Lending Practices. As an originator, what about your responsibilities to obtain high quality appraisals for properties (liability doesn't stop with the appraiser), especially in light of the recent reminder to lenders about their accountability for appraisals. We've also got the Federal Reserve Board's Equal Credit Opportunity rules. Bet you wish you had that million+ dollar annual budget legal department, huh?
Do you own a good shredder? You need one. You now need to pay extra close attention and adopt measures for properly disposing of consumer information derived from credit reports. This now implements section 216 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) and include this new statutory requirement in the Interagency Guidelines Establishing Standards for Safeguarding Customer Information (re-titled the Interagency Guidelines Establishing Standards for Information Security), which were adopted in 2001.
And there's more … Section No. 307 of the Sarbanes-Oxley Act obligates corporate lawyers to report when they have "credible evidence" that there has been or will be a violation of securities law, fiduciary obligations or similar common-law duties. The company can waive attorney-client privilege. Title IX imposes potential jail terms from five to 10 years, payment freezes for officers and directors, employment blacklisting and fines of as much as $500,000. Regulation Z of the Truth in Lending Act, as detailed in Section No. 112, provides for criminal liability for anyone who "willingly and knowingly" fails to comply. You can serve as long as one year in prison, pay a $5,000 or both. Do you even know what Section 112 is? Regulation X of the Real Estate Settlement Procedures Act, as detailed in Section Nos. 3500.14-15 and 19, provides for fines of as much as $10,000 and one year imprisonment for failure to comply with the prohibition against unearned fees and kickbacks (the notorious Section 8 we all know and love). Violations of Regulation B of the Equal Credit Opportunity Act, as detailed in Section No. 202.14, requires the U.S. Department of Treasury's Office of Thrift Supervision to report discrimination practices to the U.S. Department of Justice for prosecution. Are you real sure your LO's follow this one to the letter? Violations can result in civil liabilities for actual and punitive damages, class-action judgments, fines from $10,000 to $500,000, costs and attorney fees. Violations also can be referred to the attorney general for prosecution under various federal laws. Regulation E of the Electronic Fund Transfer Act, as detailed in Section No. 915, imposes criminal liability and penalties including fines of $5,000 and one year imprisonment for willful violations; for fraud, the penalties can be as much as $10,000 and 10 years in prison. The Bank Secrecy Act and its implementing regulations, as detailed in 31 CFR 103 and 12 CFR 563.177 to 180, permit the imposition of criminal penalties upon the institution and the individuals involved. Fines can be as large as $500,000 or include 10 years in prison.
A couple of big ones in the news a lot lately - the Federal Trade Commission - CAN-SPAM Act and the FCC - Do-Not-Call ("DNC") laws Rules and Regulations Implementing the Telephone Consumer Protection Act (TCPA) of 1991 are a couple of immense new regulations that hit rather hard on what you can and cannot do in the marketing arena. These can kill your business, with just a few mistakes by LOs (like buying Internet leads where the seller tells you they scrubbed the phone numbers against the DNC list – you call the consumers and you get nailed anyway if they made a mistake)!
Then we've got more, like the Patriot Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act, each enforced by the Federal Trade Commission; Gramm Leach Blilthy Financial Modernization Act of 1999 – Privacy Statement (where you can get easily burnt by LO's or processors working on files at a home office), Home Mortgage Disclosure Act, Equal Housing Opportunity, the Fair Lending Notice Housing Discrimination Act 1977, and various individual State laws and regulations applicable to mortgage lending activities such as others from Treasury, IRS, Federal Reserve Board, FASB, EEOC, Federal Wage & Hour Act, etc. - and of course State & Federal civil and criminal statutes as well and on and on. More than I can even think of today.
Big companies spend hundreds of thousands of dollars trying to keep up; do you think you can learn all you need to know from an Internet chat-room or from Google? You need to face up to the fact that staying up to date you need to spend money, or staying in business will become more and more problematical for you!
With nearly 500,000 people employed in our industry; they all need help understanding how to comply with these run-away legislators. Especially since the vast majority of them are on the origination side, and are very entrepreneurial bunch without hundreds of thousands of extra dollars lying around to staff hefty sized internal legal departments.
To supplement legal advice that surely is needed from time to time – I can recommend a pretty good economical solution to this daunting task; it's what I have done in my own long career in the industry. (1). Subscribe to several top of the line trade papers/journals and read them closely and frequently, and (2) join both the National and your individual State Mortgage Broker and Mortgage Banker trade associations. They all do a good job helping their members in this area. Read their publications and attend (at minimum) their individual annual conventions (that's 4 functions per year). When you go, think to yourself ‘networking and golf is good – getting better industry educated so I can stay in business is smarter' … go to as many of their sessions on these issues as you can and take a lot of notes!
This is an incredibly difficult task; we're all bound to make mistakes. However, better exposure and understanding to the compliance side is one area, which will help you stay in business. We're in a very cyclical business; mortgage operations struggle to stay in business over time – failure to follow these regulations kill a lot of them. Don't be another statistic.
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