Don’t Lose Your Cool When You Get Audited
There are ways to survive and thrive a gut-wrenching process
By Phil Mastin, assistant vice president and director of regulatory affairs, United Wholesale Mortgage; and Jeff Midbo, senior vice president and chief compliance officer/deputy general counsel, United Wholesale Mortgage | bio
You’re going to be audited. Those five words will make the hair on the back of any mortgage originator’s neck stand up.
Originators know they can be audited at any time and have come to expect it as part of their profession. Given current market trends and the climate of the Consumer Financial Protection Bureau right now, originators need to be more vigilant when it comes to examinations, both at the national and local levels.
For the first time in a long time, the industry is functioning as a true purchase market, with purchases making up over 70 percent of mortgage originations. That has cranked up the competition for business in a big way, which means intensified monitoring by national and state regulators to ensure that borrowers are protected.
Now, more than ever, it’s especially important for originators to be well-prepared and proactive in their compliance efforts. Following is an overview of what mortgage originators can do to make sure they remain compliant in today’s purchase-heavy market.
Key Points
Surviving your next audit
Build a relationship with the auditor.
Prepare ahead of time for the exam.
Be organized and diligent.
Show proper exam etiquette.
Determine the best person to answer key questions.
Ask lenders for an assist.
Prepare and organize
Mortgage originators know that relationships matter, both with their borrowers and real estate partners. They should take a similar approach with their regulators.
Regulators are not the “bad guys.” They are there to help professionals in the industry be successful the right way. Their rules are in place to protect the reputation and legal standing of businesses just as they are protecting consumers’ best interests.
Don’t be afraid to communicate with them. Regulators want originators to reach out if they have questions so they can get them the information they need. Regulators aren’t going to give you legal advice, but they will frequently provide feedback as to how they approach the various rules.
Set yourself up for success. Every originator is going to be subjected to an examination at some point, so be prepared. The 11th hour is not the ideal time to start focusing on compliance.
Originators need to prioritize compliance from the moment they are licensed to avoid being in scramble mode while preparing for an examination. Don’t hope for the best when it comes to exams. Being prepared is half the battle.
Make sure that you are organized. During an exam, there is always a back and forth between originators and examiners. Be diligent about what documentation you’re providing and what’s requested of you.
This ensures that you’re not missing things and you’re fulfilling all of your obligations to the regulator. Make sure you know where your loan files are, make sure they’re organized, and make sure you can provide a clean set of documentation to the regulator. If you give them everything in a timely, organized fashion, and it’s compliant because you’ve been doing due diligence all along, it’s going to make everyone’s life easier, especially yours.
Seek the right answers
When an exam is in progress and regulators are at your office, things can be a little awkward. But they don’t have to be. Being pro-active in communicating with your examiners will go a long way toward ensuring things go smoothly.
When the regulators are communicating with you, respond in a timely and accurate fashion. If they ask for something, and you don’t have it at your fingertips, let them know you’re working on it.
By showing a sense of urgency, you show the regulators that you’re taking the exam seriously. If you don’t, how do the regulators know that you’re giving compliance in general the attention it deserves when they’re not in your office?
When it comes to compliance, don’t try be a hero if you don’t have the cape. Meaning, if you’re not the best person at your company to handle compliance, then find somebody who is. It can be another originator, an office manager and so on.
You don’t need to be an attorney to be aware of how the business is being conducted, but it is important that someone is identified who can stay on top of it. Originators need to understand their strengths and weaknesses when it comes to compliance and act accordingly, so they’re set up for success when examinations occur.
If you have questions about any of the topics covered in this article, your lender may be able to point you in the right direction. Keep in mind, lenders cannot provide actual legal advice when it comes to compliance. As a trusted business partner who typically has more resources at their disposal, however, your lender can be a good source of information. Think of it this way: A lender can provide originators with the “why” behind the way things are done. They just can’t tell you how to handle those things.
