Why is Mortgage Compliance So Important?
The term “compliance” is thrown around constantly in the mortgage industry for a good reason. The mortgage industry is regulated by the CFPB, HUD, Cal BRE, and the Fed, among other entities. These organizations impose myriad rules and regulations that every company must comply with. As a result, companies can incur massive fines and/or go out of business altogether when they are out of compliance.
JVM obsesses with compliance for three reasons: (1) To obey the law and do what is right for our clients (many of the rules are beneficial), (2) To avoid getting audited and fined by the regulatory agencies (the fines can be enormous and have put companies out of business), and (3) To ensure all of the loans we fund can be resold on the secondary market.
With respect to fines, there is a mortgage bank in our area that had to pay a $19 million fine for violating a loan officer compensation rule that many considered a gray area. Unfortunately, the CFPB didn’t see it that way and very aggressively pursued the punitive action.
Being able to sell loans on the secondary market is the most significant factor. Investors will not purchase loans out of compliance even if the default risk is near zero. A single out-of-compliance loan can cost a mortgage bank tens of thousands of dollars or more (they either have to refinance the loan at cost or sell the loan at a steep discount). Mortgage banks have to be able to sell loans to survive.
A $5 billion mortgage bank was put out of business in 2016 primarily because they had an entire pool of loans out of compliance. As a result, they could not sell any of the loans, and it wiped out their liquidity.
This is extremely important for Realtors and borrowers to understand because compliance is why so much paperwork is required. It is essentially why transactions take as long as they do (and often get delayed).
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
