The term “compliance” is thrown around constantly in the mortgage industry, and it is for good reason. The mortgage industry is regulated by the CFPB, HUD, Cal BRE, and the Fed, among other entities. All of these organizations impose myriad rules and regulations that every company must comply with. 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. 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 biggest factor. Investors will not purchase loans that are 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 largely b/c they had an entire pool of loans that was out of compliance. They were unable to sell any of the loans, and it wiped out their liquidity.
This is extremely important for Realtors and borrowers to understand b/c compliance is the reason so much paperwork is required, and it is largely why transactions take as long as they do (and often get delayed).
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646