Wednesday, May 1, 2013

Is the Compliance Industry Using Fear-Mongering to Extract a Pay Raise?

An article in a recent Housing Wire report titled "The CFPB's Gonna Audit You.  Deal With It." repeats a current theme seen much more frequently in the last 1 1/2 years, since the Consumer Financial Protection Bureau has staffed up with auditors and launched investigations.  In my view the spectre of an unannounced CFPB audit might be fear-mongering on the part of the compliance industry in search of a headline to stir up business.   The CFPB's radar is directed to a certain segment; large non-federally regulated multi-state lenders, those companies marketing high risk products on a national basis, and lenders whose names appear too frequently in the complaint database.

The message is that an ounce of prevention is worth a pound of cure.

From my perspective the really large, multi-state lenders are not in denial and have made great strides to prepare for CFPB audits.  Some that I have spoken with have already experienced an examination.  In fact, we owe them a debt of gratitude because these lenders have spent a huge amount of time and effort educating the regulators - many of whom are not familiar with the mortgage business - and correcting many basic misapprehensions.

One of the biggest misapprehensions the CFPB had was that these lenders represented a vast population of completely unregulated and unsupervised businesses who did whatever they wanted without any oversight.  We know that is far from true.

This doesn't mean smaller lenders should be complacent.  While it is true that the CFPB does not announce an examination schedule substantially in advance, the degree to which you must prepare should be tempered by one fact:  Most non-bank lenders deal with a multitude of state regulators whose audits are far more frequent, selective and in-depth.  If your company has been examined by Texas, Utah, Washington, Oregon or a host of other hyper-vigilant regulators, you know what I mean.  In addition, FNMA/FHLMC and FHA audits/examinations also provide insight into the standards they expect from many areas of operation that overlap with the CFPB's audit scope.

Here is the take-away for all non-bank lenders - small and large alike:  The state regulators now have the CFPB examination playbook, in addition to the ARMR and CSBS examination guides.  YOU WILL BE AUDITED BY YOUR STATE LICENSING AUTHORITY.  If your compliance budget doesn't contain five or six figures and you want to be prepared, read these guides and take a look at how your operating policies and PROCEDURES address the areas these guides reference.

One suggestion is that, if you are a FNMA or FHA lender, go through the operational audit process making sure your operating plan is as comprehensive as the one we lay out.

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