When things are done right you have to communicate it to others. I was given permission to share with you, what I think serves as a great model for others who are struggling with marketing compliance. A year ago it was not uncommon for loan originators to have their own web pages, under their own “team” or “group” name. Nor was it uncommon for Facebook pages, Tweets and emails to be sent that were not reviewed for compliance. In fact, for many companies this is still the case. In today’s world, none of these loose practices will fly with the CFPB. Leader One Financial has set a great example of taking the highest priority tasks, making them compliant and increasing their marketing outreach substantially.
Step One: Herd the Websites
Each originator can still have their own identity, but they can no longer be a rogue agent. This can be a tough thing to do since many top originators have created their own identity over the years. So the first thing they did was a complete overhaul of their web presence while at the same time providing individual pages for their originators. Compliance and Marketing worked together to make sure that the look, feel and set-up met with the compliance standards of today and marketing made sure it was relevant to get business in the door. They then created policy regarding the use of your own sites. Additionally, they mapped all leads to go directly to the individual loan originator so that business would not be missed and management could monitor the outcomes. Each loan originator has their own web address to advertise on their collateral material.
Step Two: Corral Social Media
This means consistent googling, policy and procedure around what your employees post. Tracking and archiving posts need to be set up as well. This means approving some messages, creating some example messages and archiving all messages. When compliance approves messaging, it gets archived. If anyone deviates from this policy, management can be informed because of the monitoring in place. It is important to communicate the difference between personal messages which are an employee’s private business, versus use of the company name or services provided which is not private business.
Step Three: Rein in the Marketing Materials
The next step was to take the marketing materials in existence, make them compliant and expand the availability of more and consistent materials. This involved compliance and marketing working together again to ensure that the information being communicated such as the contact information and disclaimers were in place. It also required marketing to create the same look and feel, while still maintaining individuality for the originator. Additionally, policy and procedure were locked down to ensure that formats could not be changed and other areas could be changed, to accommodate individuality.
Step Four: Ride the Technology Wave
How do you make sure that 300+ originators market the same way and in a compliant manner? Take it out of the originators hands while ensuring that they are happy with the results. This means defining a campaign that occurs automatically and uses technology, during the processing of the loan and continues as a campaign after the loan closes. To do this, you need to tie your marketing to your pre-created milestones. When a file reaches a milestone or date, a video message or email is sent out. All of it is archived, time stamped and compliant.
This is the system my son Brett Butler created as the National Marketing Manager for Leader One. Brett will tell you that I am harder on him than anyone else. Yet when you create what can only be described as a compliant marketing model for the industry, which also generates more business than the previous model…..well I can’t help but brag on him! Great Job Leader One! I hope that others consider your model and implement it!
If any of you have a model that you would like to share, I would love to write about! Just let me know so I can brag on you too!
Time to re-create and re-engineer how you do business! The good news is that it probably isn’t the way you used to do business but it is far more profitable! The bad news is that it will take a little work.
Many have asked me for advice on how to get their loan officers to comply with the new regulations.
Does the following sound familiar?
“My loan officers are not listening and just doing what they want to do! It is really going to get our company in trouble!”
It is evident to all of us that we are going through some extreme changes to the way that we used to do business. We are now required to work differently and change up our processes. Failure to re-engineer your workflow and system processes lead to chaos, lost employees and poor exam results.
The old way of marketing was to rest that task on the shoulders of the loan originator.
This now presents some big issues for compliance:
- Every flyer has to be approved (or the template approved and locked down) by compliance.
- Each type of marketing, when it occurred and who received it must be documented.
- Compliance cannot typically turn out an approval under the time frames requested by the LO or their Realtor.
So now what?
Well I have seen some highly innovative ways that correct this and make everyone happy.
- Connect a consumer information campaign to your LOS so that pre-created materials, reminders and emails are sent based on milestone changes as the file processes. This keeps the LO on task, the consumer informed, and the real estate agents in the loop. All of this is done automatically through the system and all of the information is archived for exam purposes.
- Automate drip campaigns to the clients, real estate agents or builders you want to target. Each campaign is customized to the lead owner, automated and archived.
- Create a Compliance/Fair Lending checklist if the compliance department needs to review a flyer. The responsible party answers the questions and submits the flyer to the compliance department. The compliance department is under strict policy of their own to turn that around within a pre-defined time period.
These are just a few ways innovative lenders are choosing to do business. The results are simple.
- Higher Purchase Production
- Happy Consumers who send referrals
- Happier Originators
- Lower LO Attrition-Easier Recruiting
- Happy Examiners
The biggest benefit that I see is for the executive management team. You are now generating the metrics you need to properly evaluate your business, keep controls in place and demonstrate a truly well run business!
I’ve heard it said that some companies choose not to do social media or web sites because of the risk. When I hear that I’m perplexed because it is the main form of communication with the highest probable purchase client today. It is also not going to go anywhere and will continue to evolve. Finally, it is imperative if you want to recruit top producing originators.
With all of that said, there are ways to put compliance management systems on marketing and social media just like any other area of risk. As part of the workflow series, here are some things to think about when formulating your policies, training and monitoring.
First and foremost, any employee that is allowed to advertise with your company name, or their name as your employee, should be trained in UDAAP and the FTC requirements as outlined in this link FTC rules
Otherwise they may do something that gets your company into hot water.
How is your company website set up versus the websites of your originators? Ideally, the company manages this from a master site, but each person has their own website where their leads and clients can visit. This allows you to control the content, update disclosures and keep the information compliant.
If you choose to allow loan originators to have their own site, strong policies and procedures should be written as a guide to complying with all laws. Additionally, you will need someone who is tasked with regular review of those sites to avoid any issues. Be mindful that the CFPB is very tech savvy. One of the things they do prior to an exam is to review your websites, google your originators and your company. What they find becomes part of your exam and you do not want to be surprised by this. So as part of your procedures, someone needs to perform this function as well.
Facebook, Twitter, Linked In, etc!
These are all great marketing tools, but like any marketing with your name tied to it, content has to be monitored. What are the parameters for an acceptable posting? What can they post? What can’t they post that will cause triggers? Do they have any guidance on how to use these tools to outreach to consumers so that they stay out of trouble? Who will monitor and archive this information? What is the penalty for non-compliance?
Print Advertising and Marketing
Flyers, Open-House flyers, mailings, newspapers are all areas where loan originators pretty much did what they wanted to. In today’s world, you not only have to approve and monitor all of this, you also need to archive it. If you have pre-approved templates for loan originator use, what is the policy to send you a copy each time they do something? How will you monitor that they are sending a copy to you?
Design of your marketing materials should be done in a way as to not exclude a prohibited basis client. Additionally, your marketing efforts should include multiple regions of your MSA including underserved and high minority areas. These marketing materials should be written in a way as to describe what you are marketing in a clear manner. For instance, you do not want to advertise a loan program in Spanish and then put the important disclosures in English. That is deceptive.
If the company or loan originators are buying leads are they cause redlining issues? Criteria for viable leads should only be targeted based on program qualifications and not cherry-picking the MSA. If you choose to refer leads to an in-house originator for lower loan amounts or lower credit scores that is a viable option. Just be careful that these loans are not given higher interest rates or fewer program options then a similarly situated client from one of your branches. Otherwise, you have pricing disparity issues.
Next topic is Redlining!
Risk and compliance management include far more than a written document on the basic regulations for our industry. If you have those in place, that is a great start, yet just the absolute beginning.
The CFPB has repeated the phrase “Compliance Management Systems” over and over again. This tells me that they will not show much sympathy if your company does not demonstrate that in an exam.
Here we go with another checklist!
•Does your company have compliance personnel sufficient for your company size? If not, has your company contracted with outside sources to fill in the gaps?
•Does your company have policies and procedures in place for all regulations related to each line of business?
•Under the job description for each position, do you list the required regulations the employee should be familiar with and the training resources available to them? Is this tied into their performance objectives to ensure compliance?
•What training needs to occur for each position and what is the time frame? How do you monitor and track that?
•Is the “best friend” of the compliance person the CFPB examination manual? They need to have read, digested, and broken apart the entire 900+ pages. The “I didn’t knows” are not flying with the CFPB examiners. They published an exam manual, and listed in great detail how they will evaluate your company.
•Do the compliance personnel have a deep understanding of the technologies you use and access to those systems? I have heard from a few compliance executives that they are not allowed access to some of the systems that set policy for the company. What?? C-Suite decision makers, these are the people protecting your company and your pocketbook. At least one compliance lead needs access to any technology that sets policies or touches a consumer.
•Does the top decision maker in the company stay involved, updated and lead the compliance charge? This is important as your staff goes through enormous changes this year and next. If it is not important to the people running the company, it will not be important to the staff.
•What is your internal audit and exam process? The CFPB will want to see that someone who reports directly to the board or executive management, and has no ties to any department being reviewed performed the audit. There are 3rd party service providers that can perform this task for your company and may demonstrate an objective opinion to the examiner.
•How do you manage the oversight of compliance? There are lots of spokes to this wheel, so proper tracking is a must and one that the examiner will require seeing. Will your system impress them?
•Does executive management have regular meetings that identify potential risk issues and then formulate solutions to mitigate that risk? The examiner wants to know you are on the lookout for problems and that you fix them when you find them.
•What do your consumer risk policies look like and how are they monitored? This includes complaint resolution, systemic changes based on complaint trends, monitoring of the consumer facing staff and a written plan of action.
•Do you have your Third Party Vendor oversight plan available and can you demonstrate how you monitor them?
•Are your pricing adjustments or underwriting guidelines out of touch with the market and potentially lead to disparate impact, redlining or fair lending issues?
•Are you tracking every single pricing exception?
•Is all of your marketing (no matter what type) reviewed, archived and monitored?
This process is an enormous amount of work for many of you, yet well worth the intense effort needed. Just ask anyone that is currently under “monitoring” for their practices. It is not fun and it is more time consuming then what it will take, to get your compliance and risk management moving in the right direction.
The Top 10 Actions Mortgage Executives Need To Take Now!
The new compliance world revolves around intense record keeping, data integrity and data tracking. Careful thought needs to be given as to how your company intends to accomplish all of this. Those who have had the CFPB exam are finding out the hard way, that how they do business needs to change. A good deal of that change is upgrading your technology solutions, detailed workflow models, compliance management systems (including monitoring and reporting), Vendor and TPO management and more formalized training. This means creating positions in leadership that may never have been considered before.
Areas of Actions
1. Loan officer compensation
•Plans and qualifications
•Breakdown and trace of where every dollar of their compensation came from.
•What was their compensation plan for any day in the last 3 year period?
•Details of the compensation to test for QM thresholds.
2. Mortgage Options and Pricing Options For Consumers
•Can program or pricing options be pulled from any day in recent history?
•Even if you printed the available loan options on the day of lock, will your technology go “back in time” and verify all available loan options for a consumer within minutes? The nightmare would be, an examiner asking for this data on 300 files, and you had to do it by pulling old rate sheets. The dream is being able to do this in minutes with your technology.
3. Discount Points to Pricing Correlation for each day in the last 3 year period to verify “Bona Fide” discount points.
4. Reconciliation of Closing Statement to Allowable Charges for LO Comp and QM.
5. Fair Lending/Redlining and Disparate Impact Calculations and Distributions. Software that relies on closed loan data does little to help you before a loan closes. The goal is to capture a problem before it happens. After all, would you underwrite a loan after it closed, instead of before it closed?
6. Training Courses
•What are they?
•When are they required?
•Who is required to take the training?
•How do you monitor acquisition of knowledge by the employee or vendor?
•How do you monitor dates completed?
7. Qualification Tracking to Document QM/ATR Before Closing.
8. Marketing, Social Media and UDAAP; Tracking and Monitoring.
9. Vendor and TPO Management (This includes monitoring their compliance.)
10. HMDA Data Applied Correctly (many lenders have had to re-do their data after a CFPB exam! Yikes!)
I believe you are going to find, that like your banking counterparts, significant investments need to be made in technology solutions to make your life easier and more compliant. The additional cost involved will no doubt be passed onto the consumer. Anytime there is additional regulation this is a consequence of that action. Executive leadership is being asked to REALLY think “outside of the box” to accommodate the new mortgage world. Just as important, is flow of data and communication between the departments. The mentality will be the “mass works as one” versus “my” department and “your” department. This is why you are starting to see “Change Management Officers” which report directly to the CEO or board.
Note: I realize you are reading this from someone who works for a technology company; so I may seem biased. What you may not realize is that before I joined Optimal Blue I did intense research on who was the most cutting edge, and exhibited a cohesive data flow, for the regulations coming down the road. That is why I am here, and not at another technology company. If you don’t know how our recent developments will assist you, please pick up the phone or email us. This way you do not have to say “I didn’t know you guys offered that”. Those who have contacted us, drink less, and take fewer Tylenol (or at least that is what I hear)!
The First Credit Decision
I am calling this next series the “Think List”. I have developed them to help your management teams gather together, and think about fair lending priorities for 2013. I hope you enjoy them!
Credit discretion starts with the first person in your company that communicates with the consumer. For years, companies have focused on credit discretion as it relates to the underwriting of the file. A file was defined differently amongst lenders such as “when we have a loan application”, or “when we have a loan application and all supporting documents”, etc. What many executives do not understand, is that not having effective monitoring at the first communication, leaves the barn door wide open for fair lending issues. After all, if you do not have monitoring in place in the beginning, how do you know if your front line is in violation consciously or sub-consciously? Remember, the more that you demonstrate your compliance management systems to the CFPB the happier they are.
______ When you train your front line for Fair Lending, do you also give them common scenarios that may pose an issue? Are the scenarios then discussed, as to the appropriate way to handle the situation? Or, do you just ask your staff to jump online, take a course and then check off the “training” box?
_____ Define all of the ways that a customer can contact you. From there review the common workflow and communication for each step until application. This will assist you in setting up policy, monitoring and oversight.
_____ How do you track the inquiries into your company? How do monitor how your employee’s follow up? If your policy is built around responsiveness, do you monitor it? If not, you really do not know what is happening and this may trip you up on an exam. A common technique during the exam is to review the policy and procedures, and then speak to the employee responsible about their knowledge of the policy or procedure.
_____ Do your sales managers have a higher degree of fair lending training, so that they can spot issues?
_____ Do your sales managers listen in on a certain percentage of calls to understand how consumers are being handled?
_____ Does the sales manager follow up with those who did and did not apply to talk with them about their experience?
_____ Do the operations managers do the same monitoring for their staff?
_____ Is the knowledge gained from this monitoring, then translated into sales/support guidance with Fair Lending in mind?
_____ How do you monitor those who are “discouraged” to apply? For instance, a loan originator tells a client that their credit score is not sufficient to support a mortgage loan. Is there a procedure for someone more senior to check the scenario? Or, are you allowing credit discretion at the level of the loan originator?
_____ How do you monitor inquiry emails and the promptness of their return?
_____ Do you assign areas to your loan originators that allow maximum coverage of your MSA’s? If so, how do you monitor whether or not an originator calls on all of those offices, and offers credit options fairly?
_____ Do you “mystery shop” anyone that communicates with a consumer? If not, do you hire out to do that? This demonstrates how you monitor, find an issue and then correct it. It is much better to know this information from your own source, versus CFPB mystery shoppers or non-profit mystery shoppers.
The CFPB and the DOJ have upped the ante on what are acceptable practices. Certainly, we are not used to this level of scrutiny. Yet, since it is here, it will serve you well to address the holes in your business before those holes become a problem for you. More “Think Lists” are on the way!
This will be the last checklist in this segment of your Fair Lending assessment, relating to your market area. Don’t worry, there are more on the way for other topics! Today’s checklist helps you determine your marketing risk. Just like the previous lists, mortgage lenders have to adjust their business plans to accommodate the new regulatory environment. This checklist will help you evaluate your present marketing and how you may need to adjust it to be compliant.
Checklist #4 Marketing:
_____ Make a list of all of your marketing. This includes media, print, social media, originators, radio or anything else you are doing.
_____ When you introduce a new product, how do you roll that out? Is it only to certain areas, if so, is there a reason for that? Will that methodology make sense to an examiner? Do you roll it out to all areas of your MSA? If not, why?
_____ When marketing is expanded or contracted, is strategic thought given to the fair lending plan as well as the marketing plan?
_____ Is your marketing done in a language appropriate for the area you are targeting? If you are using another language, are the disclaimers and disclosure terms in the same language as the marketing piece?
_____ When you market, do you track your results so that if marketing is not working in an area, you have statistical evidence to back up your efforts?
_____ Are all of your marketing messages, including email solicitations and social media from mortgage originators, reviewed and approved by compliance?
_____ How do you monitor what goes out? What are your policies for marketing? How do you reprimand someone who violates that policy? Remember, that the examiner is looking to see that the executive management is engaged and corrective when a problem is found.
_____ If you showed your marketing material to a complete stranger, would they believe that you consider some types of borrowers less desirable? Or, would they see marketing that reaches across all types of clients?
_____ When a TPO uses your materials for marketing, do you know how they are using it and whether they are violating fair lending protocol? You will be responsible for their actions and monitoring them.
_____ Do the TPO’s that you approve to do business with, solicit only one type of client or ethnicity?
_____ Do your marketing materials portray people who you desire as clients, and neglect to portray clients that are more ethnicity/race neutral? Keep it neutral and inclusive!
There is certainly much to think about as we prepare for the massive regulatory changes in January. Hopefully I gave you a head start on the guidelines we already know about.
I Wish You and Your Loved Ones a Beautiful and Fantastic Holiday Season filled with Many Blessings!
Disparate Impact, Fair Lending & Redlining:
Checklist Number Two-Market Delivery
Today’s checklist helps you review any issues you may have, with how you get your products to market. How are you delivering your products to your geographical region? Following are the questions you might want to answer, to determine if you have any pending fair lending, disparate impact or redlining issues. I like using a big white board to brainstorm these questions, with the necessary parties in your company.
_____ How do potential clients in your MSA know that you exist? Define any possible means.
_____ Do you archive your marketing materials? If not, make sure you start that practice along with archiving your social media. This should be a detailed archive of how was it was distributed and when.
_____ Do your products, pricing or terms vary by areas within the same MSA? Warning, other lenders have been stung hard on that one. The regulators will allow this with a “business justification”, however, most lenders have a tough time proving that. If you are going to stick to that policy, I recommend seeking expert legal counsel and consultants.
_____ Are you offering any incentives, pricing differences or underwriting differences in the same MSA? The goal is to prove that your offerings are applied equally and consistently.
_____ Do you discourage, through higher pricing or different underwriting criteria, loans from “certain areas”?
_____ Do you know the protected class composition of the loans you originate, based on each production channel? If so, have you defined areas for improvement, and developed action plans to correct that disparity?
_____ Do you vary your marketing by channel? If so, how does that affect your protected class consistency? Think about this. If you spend $1 million dollars in advertising to get loans in the higher priced sections of town, and $2000 dollars on the “other side of town”, you may want to re-think your marketing budget and outreach plan.
_____ How do you market differently per business channel? What are the reasons? Is marketing consistently applied to offer access to credit in your geographic area?
_____ Do you switch out vendors (i.e. credit bureaus, contract processing, underwriting, etc.) for business channels or geographical areas. If so, is the client receiving the same price, service and results? Also, be sure to document why you do this, and how they are getting the same price, service and results.
_____ When you offer products to the market as a wholesale lender, do your representatives attempt to offer your products in all areas of your geographical outreach? Look to see if they or your company is “cherry picking” the perceived “good areas” and ignoring the rest.
I suspect that many of you are shaking your head at the new scrutiny that you face. One client told me “that’s it, I’m retiring and I’m going to be a greeter at Wal-Mart”. I certainly understand his frustration, because this is definitely a new business model for mortgage bankers. I just ask that you consider that although it is different, it may still be workable. Remember, the regulators do not expect perfection in your execution. They do expect that you can demonstrate you are trying, monitoring and correcting issues when you see them. Do that and you should have few issues.