On March 8, 2012, the Federal Reserve Board (FRB) released the action plans for three supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing. The three institutions are HSBC North America Holdings, Ally Financial, and IMB.
This is the second set of Action Plans that the FRB has made public.
On February 27, 2012, the FRB released the Action Plans of Bank of America, Citigroup, EverBank, JPMorgan Chase, MetLife, PNC, SunTrust, US Bancorp, and Wells Fargo.
The FRB will release additional Action Plans soon.
We have been monitoring and reporting on this matter for some time in newsletters and articles.
The Action Plans are required by formal enforcement actions issued by the FRB last year. Release of the Action Plans follows reviews conducted from November 2010 to January 2011, in which examiners found unsafe and unsound processes and practices in residential mortgage loan servicing and foreclosure processing at a number of supervised institutions.
- The enforcement actions required Action Plans that describe, among other things, the strengthening of compliance programs.
- Of instructional interest in learning about the adverse findings is the opportunity to review some of the ways and means adopted by the aforementioned institutions to resolve such deficiencies.
Particularly interesting are the consistent features of the mortgage compliance programs, and the training needed to effectuate corrective actions.
I hope you will take the time to consider how best to improve your own institution's compliance program.
Jonathan Foxx *
Jonathan Foxx *
IN THIS ARTICLE
Mortgage Compliance Program
A consistent feature of the Mortgage Compliance Programs (MCPs) is the emphasis on the institution's culture. One respondent stated that its MCP includes a commitment to determining how compliance risks are considered at planning meetings, identifying the applicable resources, compliance issues, risk reporting, and employee accountability, and instituting processes to identify compliance gaps and potential risks early in the new business or product development cycle.
The following outline sums up a broad and robust approach to readiness taken by respondents. This list combines features from various Action Plans that proved acceptable to the FRB.
Controls and Supervision
An institution should have processes to determine if appropriate controls are in place when enhancements are required, and how risks and issues are tracked and escalated within the organization.
Policies and Procedures
A description of the inventory, development, maintenance, approval and communication of policies and procedures.
Monitoring, Testing, and Reporting
Processes for mapping the laws, rules and regulations to system controls, evaluating the effectiveness of monitoring activities, determining the effectiveness of the compliance mandates and adherence to such guidelines, maintaining plans for activities to be monitored, and reporting monitoring and testing results to the management.
Implement processes to ensure the qualifications of current management and supervisory personnel responsible for mortgage operations and mortgage compliance, including collections, loss mitigation and loan modification, are appropriate, and a determine whether any staffing changes or additions are needed.
Establish an independent Loan Review and Quality Control function to provide continuous transactional testing.
Comprehensive risk assessment and remediation of any identified gaps should be performed to evaluate processes, controls and compliance with these requirements.
Procedures for integrating compliance competencies into the mortgage processes, how training is tracked and measured, identifying new compliance training, and determining when employees have sufficient awareness of laws, rules and regulations.
Management Reporting and Analysis
Inventory of management reports that address compliance, processes to determine accuracy of management reports, and how compliance risks and issues are reported
Procedures for maintaining and updating federal, state, and local laws, rules and regulations, and processes for management to respond to requests from regulators.
Generally, the training is understood as the means by which to identify, manage, and mitigate compliance risks associated with the requirements of applicable laws, regulations, regulatory guidance, emerging legislative trends or issues, and operational deficiencies through training initiatives by:
- Educating staff and officers of applicable laws, rules and regulations,
- Reducing the risk of adverse actions by regulators or other stakeholders, and
- Defining, methodologically, the roles and responsibilities pertaining to mortgage training, mortgage compliance and legal remedies.
According to one respondent, the following are its "guiding principles":
- Accurate and timely communication of policy and procedure changes is a shared responsibility among mortgage training, compliance, legal and mortgage servicing business unit management, and
Training methodologies must incorporate application to an employee's role within the organization and include an evaluation to validate knowledge and skill proficiency.
Depending on the laws, rules and regulations that require training, the delivery methods include instructor-led, computer-based, and web-based solutions.
All training, including web-based instructor-led training, should be documented, assigned and reportable to the appropriate organizational parties.
Furthermore, training should be provided within the context of a variety of programs including, but not limited to, functional new hires, process changes, business development, system enhancements, and compliance instruction.
An important recognition is the intent to facilitate "a more holistic approach to on-going industry education." A respondent stated that "this approach requires more in-depth industry training as part of a prescribed long-term curriculum" and the knowledge derived therefrom would be integrated with any compliance training.
One respondent identified two categories of training methods: (1) on-the-job coaching, and (2) training.
The first training method is informal, on-the-job coaching, which occurs on an "ad hoc" basis, and is identified, developed, and implemented by the business without use of a formal training medium.
The second of training is the training facilitated by a learning team or set of modules, which is monitored and tracked by the following subsets:
- Overview of learning material with associated laws and regulations
- Relevant internal policy and procedures
- Applicable system and tool information
- Potential risks associated with failure to comply with relevant policies and procedures
- Practical application to the employee's role
- Knowledge assessment of the learning material presented
* Jonathan Foxx is the President and Managing Director of Lenders Compliance Group