AUGUST 2010
TENNESSEE MORTGAGE PROFESSIONAL MAGAZINE
NationalMortgageProfessional.com
36
mation for the examination time-frame. Again, the scope of the audit may extend to all of the loans in a licensee’s portfolio, so you’ll need to have all of your own loan information ready before you get tapped for an exam. That’s where technology preparation comes in. A good first step is to understand the technology that CSBS and AARMR have announced is being used in multi-state examinations. These organizations, as well as individual state agencies, have started notifying licensees about the data collection and reporting that will be expected of them. In particular, CSBS and AARMR have designated that the RegulatorConnect online Web portal at www.RegulatorConnect.org is the central point for submission of electronic loan information at the initiation of an e-Exam. State examiners will use the ComplianceAnalyzer and HMDA Analyzer audit software to conduct the electronic portions of the exams. Multi-state examinations will start offsite, with examiners receiving the required electronic loan information from the institution being examined. Examiners will run the loans through the audit software to identify loans that they want to look at in more detail, via on-site paper copies of loan files or electronic images. In the initial off-site examination phase, a lender may be scrutinized by 20 or more examiners from as many as 35 states. Ultimately, depending on whether an on-site visit is deemed necessary, five to 10 examiners will actually go on-site for the follow-up reviews. It’s important to note that this new type of examination is not just some faroff idea. As of July 2010, several states are pursuing pilot off-site monitoring programs. This means that loan information is collected and audited on an ongoing basis. Regulators build “risk profiles” of the entities they supervise, and target further examinations accordingly. For example, in a recent announcement, North Carolina stated that it will require mortgage lenders and mortgage brokers to provide the characteristics of originated loans in an electronic format on a quarterly basis, within 45 days after each calendar quarter. The state can make use of this information to track loan origination violations and, in turn, recommend companies for multi-state exams.
Getting prepared With all of these changes approaching quickly, it’s important to start your technology preparations today. A good first step is to go to the RegulatorConnect portal that CSBS and AARMR have designated as the hub for the new e-Exams. From there, licensees can download information about the necessary electronic data
formats and the submission process. Regulators require that loan information is submitted in a specific file format called a Licensee Examination File (LEF). Details about that format are available for license free-of-charge to qualified entities at the RegulatorConnect portal. State-regulated institutions can license the LEF format for use in formatting and transmitting loanlevel data required for use in e-Exams. You will first want to make sure that you have all of the required loan information in an electronic form. Depending on the size of your institution, the data may reside in multiple systems or data warehouses. Data gathering can be a chore, as any IT professional will tell you, so that’s just another reason to start preparations ahead of time. The LEF specifications will tell you what information you will need to have available electronically and how it needs to be formatted. Another option for lenders and brokers is to check to see if your systems already have built-in capability to export loans in the format needed for e-Exams. Systems of record that commonly have the necessary information include loan origination systems and loan document systems. You can talk to your technology vendors to find out whether they have built the necessary export capabilities into the systems you use. Similarly, as a mortgage technology vendor, you should be prepared for your customers to come to you asking what your systems can do to facilitate e-Exams. There is a portal called RCCertify, located at www.RCCertify.org, for technology vendors to learn more about the capabilities they can develop to assist their clients with eExams. Vendors should review the e-Exam file format to see if they have most of the required information. If so, it may make sense for them to develop export capabilities for their customers to use for e-Exams. On the compliance side, institutions can plan ahead by instituting “selfexamination” policies and procedures. Compliance auditing technology is widely available in the mortgage industry. You should identify a system that covers all of the tests that the examiners run and works together with your existing technology systems. Running audits ahead of time enables you to identify and mitigate deficiencies before you find yourself in the midst of an e-Exam. You can expect that multi-state examinations will be more intensive and have a higher profile than individual state-by-state exams. Because states can share information, a compliance issue in one state can turn into an issue with many states. On the other hand, technology should make examinations more uniform and more predictable. Combining multiple state exams into a single multistate examination should save time and
money in the long run. Since regulators have publicized the examination scope and have made the industry aware of the exact tools they will be using for the new e-Exams, you can make technology and operational plans now so that you’ll have no surprises when your first multistate exam comes around. Note: This article has not been endorsed by CSBS, AARMR or any state regulator. The information contained herein is derived and compiled from numerous publications, presentations and interviews of regulatory officials.
Jason Roth is co-founder and SVP at ComplianceEase, overseeing the company’s suite of mortgage compliance and risk management products, including ComplianceAnalyzer, which audits loans for compliance with federal, state and municipal requirements. Roth has a bachelor of science degree from the California Institute of Technology (Caltech). His previous work includes positions at Adobe Systems Inc., developing Acrobat and PDF document technology. For more information, e-mail j.roth@complianceease.com or visit www.complianceease.com.
GLBA Compliance: Save Thousands on Overhead and Make More Money at the Same Time By Andrew May
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