Get Your Whole House in Order

Now’s the ideal time to double-check mortgage policies and procedures.

September 16, 2013

As credit unions address the systems, policies, and procedures directly impacted by new mortgage regulations that become effective Jan. 1, 2014, it’s an ideal time to double-check compliance with all mortgage regulations.

Two areas warrant the particular attention of credit union staff:

1. Fair lending policies. Examiners have taken a hard line on fair lending compliance recently. Credit unions, with their “people helping people” and community-oriented philosophies, generally aren’t guilty of the kind of overt discrimination that would raise an examiner’s eyebrows.

But a credit union lending team might unwittingly establish policies that indirectly discriminate against a particular group in the local community. “Disparate impact” has come under intense scrutiny by Consumer Financial Protection Bureau (CFPB) examiners.

Credit unions must research the local market and review lending policies at least annually to ensure their employees aren’t unintentionally discriminating.

Staff—or a trusted compliance partner—should pull the Federal Financial Institutions Examination Council (FFIEC) Disclosure Statements and compare data with similarly sized and similarly located financial institutions.

If you find a substantial shortfall in the number of loans granted to minority applicants, lending officers and credit union leadership should dig further, asking:

What policies or procedures might be limiting our ability to serve minority applicants?

What separates us from our peers?

How can we adjust our underwriting or change our policies and procedures to bring our lending record in line with other credit unions our size in our community?

Introducing this annual selfexamination during new mortgageregulation implementation will be a natural fit for some credit unions.

2. Home Mortgage Disclosure Act (HMDA) accuracy. Human and system errors on HMDA forms can cause problems for credit unions. These forms allow government monitoring of fair lending practices across all U.S. financial institutions.

In visiting a great number of credit unions each year, it’s not unusual for me to uncover clerical, software, and human errors in the reporting of applicant data. These errors cause a mismatch in the information the credit union collects and the report it submits to the FFIEC.

In most cases, the errors are unintentional and overlooked. But as we know, in the eyes of examiners ignorance is no excuse.

To avoid these errors, implement the proper policies and procedures for HMDA accuracy. For instance, credit unions should outline procedures for loan officers and data-entry staff to verify, check, and double-check their work.

Also, a credit union can establish a policy calling for annual internal audits to ensure data on the Loan Application Register matches that on the credit union’s mortgage applications. If a credit union performs hundreds of loan applications each year, it’s prudent to perform a routine check more oft en than annually.

For credit unions with faulty software, the FFIEC offers its free 2013 HMDA data entry software.

Another resource staff might find helpful—particularly in the development of HMDA policies and procedures—is the FFIEC’s “Guide to HMDA Reporting: Getting It Right!” In addition to a summary of responsibilities and requirements, the guide includes directions for assembling the necessary tools and instructions for reporting HMDA data.

While it’s imperative credit union staff understand impending mortgage regulation changes, it’s also critical not to lose focus on mortgage lending compliance as a whole. Examiners won’t take it easy on you simply because the compliance burden has been heavier in recent years.

Bringing the entire house into order now—when mortgage compliance is on the radar—will yield the most efficient implementation.

JASON SKEMP is director of compliance solutions for PolicyWorks.

The services provided by PolicyWorks shouldn’t be construed as legal services, legal advice, or in any way establishing an attorney-client relationship.