Conference of State Bank Supervisors and AARMR Issue Examination Guidance
September 29, 2015
By Anna DeSimone
September 29, 2015 the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) issued an industry bulletin from the Multi-state Mortgage Committee (MMC). The bulletin was issued to mortgage lenders in order to make their supervisory expectations regarding the use of electronic examination tools clear. The bulletin is reproduced below.
The MMC relies heavily upon technology that provides for a complete loan review. The use of this technology allows regulators to more efficiently and effectively evaluate risk and minimizes costs associated with examinations. State regulators expect mortgage lenders and brokers to provide data that completely and accurately reflects the status of their loan portfolios in a timely manner and in an acceptable format.
During some recent examinations, the MMC has observed that certain companies were unable to provide comprehensive and accurate data in an acceptable format. These exams are more costly and disruptive to companies as the exam team typically spends additional time attempting to resolve the data issues including, at times, manually entering data into the system. Moving forward, the MMC will consider companies that provide incomplete and inaccurate data to be non-compliant with state requirements regarding records production, including the adequacy and accuracy of those records. As a result, the MMC will cite in multi-state examination reports any problems obtaining useable electronic data during the exam and will recommend state regulators take enforcement action as necessary.
Background Information:
The MMC began an initiative in 2008 to modernize the examination platform used by state regulators. The MMC achieved this goal by utilizing technology that assists examiners in reviewing loan transaction data. An automated compliance review system allows for computational and transactional review of a larger statistical sample. This review includes an analysis of virtually every loan originated or funded by the institution. This automated approach
provides pre-screening for file review and assists in determining the ultimate scope of the examination, thereby allowing for a more targeted and risk-based approach to the examination.
State regulators issued letters to the industry in October 2009 setting expectations with regard to the use of this new technology, while acknowledging that a certain passage of time would be necessary for licensees to meet expected data integrity levels. The regulators set an expectation that full participation in this electronic examination process be in place by early 2011.
To date, despite years of preparation and anticipated compliance, the mortgage industry has regularly failed to provide clean data in a format acceptable to the regulators’ technology platform. A common problem with data uploads revolves around the way the loan fields are arranged, and a lack of data reconciliation by the institutions with regard to post close files. Adjustments to the transaction that occur at, or after the time of closing are part of the transaction record and must be included within the data uploaded in order for the records to be complete and accurate.
The mortgage crisis made clear that a sampling of a de minimis segment of a company’s loan portfolio is inadequate for identifying pervasive systemic risk. The use of technology to scan a loan portfolio for violations has been in existence for many years, and will increasingly be an approach used by regulators in assessing a company’s level of compliance.
The MMC will continue to rely heavily upon this technology, and will consider companies that cannot provide data that is complete, accurate and properly formatted to be non-compliant with respect to records production. In an effort to move those in the industry that remain unable or unwilling to provide the data as requested, the MMC has elected to recommend to state regulators to take an enforcement action should a company be unable to timely provide data that accurately reflects the status of its loan portfolio. The states may take action for the non- compliance. The issues that have impeded the regulators’ ability to conduct electronic examinations must be rectified, and when resolved, will enable a more efficient and timely regulatory process.
About the Author
Anna DeSimone is President and Founder of Bankers Advisory and Principal of CliftonLarsonAllen LLP. She can be reached at Anna@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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