Dancing with Dragons (or Regulators) on Mortgage Compliance

Posted on Posted in Mortgage Broker Compliance

Over the last year I have noticed a disturbing trend with small to midsize Mortgage Brokers. Now, before I get started, I am sure there are a significant number of Mortgage Brokers doing everything possible to comply with the vast number of rules and regulations that exist both on a state and federal level.

dancing-with-dragons-mortgage-defenseUnfortunately, there are also a significant number of Mortgage Brokers who have come to the conclusion that there are a number of ways around compliance that will add a great deal of profit in their pockets. They are blatant, arrogant and have no respect for the industry or the borrower. My company, Mortgage Defense, Inc. has run across a number of these entities throughout the course of doing a project for another entity, and their behavior is appalling.

We are talking about the very basic major violations of Real Estate Settlement Procedures Act (RESPA) with kickbacks to financial advisors, attorneys, construction companies, and other entities they don’t even try and hide within some vague Marketing Service Agreement, also known as a MSA.

A couple of companies were so blatant they had W-9s from various front companies with the amount of kickback written on the top of document expressed in points!

Many companies never issue another Good Faith Estimate other than the original, and haven’t a clue when a “Change of Circumstance” is warranted and a new Good Faith Estimate is triggered. It’s like watching a bunch of cowboys do business with no regard for the law.

So, you ask how are they getting away with these actions and staying in business. It comes down to a couple of simple facts.

First and foremost, after watching the Consumer Protection Bureau operate for a few years, they know they will never have to deal with the Consumer Financial Protection Bureau (CFPB) as they are just too small. Even isolated complaints are unlikely to trigger any response from the CFPB. In short, these Mortgage Brokers have no fear of the CFPB ever darkening their door.

Secondly, this leaves enforcement to state regulators and, unfortunately, they still have some serious issues as a result of the number of players in the industry. Reduced entities operating in the mortgage industry have significantly reduced revenue, the number of auditors and the required training to make them outstanding auditors.

Some of the above items are frequently missed or are effectively hidden by unscrupulous Mortgage Brokers, get past an initial audit and then have years to prey on the borrowing public.

I hope this condition will surely change as we not talking about people who need to suffer fines, but rather individuals who need to be removed from the industry nationwide and put in prison. Until then, they will continue “Dancing with Dragons” feeling they are small to be seen and will hide in plain sight.

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