How to Prepare Your Diligence Process for 2022’s Regulatory Environment

When preparing your lending business for a strong 2022, compliance is a vital consideration. 

Like housing markets and mortgage rates, the compliance environment tends to move in cycles: When more politically conservative administrations are in power, they ease the regulatory climate, reducing oversight and scrutiny. More politically liberal administrations, meanwhile, tend to intensify their regulatory focus, putting more pressure on compliance, quality control, and due diligence processes and causing lenders to tighten their diligence efforts.

So far, Joe Biden’s presidency has impacted mortgage lending in many ways, including within the compliance and regulatory sphere. Specifically, Rohit Chopra, Biden’s pick to run the Consumer Financial Protection Bureau (CFPB), is expected to embrace a “watchdog” role with a level of enforcement not seen since Obama’s administration.

A new administration can mean dramatic changes for lenders. Because the changes Chopra enacts now will last for years, lenders need to prepare their practices for the regulatory environment ahead. Here are a few tips to help you gear up.

3 steps to enhance lending compliance for 2022’s regulatory environment

1. Create an airtight loan fulfillment process

To protect yourself against costly violations, you’ll first want to ensure your loan manufacturing process supports accurate, quality loans. By taking a hard look at the origination side of your business, you can audit your processing and underwriting to get a feel for their thoroughness and precision. The goal here is to create an airtight process; if your compliance officer or leadership team unearths errors, you’ll need to dig in further to patch holes and inject rigor.

When auditing your processes, you’ll also want to consider the benefits that technology and partnerships could lend to your operations. While smaller lenders may lack internal roles overseeing compliance, there are now highly effective tools like Maxwell Diligence that leverage technology to produce fast, dependable outcomes in the diligence process.

By leveraging powerful technology that augments the people in the process, you’ll benefit from additional checks on manual components. Acting as a safety net, these additional checks provide security necessary for today’s regulatory environment.

2. Invest in high-grade QC

Within the landscape created by Chopra, QC will become a vital area of focus for local lenders. Increased scrutiny by state regulators, larger lenders, and Fannie Mae and Freddie Mac during the due diligence process will heighten the quality expectation of loans sold by smaller lenders. In turn, smaller lenders will need to ensure their QC is high quality, reliable, and accurate.

The QC process will become crucial for smaller lenders to continue to see success in selling their loans. Here, technology will again help in providing additional checks, as well as detailed reporting, to ensure a quality product.

Maxwell Diligence, for instance, offers innovative services that apply automation to create a transparent, efficient, accurate QC process. Alongside those diligence services, the Maxwell Fulfillment team of underwriters, with an average of over 12 years’ experience, produces trusted, dependable outcomes by leveraging industry-leading technology.

3. Lean on experts

Compliance and diligence are prime examples of where skimping on processes, quality, and expertise will only cost you in the long run. To future-proof your lending business against violations and other issues, set yourself up for success by partnering with a provider whose leadership team holds decades of mortgage experience. Doing so will give you the best chance at staying compliant even during periods of high scrutiny.

When it comes to choosing a third-party diligence provider, be sure to look for substantial mortgage operational experience. The goal is to set your compliance and diligence programs up for success in such a way that regardless of the changes any administration enacts, you’re protected. A quality partner will help ensure that.

Now is the time to prepare for regulatory change

A strong diligence process is important at any time—but when regulatory landscapes are tightening, it’s especially vital to take a long, hard look at your systems and procedures before it’s too late. Luckily, technology-powered solutions have come a long way in the diligence space and are now able to provide the additional peace of mind you need to rest assured that your loan manufacturing process is up to par.

Want to ensure your diligence process is prepared for increased regulatory scrutiny? Click here to learn more about Maxwell Diligence.

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