July/August 2020 Edition

Automating Lending Compliance

ComplianceEase is a leading provider of intelligent business solutions to financial services institutions. The company was founded in 2001 by mortgage banking executives and technology professionals with a shared vision to develop innovative solutions and services to help the residential mortgage industry solve fundamental problems and minimize operational risks.

The company’s commitment to deliver effective high-quality products and services has established ComplianceEase as a recognized industry standard for over 400 satisfied institutional clients.

A fundamental aspect of the company’s vision to assist prime and subprime lending institutions is the combination of extensive mortgage banking expertise with cutting-edge technology. Serving the entire mortgage ecosystem, the company’s compliance software, testing tools and regulatory file submission capabilities ensure high levels of audit accuracy for a fraction of the time and cost of traditional approaches. Simply put, ComplianceEase products help lenders originate compliant loan and prepare for examinations with electronic loan data formatting, mock e-Exams, loan-level audit reports and file delivery to regulators and investors.

The company’s Executive Chairman an Co-Founder John Vong talked with our editor’s about his vision for the future of mortgage lending. Here’s how the conversation went:

Q: You co-founded ComplianceEase in 2001, long before compliance was such a major issue for our industry. What made you decide to start the company?

JOHN VONG: I have been in the mortgage banking industry since 1986. When I started ComplianceEase, after selling my previous business to The Money Store and then First Union Bank, the Home Ownership and Equity Protection Act (HOEPA) regulation had been in place for several years. Many states and municipalities had deemed it ineffective at protecting consumers from predatory lending and began creating their own versions of anti-predatory laws. Lenders needed a way to keep track of and ensure compliance with all of these regulations. Using a spreadsheet I developed during the 1990s for correspondent sellers to use when we purchased their loans, I assembled a technology team to develop a SaaS platform for automated compliance.

Q: What is the best business advice you’ve ever received and how has it shaped your leadership style?

JOHN VONG: The best business advice I have ever received is to listen to your clients, as they are your best product development team. Different users have different perspectives. By understanding how your clients work day to day, you can develop and update your system so that it does not become obsolete. (Our internal teams learn from actual client use cases and use those insights to create solutions that ensure our clients’ success.) In addition, once the solution is implemented, celebrate with your teams and clients to strengthen their confidence in the “killer app” that was developed.

Q: What are the most challenging aspects of compliance within the mortgage industry?

JOHN VONG: Simply put: keeping up with the volume of regulations. Mortgage lenders must comply with regulations at the federal level, as well as in all 50 states and 3,242 counties. In addition, many lenders rely solely on their loan origination software (LOS) to identify and address potential violations, but only a basic level of compliance is built into most of these systems. Lenders still end up using multiple personnel, such as a processor, an underwriter, a compliance officer, or pre/post-closing QC, to perform compliance reviews at application, disclosure, closing, and even prepping for regulatory examinations. Having different people involved at each step leads to inefficiency and inconsistency—leaving lenders vulnerable to potential violations.

Q: ComplianceEase is continuously innovating. Can you please tell us about some of your newest products and enhancements?

JOHN VONG: We launched DecisionMonitor. This new tool leverages machine learning to help lenders identify and resolve common compliance issues quickly—reducing Compliance Department backlogs and expenses and delivering consistent resolutions, while accelerating loan decision-making.

In addition, we completed two major enhancements to our flagship platform, ComplianceAnalyzer. We added home equity audit functionality to help lenders capitalize on the growing home equity market and still comply with individual state home equity lending requirements. Our system now covers more than 80 types of state licensing in the 42 states that account for more than 90 percent of home equity originations in the United States. We also added the ability to audit U.S. Department of Veterans Affairs (VA) loans for allowable state charges and fees that would otherwise be considered unallowable under VA guidelines. This helps lenders to not only take advantage of allowable state exceptions, but also ensure compliance when itemizing charges and fees.

Q: How does your company manage to keep track of every federal, state, and local regulation?

JOHN VONG: We have an in-house Legal & Compliance Department, as well as a network of law firms in Washington, DC and many other states, that perform all of the legal research underpinning ComplianceEase’s suite of automated compliance products. We have gathered about 20 years of experience in tracking the movements of federal, state, local and agency laws and regulations. When a product is being developed or updated, our team ensures that rule implementation properly reflects applicable regulatory requirements. In addition, both federal and state regulators are our clients and they share their substantial expertise in all areas of mortgage regulation, especially with respect to jurisdiction-specific issues.

Q: What are the most significant changes that you have observed during your 30+ years in mortgage industry?

JOHN VONG: We’ve had three recessions during my career, but the last one, obviously, had the biggest impact on the mortgage industry. It led to the creation of the Consumer Financial Protection Bureau (CFPB), and a whole new set of rules for the mortgage industry. Although the volume and velocity of new regulations has slowed somewhat at the federal level, as I’ve mentioned, it has picked up at the state level. Complying with all of the regulations led to a sort of mortgage industrial revolution. Rapid technological advances helped lenders move compliance from a manual process to an automated one, completed at the point of origination instead of post-closing. Applying advanced technologies, like artificial intelligence and blockchain, will lead to important breakthroughs in the mortgage industry. Lenders simply need to embrace the adoption of these technologies.

Q: How is technology addressing the biggest challenges mortgage lenders face today?

JOHN VONG: Automated compliance technology is being used at the application and disclosure phase to manage changed circumstances on all documents—ensuring lenders adhere to all policies and procedures, as well as federal and state regulations. At funding and shipping, this technology is being used to perform pre-funding audits and reaffirm the compliance of all documents. Once the decision is made to hold or sell the loan, automated pool reviews and delivery of correspondent-required audits can be provided for quick, consistent review. This helps lenders become more efficient, save time and money, and identify issues that can lead to Fair Lending violations. Additionally, lenders are using automated technology to format and deliver data for regulatory reporting and e-examinations.

Q: How is compliance technology morphing into regtech and what will this look like 5 or 10 years from now?

JOHN VONG: The mortgage industry is leveraging big data with advanced machine learning, artificial intelligence and predictive analytics. These technologies are gradually being incorporated into automated compliance technology as well. In the future, this will lead to regtech solutions that can analyze and learn from the loan-level data that it is reviewing, adhere to client-contributed policies and procedures, and automatically correct any errors it identifies to expedite the origination and closing process. In addition, regtech in the future will be able to capture the steps that were taken to correct loan defects and share them with due diligence reviewers and investors—reducing the time that loans spend on warehouse lines and the cost of backend mortgage processes. In-house compliance and legal staff will still be necessary, but they will deal with more complex exceptions instead of every mundane issue.


John Vong, CMB, CMT, is executive chairman and co-founder of ComplianceEase, the nation’s leading provider of automated compliance solutions to the financial services industry. He can be reached at [email protected].