QUESTION
As a stateside licensed mortgage
lender with multiple state licenses, I have many thoughts about the exam
process, but I am hesitant to raise any of these issues with the examiners. I
really would like to know some tips on how to handle examinations involving
NMLS guidelines. So, what are some Best Practices involving the NMLS
examination readiness?
ANSWER
I recently attended the 10th Annual
Conference and Training, held in New Orleans, for the Nationwide Multistate Licensing System
& Registry (NMLS). One
of the breakout sessions was entitled Examination
Best Practices: Maximizing Your Resources. The session was moderated by a
former senior state regulator and the panel included two senior examiners with
multistate examination experience. Rounding out the panel was a prominent legal
and regulatory compliance attorney and the head of examinations for a very
large multistate lender licensee. While the panel licensee was from a
multistate environment, the following commentary relates both to single state
and multistate examinations.
Point of Contact
One of the keys to ensuring a
successful audit is to establish one point of contact from the licensee to
interface with examiners. Doing this will streamline the process by directing
examination issues to the right people in your company. Also know that having a
single point of contact will eliminate misinterpretations of what is being
asked for, since multiple phone calls from more than one person tend to cause
problems. Selecting the contact person should focus on individuals who can
coordinate the examination tasks. They should have strong business
relationships with the parties involved and be an organized multi-tasker.
Stakeholders
It is crucial that the people who talk
with the examiners are those people involved in the specific
area of the company under review.
Simply put, if financial issues are involved, bring in the financial
person to discuss those issues.
Excessive Legal Reviews
One aggravating factor for examiners
is when the company runs all requested documents through their legal team. As
one regulator put it, each examiner is getting paid to sit there whether they
have documents to review or not. Legal review of all documents in advance can
create the image that the files are being scrubbed. The point was made by the
attorney on the panel that there are instances when books and records need
legal review relating to issues of privilege.
Examiner Selection
One of the suggestions from the
mortgage community is for the regulator to carefully consider who is named as
the Examiner-in-Charge (EIC). They need to be highly qualified, because sending
green, inexperienced people into a large company exam is counterproductive. But,
if it must be that way, it is essential to surround the EIC with very
experienced examiners. A related pain point is when well-meaning and well-intentioned
EIC’s do not read or understand the issues or misinterpret issues.
Responding to the Examiner
It is a good practice for companies to
reach out to the examiners within 72 hours of receiving the exam notice.
Regulators are generally open to negotiating the information request due date
and answering any clarifying questions from the company. A strong EIC will
welcome comments from the company so long as it is done in a polite manner. EICs
do not want company employees to feel hesitant about speaking out. It is a
tricky process to reach out to the regulator. The company needs to consider the
relationship that it has with the regulators. Is it warm or cool? The company
point person should get to know the EIC and establish a relationship.
Mortgage Call
Report (MCR)
The licensee should be certain that
the information submitted on Mortgage Call Reports is accurate. The loan list
should be reviewed to ensure accuracy in advance of the start of the exam. The
company should also establish an examination checklist. Tasks are entered into
an Excel spreadsheet as well as additional tasks as the examination proceeds.
This is a highly effective tool for effective exam management. If you are
unsure of how best to configure and file MCRs, you may want to contact us, as one
of our practice areas is Licensing and Mortgage Call Reports.
Keep Notes
The company should take minutes of all
meetings and conversations. This is extremely helpful as it allows you to refer
back to topics or to respond to the examiners, in the event an issue escalates.
The company should review its
complaint log in detail. What are the major issues that caused the complaints?
Hopefully the issues will be training issues rather than legal issues.
Multistate Submissions
A pain point for companies in the area
of data submission in a multistate exam is having to send the same data
multiple times to participating states. While some of the large examinations
are not that way, you should expect some à la carte requests from the
participating states. While on the topic of data, the multistate exam process
regulators make a conscious effort to use one template and have the EIC review
and add state specific requests. This results in a single request for
information with state specific items added to it.
Consumer Financial
Protection Bureau (CFPB)
Some multistate exams are coordinated
with the CFPB. Work is done ahead of time and some of the work is done on site.
In most cases, the state work will wrap up and the CFPB will remain on site for
a longer period of time.
Manage
Expectations
On the first call with the regulators,
you need to develop solid expectations for the exam process. Go through the
examination request timelines and discuss procedures. Ask simple questions as
to regulator expectations and the list of deliverables. Proceeding in this
fashion eliminates many obstacles. Not doing this can be detrimental to your
exam. Managing expectations is critical. While keeping things on schedule is a
challenge, no one likes surprises!
Checking Status
During the engagement, do not be
afraid to ask the regulators what they are looking for or what they want. By
not asking these questions, you set up a sequence of events resulting in more
scrubbing and the appearance that you are hiding information from the
examiners. Be certain to provide the information that is being requested.
Transparency
One of the suggestions from regulators
is to bring to their attention anything that you find which may be a violation of
statutes or regulations. The regulator will likely clear the item at the end of
the examination. Additionally, doing so creates a trustworthy relationship. The
regulator is not doing the examination to create a fine. In fact, it is their
goal to not impose fines and penalties. The goal is to reimburse the consumer
while getting the attention of the licensee. The licensee should not be hearing
about something for the first time during the exit interview! The process works
both ways in that the company needs to be responsive to requests the first
time. The exit interview is a two-way street. Both the company and the
regulator should exchange information in this process. The regulator will
inform the licensee of the findings of the exam during the exit interview.
Alan Cicchetti
Director/Agency Relations
Lenders Compliance Group
Executive Director
Brokers Compliance Group
