This will be a little jumbled:

I'm still fairly new to lending compliance (1.5 years in this role). Before that, I began as a processor, learned basic underwriting, and worked as an originator. Over the last 1.5 years, I've learned the lending regulations and am fairly confident that, given some time and the regulation itself (even better, an Internet connection) I can answer most of the questions that pop up.

My question is, now that I have a somewhat solid grounding, how do I help to improve the efficiency and compliance of my lending department? I think about fast food because, say what you will, but a Big Mac's a Big Mac whether you're in CA or NY. Analogously, a refinance transaction, for ex., should always have certain disclosures (federal & state-specific) in file. We always get the main disclosures, but we're often getting some disclosures at closing or otherwise scrambling around after post-closing reviews. It's very labor intensive. Maybe that's the nature of the beast.

I serve a pretty experienced staff, and while many of them know how to cook a hamburger, what's missing is the standardization, the button pushing. I think part of it is that, rather than handle a file soup-to-nuts, there's a processor, an underwriter, a closer, and a post-closer. Also there's the fact that I've been learning on the job. Also, there's a lot of disclosures to keep track of, more than before.

But some more experienced hands out there in compliance roles must have worked out systems to make sure things keep humming along, all while doing things the right way, no? I wonder if there are any simple ideas anyone would be willing to share? Maybe this is a search for the Holy Grail.

You are very right in your overall assessment. For most banks and bankers lending (especially retail and mortgage lending) is pretty formulaic, like fast food drive through... Order, pay, pick-up. In that same vein, I had the pleasure of speaking with a McDonalds executive at a conference... my wife and I had recently noticed the automated drink filler that certain company owned locations were using. My wife and I were fascinated and asked the executive about it. Her response was quite simple... she said we (McDonalds) have reached the point where our effeciency is measured in seconds and that machine saves about 5 seconds in the drive through process per soda order. So when we did the math of our drive through numbers (which you can imagine at McDonalds) we were saving enough time to fit 10 more cars into the drive through over the day... Price per order x 10 X the number of drive throughs... and you get the picture...

So the point of my story is that in order to make your process better, look for ways to save a few seconds here or there... don't add steps to a process unless you are taking other steps away later. A mistake many of us make in compliance is adding "compliance" steps to a process without reducing redundant steps previously built into the process for "compliance". I generally encourage our lending area to tell me if something, anything, is taking them longer than they feel it should or if there is a way that THEY, who do this stuff all day long, can improve the work flow. I then take their suggestions and evaluate them for compliance purposes... they have been right 95% of the time, we can cut an action or combine a proceudres and still stay compliant. You said your team was pretty smart, so ask them for help, chances are they know where you can improve the process, without being a "compliance heavy"...

It isn't so much that it is the Holy Grail, just that there isn't one grail to choose from... Think Indiana Jones... Cup of a Carpenter, not cup of a king... choose wisely.

Cheers!

Several years ago I implemented a file review for each real estate file that is closed. It was labor intensive and extremely frustrating at the beginning. I track all exceptions found and report those to the audit committee. This allows us to track trends and discover where we may need more training, etc. Loan Officers and processors got tired of being on the "list" and started to pay more attention. It has been a good thing and the file reviews go much quicker now because we have a routine.

I also think you need to know the culture in which you're working. Here, there are a lot of people who resist change. The thought is "we've always done it this way, so there's no reason to change". Obviously some times change is required, whether we like it or not. When that's the case, I've found it best to really educate those as to why the change is needed. Even if it's just because a new or revised regulation dictates we have to. Between that, and pointing out the possible consequences to not complying, people tend to be more responsive.

I agree with RR Sarah. Holding people accountable tends to get their attention. I've just found it best to do so AFTER they've been informed about the new level of accountability. Then, it's not as often looked at as a "gotcha" move.

Time management experts refer to that as "the benefits of focus." In short, it means that when people know their work is being reviewed, that every exception will be drawn to their attention, and that too many exceptions will be noted in their salary reviews, they simply do a better job. (It also makes them pay a lot more attention in training sessions.)

In our little world, it also deflates the assumption that "compliance" is the compliance officer's job.

I have to congratulate Ishmael on the use of a subject line that drew attention to this thread. With over 1.7 million posts on Bankers' Threads, grabbing the readers' eyes is sometimes a challenge.

First, thanks for all of your responses.

With regards to the subject line, of course I aim to amuse. What got me thinking about my role in this manner was a news item I heard about on the radio--my constant companion throughout the workday--about a lifeguard who was fired after saving a swimmer drowning outside of the lifeguard's designated lifeguard area. The lifeguard was employed by an outsourcing company. One of the pundits suggested that outsourcing firms tend to take a "fast food" approach to things, introducing "systems" but removing the advantages of judgement and experience, thereby driving down wages. One thing I enjoy about working for a smaller bank is that I get to play a larger role in decisionmaking, versus being an interchangeable part. But I digress.

AFaquir, I like the idea of equilibrium; introduce something new, look for something unnecessary to take away. I also like the idea of looking for incremental process improvements, and having those improvements add up.

RRSarah, I've just reinstituted a post-closing file review, and it totally bogs me down. My hope is that as I keep finding the same issues, every "finding" becomes a mini training opportunity. My reservations are that I personally like my colleagues, hate playing "gotcha," hate the thought that I could affect their performance reviews, and candidly wonder what those above me will think when they see all the results tallied up. I don't think compliance reports from lending should necessarily be 100% clean.

Ken_Pegasus, I like the idea of baking compliance into the cake and the "benefits of focus." However, I also like to think of compliance as my job, probably because I'm a control freak.

Again, thanks for your responses, subtle nods in the right direction, etc. Any other wisdom?

I can totally relate to the feelings and concerns when you start reviewing and find way too many problems. When I first took on compliance responsibilties and found unexpected problems, it was somewhat overwhelming.

I've approached it from the perspective of not playing "gotcha", but identifying a need, whether it's training, policies, procedures, etc. Then I work to fill that need. Most people respond better when you approach them with the attitude that you want to help them do better and provide them the necessary tools to do so.

It doesn't guarantee total success (don't think that's possible), but I've seen some huge improvements here through that process.

I couldn't agree more with Sewanee there... When I took compliance I completely abandoned the "compliance review/audit" piece of loan files. I could see the mistakes and felt like finding them was not doing anything to SOLVE them. We don't, nor have we ever, conditioned compliance mistakes as part of the annual review... so I didn't even have that as a weapon.

However despite not being a part of the review compliance was so interwoven into the lending process that there was no freedom of thought needed or required by the lending group. Deviations from the "norm" were just handed off to compliance to solve to the point where no one knew what the "norm" was, everything funneled through Complaince. At that point the whole process became very VERY rote for the lending team. We had to break the habits... For the first few months I got questions that weren't even really compliance questions, they were loan Ops... so I kept pushing the decisions back to Loan Ops, usually with a note or language from a reg... They stopped coming to me now unless it is REALLY a deviation from the norm.

I have used the reporting-as-a-weapon tactic in other projects, but those things were really FUBAR. I generally use that as an absolute last resort because that's what people expect from us as compliance folks and I find it emboldens them to push back harder when you make a mistake (and WE make mistakes)...

Good topic! Compliance Management isn't really covered all that often... generally just rules and regs and interpretations!

I review files BEFORE closing. Make sure the big docs and regs are covered properly.

From a compliance standpoint it works because the only thing missing is signatures.

From a fellow employee standpoint, they look at me more as a guardian angel than a she-devil. I find their errors in time for them to be corrected.

Makes post-closing work so much better. Not to mention our internal audits and exams have gotten much cleaner too. It's certainly not 100% but it is much much better than it was.

I like my co-workers too but am glad that there is the possibility of repercussions because it means that management is serious about compliance and backs me up. I can say that the file review has been very successful and, as far as I know, the issues haven't been serious enough to impact any job reviews or pay.

I do have to say though that it all comes down to the mentality of your staff. If the LOs here make the list I don't get blamed. They know it is not my fault (unless I have not provided adequate training). I have had some of them plead their case and we can have an open dialogue without any animosity.

Thanks again for your replies.

Maybe some of my uncertainty comes from not being "the" compliance officer, and having been with my employer for less than two years. I'm in my early thirties, which passes for young here, and am working with people with 10, 15, even 30+ years of experience. There's some resistance to change, not that that's necessarily bad.

I like the idea of shifting my post-closing review to pre-closing; a lot of unsigned disclosures, for example, could probably be signed at or just before closing if all else fails. We have a post closer, and my post-closing review covers some of the same territory.

Any ideas for making said disclosures always go out on time? I've thought of pre-assembling application packages for different loan types, highlighting where to sign, etc.

And AFaquir, where do you draw the line between lending and operations? My conception is that I have to be competent down to the most granular areas of lending, know the whys behind everything. But operations aren't necessarily where my strengths lie.

First thought, determine what MUST be signed and why. If there's no regulatory requirement but rather a procedural 'we've always done it this way', get rid of the signature lines and just deliver the disclosures.

I share a Quality Control Checklist with the post closing area. my pre review covers about half of the docs so all they have to do is review signatures and make sure the rest of the docs come in the closing packet properly completed.

I can certainly appreciate where you're coming from and the frustrations of the position you're in. I just hit 1 year in my position last week, was a loan processor before this, and am late 20's working with more than a few people who have been "doing this longer than you've been alive" and don't always want to hear my opinion on things. Having a background in the lending area is hugely beneficial in that you understand how it really works, and don't just have a high-level training on what they do.

What options do you have in your origination software for disclosure timelines? Ours throws up a red flag once the necessary parts of the application have been filled in and whenever you open or close the file it pops up an alert that "Disclosures are due by X date, do you want to disclose now?" So it makes it pretty much impossible to forget. Then it tracks in a disclosure record when disclosures were due vs when they were actually sent and won't print closing docs if the necessary requirements weren't met. It's not fool proof (or tricky originator proof), but it's certainly a good tool to have.

If you deal with secondary market loans, most investors require pre-closing reviews as part of the QC program. They have some good checklists and such available to help guide you and the department to ensure that all appropriate documentation is included (minus state or investor specific pieces of course), that might be a resource as well.

Thanks Truffle and MattB.

Truffle, I think your advice on paring down things like unnecessary signatures is good. I'm also balancing regulatory requirements against "best practices" and a seemingly extremely low tolerance for risk (not that that's a bad thing), leading to things like Anti-Steering Disclosure, Receipt of Changed Circumstance GFE Disclosure, etc.

MattB, we use Calyx, and one weak spot for me is that I'm not totally fluent in Calyx, so setting up egg timers for various disclosures isn't something I can do all on my own. I'd also wonder if it's good to be an expert in Calyx...if I know the regulations, guidelines, etc., isn't that enough? Good thought on the QC checklists; we do have investor loans, and there's no need to reinvent the wheel.

Going middlebrow, interesting article by Atul Gawande in this week's New Yorker. In the article, he takes lessons from the Cheesecake Factory restaurant chain and imagines how they could be applied to surgical practice to generate better, more consistent, more cost-effective surgeries. Many parallels with getting a mortgage to closing, I thought!

Also examines emerging hospital chains that are putting said ideas into practice, and the resistance some managing doctors/nurses with oversight responsibility face when they are perceived to be acting as "Big Brother." Bottom line was that all of the tools, training, etc. were for naught without buy-in, and in some instances there were good reasons not to buy-in.

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