By:Maria Moskver
August 21, 2019

Mortgage Tech Is Compliance Tech

We’ve written in the past about the reasons the mortgage industry badly needs a technology makeover – and about how most so-called “digital mortgage” solutions don’t really live up to their promise.

But no conversation about mortgage technology can go very far without addressing the issue of compliance. At Cloudvirga, we firmly believe that mortgage tech is compliance tech – that is, any technology that hopes to meaningfully transform the mortgage lending space must take a compliance-first approach.

Here, I’ll lay out three key compliance principles for mortgage technology innovators to adhere if they want to have a substantial impact.

1: Compliance is a Competitive Advantage

Most mortgage tech companies have two customers in mind: the borrowers who will use the technology to power the mortgage, and the lending companies (banks, credit unions, independent lenders) that will implement the technology to improve their processes.

For both groups, having a compliant platform is a competitive advantage.

Lenders must adhere to rigorous regulations at the federal and state levels. They have little motivation to partner with a technology provider that has questionable practices around any of the many regulated aspects of the mortgage lending industry, from data collection and storage to ADA compliance on the site design to disclosures and license numbers provided on the website.

A mortgage tech provider that purports to simplify part of the lending process but doesn’t explicitly comply with state and federal regulations is likely to create more headaches for lenders in the long term in the form of fines and penalties from regulators like the CFPB.

From the perspective of serving borrowers, it’s important to keep the big picture in mind. Whether it’s in the mortgage space or the transportation space, tech is tech. The goal of a technology startup is to make people’s lives better.

In a highly regulated industry, that means serving customers in part by adhering to all relevant regulations. A mortgage technology company doesn’t serve its customers or partners if it fails to facilitate processes in the ways mandated and defined by the regulatory bodies that oversee those processes.

2: Mortgage Technology Should Be Designed for Compliance

To actually clear the hurdle of compliance in a space like mortgage lending, technology startups must be designed with compliance in mind – that is, they can’t be built as if compliance weren’t a reality and then retrofitted.

To make that possible, of course, mortgage tech companies must first be aware of the many regulations that exist in their space at both the federal and state level and have a system for keeping up with the frequent changes to these regulations.

The specifics will look different for every organization. A compliance program should be based on a company’s size and the complexity of what it’s offering. That might look like, for example…

  • An adept infosecurity IT team equipped to create and implement a data governance policy that meets basic data privacy requirements.
  • A mortgage industry alum on staff who can point developers, designers, marketers, and salespeople toward relevant guidelines and help to interpret them as they create new products and processes.
  • A chief compliance officer for an organization that offers multiple products or services that are subject to regulation.

One crucial piece of accounting for compliance is designing with the understanding that regulations vary between states and countries, in the context of data privacy, and will change over time. Compliance-first tech should be easy to adapt and update as the regulatory space evolves.

3: Consumer Advocates Are Pro-Innovation

Often, we hear about regulators in the consumer protection space when they’re issuing enforcement actions to those who don’t comply with various regulations. But, it’s important to recognize that these groups are generally supportive of innovation.

After all, their job is to advocate for things that advance the consumer financial services industry – and they also happen to consider protecting consumers an important part of that advancement.

While adopting an attitude that’s friendly to advocates like the CFPB may not sound like much of a guiding principle, this mindset can have a noticeable impact on the culture within a mortgage tech company.

When compliance leaders speak about regulators as partners who are similarly invested in solving problems for customers, these leaders communicate that compliance is a core part of the mortgage tech company’s DNA, rather than an inconvenience that must be dealt with.

This mindset is crucial to sustaining compliance-first design and development, which in turn is critical to maintaining the competitive advantage that compliance offers.

Playing by the Rules Demands Creativity and Excellence

Regulations in the mortgage industry have, until recently, discouraged the kind of widespread tech-fueled disruption we’ve seen in most other industries: because the mortgage space is so highly regulated, the technology that transforms it must comply with its regulations.

That’s a high hurdle to clear.

But just as the world’s best athletes aren’t deterred by the restrictive rules of the games they compete in, we at Cloudvirga aren’t deterred by the challenge of compliance. In fact, we embrace it. Because our leaders have deep experience in both mortgage and technology, we’re uniquely equipped to do what we’re doing, which is to transform the mortgage lending space with technology that streamlines and simplifies the entire process for everyone involved.

And we will continue to do that as the regulatory space evolves.

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