Why Eased Enforcement Doesn't Lower Compliance Risk

This article is adapted from a piece in Mortgage Professional America. Read the full story here. 

With deregulation dominating the headlines, some mortgage lenders may be tempted to ease their focus on compliance. But according to Scott McNulla, Senior Managing Director, Compliance Solutions at SitusAMC, that would be a mistake. 

While federal enforcement priorities may be shifting, the underlying laws haven't changed—and neither has the long-term compliance risk. 

"Potential deregulation or lack of enforcement is a current condition, but the possibility of enforceability doesn't go away," McNulla says. "The laws are still out there. Stay vigilant." 

Although recent executive actions have directed federal agencies to review certain mortgage regulations, existing laws remain fully in effect. Any changes to rules such as Ability-to-Repay (ATR) or Qualified Mortgage (QM) requirements must still move through the formal regulatory process. 

The most noticeable shift has been at the Consumer Financial Protection Bureau (CFPB), where enforcement activity appears to have slowed. But McNulla cautions against assuming that reduced federal activity translates into reduced risk.  

History suggests otherwise. During the financial crisis, regulators frequently examined loans originated several years earlier. The same could happen again if enforcement priorities change. 

"The current environment shouldn't be viewed as a permanent reprieve," McNulla says. "Compliance issues often surface long after the loans were originated." 

As federal enforcement has moderated, many state regulators have become more active. California offers one of the clearest examples. The state recently consolidated oversight under its new Business and Consumer Services Agency and appointed former CFPB Director Rohit Chopra to lead the organization—moves that signal an aggressive approach to consumer protection. 

McNulla expects other states to follow similar models, increasing coordination and expanding examination activity. Some states also help fund their regulatory programs through fines and penalties, creating additional incentives for active enforcement. "The scrutiny hasn't disappeared," he says. "It's simply shifted." 

Regulatory penalties are only one piece of the equation. For mortgage brokers and lenders alike, compliance failures can create lasting reputational damage. Borrowers typically associate their loan experience with the broker, regardless of whether a lender made the underlying decision. If a lender cuts corners, everyone involved in the transaction can find themselves facing borrower complaints or regulatory scrutiny. 

Consent orders and enforcement actions are also publicly available through resources such as NMLS Consumer Access, making compliance issues visible well beyond the state where they occurred. 

"A bad partner reflects on everyone involved in the transaction," McNulla says. "The long-term impact on relationships and future business can far outweigh any short-term gain." 

One area lenders can control is documentation. If a loan is questioned years after closing, the file—not employee recollections—becomes the primary source of evidence. That's why McNulla emphasizes documenting not only what happened during the origination process but also why decisions were made. 

For example, borrower intent to proceed may be recorded only as a system note rather than preserved within the permanent loan file. Likewise, changes to rates or fees may be logged without documenting the business rationale behind them. Those omissions can become significant if the loan is later reviewed by regulators, investors, or third-party due diligence firms. 

"When a loan changes hands, only what's documented travels with it," McNulla says. "If the reasoning behind key decisions isn't captured, it becomes much harder to defend those decisions later." 

Well-documented files also move more smoothly through secondary market reviews, where investors routinely perform post-closing compliance, credit, and valuation due diligence before purchasing loans. 

McNulla also believes the compliance landscape is becoming more automated. State regulators are working with the Mortgage Bankers Association (MBA) and MISMO to develop standardized mortgage compliance datasets that can be extracted directly from loan origination systems and evaluated using automated compliance engines. 

Rather than manually reviewing a relatively small sample of files, regulators will increasingly be able to screen hundreds of loans, identifying exceptions that warrant deeper investigation. That shift makes proactive quality control more important than ever. 

Lenders that regularly test loans using the same types of automated compliance reviews regulators are expected to employ will be better positioned to identify and correct issues before examinations occur. 

The current regulatory environment may look quieter than it has in recent years, but McNulla believes lenders should resist the temptation to scale back compliance efforts. Federal priorities can change, state regulators are expanding their oversight, and technology is making examinations broader and more efficient. 

"The headlines may suggest enforcement has eased," McNulla says. "But the risk hasn't gone away. The best approach is to maintain strong compliance practices today so you're prepared for whatever comes next." 

To learn more about ComplianceEase, SitusAMC’s compliance management software, visit https://www.situsamc.com/complianceease