Running a mortgage brokerage can be both rewarding and challenging, especially when it comes to compliance. If you’re a broker owner, you’ve probably heard the horror stories of businesses getting slapped with hefty fines or penalties over minor missteps. While audits and regulations can feel like a maze, they don’t have to be a nightmare. With the right guidance, you can sidestep common violations and keep your business thriving.
At Strategic Compliance Partners (SCP), we’re here to help mortgage brokers like you stay compliant at every stage. Today, we’re diving into 7 common violations broker owners make and how to avoid them. Trust us, staying on top of these will save you from headaches down the road!
1. Failing to Maintain Proper Licensing
One of the easiest violations to avoid, but also one of the most common, is failing to keep licenses up-to-date. Whether it’s one of your sponsored MLO NMLS licenses or your business’s state-specific licensing, missing a renewal deadline can put your business at risk.
Pro Tip: Set a reminder for yourself at least 90 days before your license expiration date. It’s a simple step that will save you from scrambling at the last minute. Send memos and reminders to your staff regularly and track their progress for completing required CE (continuing Education.). Clarify what states they will be renewing and review their pipeline to ensure they are actively licensed in the states they have loan applications. Review their online advertising to accurately reflect their current licensed status .
2. Inadequate Record-Keeping
In an audit, the devil is in the details—specifically, your records. Failure to keep accurate and complete records for every loan you process can trigger violations. This includes loan applications, credit reports, income verification, and more.
Real-World Example: One broker we worked with was flagged during an audit for missing accurate broker fee agreements in the borrower disclosures in their loan files. They quickly implemented a QC checklist and an electronic filing system and passed their follow-up audit with flying colors!
3. Improper Compensation Practices
This is a big one! Violations related to loan originator compensation, especially the Loan Originator Compensation Rule , are common. Brokers sometimes overlook the rule’s restrictions around bonuses, commissions, anti steering, pricing exceptions, unauthorized deductions, and perks tied to specific loan outcomes.
Actionable Takeaway: Make sure your loan officers’ compensation structures are documented and compliant with federal guidelines. If you’re unsure, it’s time for a compliance check!
4. Noncompliance with Fair Lending Laws
Fair lending laws, such as the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA), require brokers to lend without discrimination based on race, color, national origin, sex, disability, or family status. Violating these laws can result in serious legal trouble.
Pro Tip: Regularly review your lending practices and ensure all employees are trained on fair lending practices. This will not only keep you compliant but will also protect your reputation.
5. Not Following the Advertising Rules
Advertising is a vital part of growing your brokerage, but it comes with compliance responsibilities. Violations often occur when brokers make misleading claims, omit important disclosures, or fail to adhere to advertising guidelines outlined by the Truth in Lending Act (TILA) and Mortgage Acts and Practices – Advertising (MAP) rules,.
Real-World Scenario: One broker inadvertently violated TILA by advertising rates that weren’t available to all customers or their target audience wasn’t likely to qualify for. With SCP’s help, they revised their ads to include the necessary disclaimers and implemented a pre approval plan for placed ads, avoiding potential fines.
6. Failure to Perform Proper Due Diligence on Third-Party Vendors
When you rely on third-party vendors like appraisers or title companies, you’re still responsible for ensuring they comply with applicable laws. Failure to perform due diligence on vendors can lead to violations, especially in areas like Anti-Money Laundering (AML) and Consumer Financial Protection Bureau (CFPB) regulations.
Actionable Takeaway: Create a vendor compliance checklist and review all third party service provider contracts to ensure all third-party vendors meet regulatory requirements. It’s a small task that can save you from bigger problems.
7. Neglecting to Update Policies & Procedures
Compliance is a moving target, and laws change frequently. Broker owners sometimes make the mistake of using outdated policies or failing to update them to reflect the latest regulations.Broker are required to maintain updated and current written Policies and Procedures. You should document your process to adopt your policies and appoint key Compliance Officer positions Annually.
Pro Tip: Regularly review and update your compliance policies and procedures. Use company minutes to formally demonstrate management involvement in policy creation, review and implementation. It’s a smart way to stay ahead of regulatory changes and ensure your brokerage is always in the clear.
How SCP Can Help You Stay Compliant
Avoiding these common violations might seem like a lot of work, but with the right systems and expertise, you can run a compliant, thriving mortgage brokerage. That’s where we come in.
At Strategic Compliance Partners, we provide personalized compliance and licensing support for mortgage brokers of all sizes. Whether you need help renewing your license, reviewing your compensation structure, or preparing for an audit, our team has your back.
Need help staying compliant? Call us at 301.578.6015, email us at sales@strategiccompliancepartners.com, or visit our Licensing Services page to learn more.
What’s your biggest compliance headache? Let us know in the comments below or schedule a consultation with our team—we’re here to help!
