Compliance for Mortgage Companies: How to Avoid Top Violations

Mortgage companies aren’t immune to compliance violations. While they may not have as much regulatory oversight as depository institutions, they are still required to comply with many state and federal laws – and the cost of violating these laws can be steep.  

Compliance is a critical concern for mortgage companies. Understanding the most common compliance pitfalls and having proactive systems in place to manage compliance risk is essential – and tackling this challenge efficiently is smart business.  

This guide will highlight some of the most common compliance violations mortgage companies face and provide actionable tips to help streamline compliance management processes to minimize risk. 

Common Regulatory Challenges for Mortgage Companies

Mortgage companies face a complex web of state and federal regulations that can be challenging to manage. Failing to comply brings the risk of regulatory action, lawsuits, and financial penalties.  

They include: 

Real Estate Settlement Procedures Act (RESPA). RESPA requires that mortgage lenders provide homebuyers proper disclosures and protect them from abusive practices like kickbacks and inflated fees. Failure to comply can lead to regulatory action. 

For example, in August 2023 a mortgage company had to pay $1.75 million into the CFPB’s victim relief fund for offering illegal incentives to real estate brokers and agents in exchange for mortgage loan referrals. 

HMDA (Home Mortgage Disclosure Act). HMDA mandates the collection and reporting of mortgage data. Mortgage companies must carefully track and report information on loan applications, approvals, and denials, making accuracy and completeness key to avoiding regulatory scrutiny. Failure to do so can be an expensive mistake. 

In June 2024, the Consumer Financial Protection Bureau (CFPB) fined a mortgage company $3.95 million for submitting inaccurate HMDA data. That’s after paying a $1.75 million civil money penalty for the same issue in June 2019.  

Fair Lending Regulations: Lenders must comply with fair lending laws that prohibit discriminatory practices, including the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). Regulatory scrutiny of this area is intense, with the Justice Department’s Combatting Redlining Initiative setting the tone.  

The initiative resulted in the second largest redlining settlement in DOJ history and the first against a non-bank lender when a Delaware-based mortgage company settled a joint DOJ and Consumer Financial Protection Bureau (CFPB) redlining suit for $24.4 million in 2022. The CFPB and DOJ said the mortgage company violated ECOA by actively avoiding making loans and discouraging applicants in majority-minority neighborhoods. As a result, the company generated 50% fewer home loans and 60% fewer applications in these areas than similarly situated lenders.  

Related: Watch Out for These Common Fair Lending Violations 

Unfair, Deceptive, or Abusive Acts and Practices (UDAAP). UDAAP prohibits actions that mislead, exploit, or harm consumers, often through unclear terms, deceptive marketing, or unfair treatment. For example, in 2024 the CFPB fined a mortgage company $2.25 million for misrepresenting payment terms on state-required borrower worksheets on certain VA cash-out refinance mortgage loans. 

Truth in Lending Act (TILA). TILA requires lenders to provide consumers with clear and accurate information about the terms and costs of credit. One common source of TILA violations is marketing. In In 2023, the CFPB fined a mortgage company $1 million and permanently banned it from mortgage lending for repeatedly sending advertisements to military families implying the company was affiliated with the United States government. Similarly, the CFPB fined a California-based mortgage company $150,000 for sending misleading or deceptive mailers about VA-guaranteed mortgage loans to over 700,000 consumers, including U.S. service members and veterans in 2020. 

Related: Whitepaper: What is a Compliance Management System 

Obstacles Making Compliance Harder Than It Needs to Be 

Staying on top of these and other regulatory obligations can be a daunting task, which is why mortgage lenders need to have a compliance management system (CMS). A CMS is how a mortgage company leverages tools, processes, and internal controls to understand compliance risk, proactively comply with rules, regulations, and internal policies, and prevent consumer harm. 

The problem with compliance management at many mortgage companies is that it’s not centralized and organized. It’s a manual, piecemeal process that leads to inefficiencies that can cost your company. Instead, mortgage companies should consider compliance management solutions that automate, streamline, and simplify compliance.   

Let’s take a closer look at some of the challenges and how automation can solve them. 

• Endless Tracking of Regulatory Change: Tracking regulatory changes – both at the state and federal level – is incredibly time consuming. The compliance team spends weeks – if not months – of the year scouring websites and emails looking for new rules that apply to the mortgage company. Then it has to develop a plan to implement and then verify that the rule was implemented properly. That’s in addition to complying with the hundreds of existing regulations.  

A good compliance management solution dramatically reduces time spent on regulatory research, not only centralizing regulations into a single location, but identifying new and existing regulations that apply to the mortgage company. It even offers plans to help implement them.  

• Lack of Scalability: As a mortgage company grows, so do its compliance obligations. Managing increased volumes of data and documentation through manual systems quickly becomes unsustainable. Compliance software provides a scalable solution that grows with the business, ensuring that compliance processes remain efficient no matter your company’s size. 

• Inability to Quickly Answer Regulator Questions: Without an automated system to manage documentation and workflows, answering compliance and regulator questions can be a scramble. Missing or disorganized documentation, errors in data reporting, and missed deadlines can lead to regulatory issues.  

• Missed Opportunities: When compliance teams are bogged down by manual tasks, they aren’t free to answer questions – whether it’s about how state laws might impact expansion or a quick query from a loan officer. An automated compliance management system makes compliance officers more efficient, making them available to more quickly offer insights and guidance.  

• Costly Non-Compliance: As we saw earlier, the financial risks of non-compliance are substantial. Penalties, legal fees, and damage to reputation can all stem from a single error or missed deadline. Compliance software significantly reduces the risk of these costly mistakes by centralizing policy and complaint management, task management, regulatory monitoring and other compliance priorities. 

Ultimately, manual compliance management not only drains resources but also increases the likelihood of costly compliance failures. By automating compliance tasks, mortgage companies not only reduce the risk of costly errors and delays but also create a more efficient, scalable, and proactive compliance environment. It helps mortgage companies take control of their compliance responsibilities, ensuring peace of mind while freeing up resources to focus on growing the business. 

The Future of Mortgage Compliance is Automated 

For mortgage companies, the future of compliance lies in automation. By shifting away from manual processes, lenders can reduce risk, improve efficiency, and focus on what they do best—serving borrowers. An automated compliance management solution like Ncomply makes compliance simple, empowering mortgage companies to grow while staying on top of regulatory obligations. 

If you’re ready to streamline your mortgage compliance and avoid the pitfalls of manual processes, explore how Ncomply can help your organization today.