Stiffer regulatory requirements, along with rapid growth in the mortgage portfolio, made executives at Memphis-based Evolve Bank & Trust realize they needed to invest in technology to handle commissions and other accounting and recordkeeping chores for mortgages.
Among the new rules brought into the world by Dodd-Frank are a set of tighter restrictions around how loan officers are compensated. The rules, amendments to Regulation Z, are meant to reduce incentives for loan originators to steer consumers into loans that would be more lucrative for the originator or broker. For instance, a mortgage broker employee cannot receive compensation based on the interest rate of a loan or on the fact that the loan officer guided a consumer to purchase required title insurance from an affiliate of the broker, since the consumer is obligated to pay interest and the required title insurance in connection with the loan. The revised rules also require careful recordkeeping of loan officers' commissions.
Add the fact that Evolve's mortgage loan volume has increased 25% since November, and the loan origination system the bank had been leaning on for loan recordkeeping was not going to cut it.
"The problem was, we never really tied out the cash; it wasn't really an accounting system," says Candy DeBord, mortgage division controller at the $269 million-asset bank, which has 35 branches and 270 loan officers. "I needed a stable platform to enable us to monitor our growth and see exactly what was going on."
And on the compliance side, "the onus is on us to prove we are doing what's required to meet requirements of Dodd Frank, especially the commission piece," she says.
Many banks use old-fashioned spreadsheets to handle commission records, according to Brian Lynch, president of Advantage Systems, maker of the Accounting for Mortgage Bankers software the bank chose after several months of research. "The problem with spreadsheets is they lack auditability," he says. "You can do whatever you want in a spreadsheet, so an auditor walking in wanting to look at six months of commissions would have to look at a fair number of those spreadsheets to gain some level of happiness," he says. His company's software checks loan officers' commission against Dodd Frank rules and red-flags any that seem inconsistent.
For instance, under the CFPB's interpretation of Dodd Frank, if a broker changes his commission structure, the bank must use the commission profile that was in effect when the good-faith estimate on the loan was generated, rather than when the loan was funded. The software automatically checks to see if the right profile was used to calculate the commission.
The software imports transaction data from the bank's loan origination system to calculate commissions and feeds its results directly into the bank's payroll system. It lets staff and regulators drill down into the calculations and volume reports.
"If I'm answering a question, it helps me feel more confident," DeBord says. "If an auditor were to walk in the door, I could say this is what happened on a cash basis, this is how it ties out the payroll, this is how the different types of loans pay out, things like that. I'm finding more and more ways to use the software all the way to the secondary market."
Loan officers like the fact that their commissions are calculated correctly, as opposed to the spreadsheet calculations and pivot tables used previously. They can also see their profit and loss on any given loan.
Branch managers have an easier time closing the books at the end of the month because they can track loan transactions on a daily basis and respond immediately to anything that seems off, rather than waiting 60 days for the next report to come out. "That's been huge for us, because especially when you're dealing with spreadsheets and workaround technology, that information can be fairly inaccurate the old way," DeBord says.