September 13, 2004 - DocuTech Corp. here has released two Web-based products this year, ConformX and Lender Advocate, that have this document preparation and delivery company calling itself a compliance company as well. While this may seem out of the ordinary, based on the current plethora of predatory lending laws, the thinking is that a successful doc prep and delivery company will have to adopt some kind of compliance functionality within its product offering to remain competitive.
"Every year as we've gone along more customers want compliance guarantees so they feel like you, as their doc prep vendor, have them covered," said Ron Swafford, chief legal counsel and director of the compliance department for DocuTech. "Many people now consider compliance an art and not a legal science because there are so many ambiguities and contradictions in the law between state, county and federal regulations.
"Lenders know that they have only two options really," he continued. "They either have to have an extensive compliance department of their own, meaning that they have to staff and put in the money to monitor the industry as they go along, which the bigger lenders actually do because lenders are getting pinched continuously for mistakes that they didn't see coming. The other more cost-effective way is to get compliance through your doc prep company."
Either way, Mr. Swafford believes that a lender has to have a compliance plan given the nature of the law. "The lending industry is interesting because if we make a contract mistake outside of the lending industry the nature of the mistake, how hard the parties tried to rectify the issue, how negligent both parties were is taken into account, but with the lending institution there is strict liability," he said.
"Nobody cares why the mistake was made, or if you did your best to solve it because the fact is you didn't give this disclosure or you failed to meet these requirements period. Malice is not required and neither is intent to harm, which is usual in law.
"For instance, in Minnesota they have a PMI disclosure and there is the federal requirement as well," he said. "In this case there are two different disclosures. Minnesota got a hold of one of our clients and said that they can't give the federal disclosure because it contradicts the state disclosure and Minnesota considers this to be deceptive practices and will shut you down. The customer said they couldn't withhold the federal disclosure because the federal government will object. Minnesota said that it didn't care. In the end both disclosures had to be given."
Because of similar situations more is going to be asked of doc prep companies or lenders will ignore that provider entirely for another company that does guarantee compliance. "I don't doubt for a minute that just being a document company is useless to a lender," pointed out Mr. Swafford. "If they can't be certain that these docs are compliant they don't have anything unless they have their own internal compliance department. Now more than ever lenders are looking beyond your documents to see if you guarantee compliance. If the doc prep company doesn't do that it's a huge minus.
"In the end, it's hard to justify your existence as a doc provider if you don't add to that the fact that the documents that I'm giving you are in compliance with all the laws in question," he continued. "I don't know why a lender would deal with a doc provider that doesn't guarantee compliance."
In fact, other doc prep companies like Carson, Calif.-based Document Systems Inc. have the same philosophy and have an embedded compliance tool. "The main thing that I'm seeing among our customers is that everyone is looking for a technology solution to compliance issues," said Bill Lambropoulos, general counsel at DSI. "The area where it seems to come up most is testing for high-cost loan determinations. We try to leverage all the data that we have to prepare a set of loan documents. One of the beautiful things about preparing documents is that you have to enter data about how much is being paid, who is paying it and to whom it is being paid. Once you have all this data it's easy to automate the compliance process.
"Right now we have 25 state-specific high-cost determinations," he continued. "As long as you know the points and fees you just crunch the numbers, which is exactly what we do. We've set up formulas to take that information, run the numbers and get a display describing the calculation and determination. In addition to providing a determination we also specify by how much."
An added feature to DSI's offering is that there is no additional charge for compliance functionality and no rekeying of data required for the system to make a determination. "We automate the process so there is no additional data entry required, which is the drawback to other systems," added Mr. Lambropoulos. "As long as that information was entered during the process of drawing up the docs the rest is automated."
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