Mortgage Law Blog recently had a chance to catch up with the CEO of Mavent, Inc., a 2007 Future Leader of the Mortgage Bankers Association.
That dialog appears below.
Background
Tell us about Mavent, Inc.
Mavent provides automated consumer protection regulatory audits and compliance-related consulting services. Mavent is best known for its automated compliance engine, which analyzes electronic loan data to determine whether a loan complies with over 300 federal and state consumer protection laws related to mortgage lending. Mavent’s compliance rules are maintained by its in-house attorneys in coordination with-and subject to ultimate approval by-its network of nationally recognized law firms. Mavent has performed over 25 million compliance reviews. Our clients include five of the ten largest lenders and seven of the top ten investors.
Describe your role at Mavent.
I’m Mavent’s Chief Executive Officer. As such, I’m responsible for providing direction and leadership toward the achievement of the organization’s culture, mission and strategy. Our culture centers on an almost evangelistic determination to protect our clients’ business, provide service excellence and foster breakthrough thinking. Our mission is to harmonize our clients’ consumer protection and business goals by providing a high-ROI means for ensuring all loans our clients fund or purchase comply with applicable law. Our strategic direction is guided by our understanding of the relationships of technology to law, law to business and business to the customer.
Describe your background, and how you got into the industry.
I hold a dual degree in law and business from New York University. Following law and business school, I worked on Wall Street for Goldman Sachs, Nomura and Greenwich Capital, mostly in real estate structured products. At Greenwich I worked for Paul Nidenberg, who became a mentor and close friend. Paul is now Mavent’s CFO. It was through Paul that I was introduced to Mavent. I was fascinated by what Mavent was attempting to accomplish—namely, to make it technologically possible and economically preferable to review every loan in a pipeline or pool for compliance with applicable law prior to funding or purchase. I joined Mavent working in sales and was promoted to CEO in 2006.
Describe the various departments of Mavent and a few of the persons in key roles.
I am fortunate to lead some of the most intelligent and driven individuals with which I’ve ever worked.
Our Legal Team is lead by Angela Cheek, SVP, Senior Legal Counsel. Her attorneys work together with a group of nationally-recognized consumer credit law firms to monitor, interpret and implement regulatory changes within the system. I consider one point of differentiation from our competitors is our obsession with accuracy. Each rule in the Mavent system is formally documented in plain English and formally signed off on by a Mavent attorney and an outside attorney. Mavent attorneys are also responsible for authoring, implementing and quality checking rules, with appropriate check and balances of course. Our approach to rule development ensures that all reviews are well-reasoned and firing accurately within the system. Employing such highly skilled individuals along the rules maintenance value chain involves significant costs. But, it is the cost of quality.
Lauren Ingersoll, another of our attorneys, heads our Client Training & Support Department. I said that Mavent has an almost evangelic focus on our clients. Compliance professionals must safeguard their institutions without impeding production. No automated compliance engine, no matter how sophisticated, can alone support an efficient mortgage enterprise. Ultimately, automating compliance requires the interaction of skilled professional to ensure that regulatory interpretations and loan review results are properly understood. For this reason, we believe that quality and value are largely determined by the team supporting the client.
Scott McNulla leads our Professional Services team which handles our client and partner integrations. Most of our loan reviews are performed in real-time via an interface with our client loan origination or other production systems. This enables us to better tailor the compliance review based on a client’s license or charter, regulatory elections, unique regulatory interpretations and internal compliance policies. Scott also oversees our Data Services team which maintains our proprietary nationwide broker and lender licensing database, as well as tracks the more than 90 indices required for our compliance reviews.
Ryder Smith provides leadership to Mavent’s technology operations team, which is responsible for keeping Mavent’s production environments up and running, as well as for ensuring Mavent personnel have the technology tools required to properly service our clients. Joe Chang is responsible for all aspects of Mavent’s product development, including strategy, requirements gathering, release planning and product roadmap management. Jason Connolly, who heads our sales and marketing function, has primary responsibility over prospective client and strategic partner development and service.
Describe the three things that your company does best.
We’re fixated on client satisfaction. We’re very focused on arranging all the elements of our service — functionality, delivery, support — so that they collectively generate an exceptional client experience.
By functionality I’m referring to our approach to product development. Our clients define for us what is important. This means we have to stay on top of our clients needs. You have to understand changes in the marketplace and regulatory landscape. You need to track new legislation and how examiners are interpreting regulations. You need to understand how the business is evolving and how product menus are changing. And, given all this, you need to keep asking what enhancements to our service would be useful to our clients.
By delivery, I mean how the compliance engine is deployed. Mavent reviews are performed in real time via an interactive integration with the lender’s LOS. Mavent reviews are automatically triggered by client-defined status changes to the loan file (e.g. submission to underwriting, drawing documents, funding, etc.). If no exceptions are found, the end-user never needs to know the review has been processed. If exceptions are found, stops can be put in place to prevent funding non-compliant loans until the user takes corrective action.
We’ve performed more than 25 million compliance reviews for some of the industry’s largest lenders and investors. Our professional services team is unrivaled in its experience implementing compliance engines across every institution type and business channel imaginable. The key is to deliver this knowledge and experience to our clients so that, based on their unique needs, we’re able to deliver a high-quality, value-driven service. No two institutions have deployed Mavent in the same way, and most of our clients have multiple deployments tailored to each business channel. The single commonality is that all Mavent deployments support, complement, and leverage our clients’ internal compliance resources without unnecessarily burdening production. We want our clients to take comfort in the millions of loans we’ve reviewed, but at the same time, feel that the service we provide is unique, and not mass produced.
The final element to our service is support. Our client support team excels at listening to our clients. They alert our clients to coming regulatory changes, describe how the engine addresses various compliance requirements and explain loan review results. They cull data that enables our clients to identify issues and measure the kinds of performance that creates, or impairs, value. As excellent as our automated compliance engines are, we recognize that it is our client support team that ultimately creates value since they are the ones who determine the kinds of experiences Mavent generates for its clients.
Our competitors compete mainly on price. We understand that many lenders will buy on price alone. Not all lenders are able to appreciate our approach or value. As far as we’re concerned, the most successful institutions over the long run are those that are most capable of measuring value. Anyone can build an automated compliance engine that is right most of the time, but few companies can excel at really creating value for their clients. We meet our clients’ needs faster and better than our competitors, and we attribute this to why we are so dominant among the industry leaders.
Describe the types of companies that are best fits for Mavent.
Mavent’s automated compliance engines and other services were developed to service the needs of large, sophisticated lenders operating on a multi-jurisdictional basis with a full range of mortgage products across multiple production channels.
However, over the past year we have enhanced our products to provide cost-effective service to medium and small-sized lenders. We are seeking to “democratize” compliance by providing these lenders access to the same high quality automated compliance reviews previously available only to the industry’s largest players. The benefits are two-fold. First, because the investors that use Mavent have considerable share of the loan purchase market, small- and mid-sized lenders can now leverage Mavent to reduce costly loan repurchases and realize better secondary market executions. Second, Mavent enables small- and mid-sized lenders to reduce their regulatory risk exposure. This is critical to ensuring the continued strength of the mortgage industry and real estate capital markets, expanding homeownership, and generally protecting all stakeholders from the irresponsible actions of bad actors.
If readers wanted to learn more about Mavent, what would be the best way?
The best way to learn more about Mavent is to first check out our website at www.mavent.com. We also encourage you to give us a call at 949.474.4700.
Bird’s Eye View of the Industry.
What effect have the changing market conditions had on your work over the last three years?
Consumer protection regulation is undergoing an unprecedented transformation, marked by an accelerating pace and growing complexity in the law. Consider that during the savings-and-loan crisis HOEPA was not yet enacted, nor were there any high cost laws. Available technology was much less sophisticated and the mortgage industry, relative to other industries, was behind the adoption curve. The past three years, however, have brought a growing patchwork of federal, state and local legislation and regulation subject to varying and—frequently—inconsistent interpretations among regulatory agencies, courts and investors. This notwithstanding, record volumes and profits bred a sort of risk management arrogance.
But over the past year, the pressure on mortgage institutions, lawmakers and regulators to protect borrowers’ interests has grown as a result of media coverage, election year campaigning, and homeowner concerns about home values and financing options. Attorneys general and the plaintiffs’ bar are leading a rigorous and intense inquiry into the industry’s poor performance over the past several years in complying with consumer protection laws.
The risk management arrogance simply won’t fly anymore. There is now a zero-tolerance attitude towards regulatory and other risks. Mavent enables its clients to review all loans pre-funding or pre-purchase for compliance with these laws in a matter of seconds and at a very low cost. For our clients, this reduces the costs of borrower, refunds, fines, penalties, civil actions, investor put backs and other commercial contract disputes.
What changes do you anticipate going forward?
All we’ve really seen thus far is fallout from credit losses. We have yet to see the fallout from related consumer protection violations. This will come significantly in the form of civil litigation and regulatory enforcement actions.
Bear in mind that both credit underwriting and consumer protection regulation consider whether the terms of a financing are such that a borrower can be reasonably expected to meet its obligations. Consumer protection regulation, however, goes further in that it also takes into account a transaction’s fairness and appropriateness. Given that credit decisions are profit motivated, it’s naïve to assume that the industry as a whole, did a better in job protecting borrowers than it did in protecting itself.
There is plenty of evidence supporting that it did not. For instance, in September 2006 the FDIC’s Office of Inspector General (OIG) issued a report regarding member bank compliance with 8 federal consumer protection laws during the 2005 audit cycle. 83% of the institutions examined were cited for significant compliance violations. 43% of those institutions were repeat offenders. 85% of those repeat offenders were highly rated by the FDIC for their in-place compliance processes.
Why, then, has the consumer protection issue not become more pronounced?
During the past several years, the industry’s rate of non-compliance went largely unnoticed because all interested parties were largely satisfied. Borrowers had access to cheap financing, lenders sold loans profitably into the secondary market, issuers were profiting off mortgage-laced structured financial products, and securities investors were earning ample yield on ostensibly investment grade securities. Regulators, meanwhile, lacked the resources or clout to sufficiently supervise mortgage institutions, as the FDIC study illustrates. Consequently, the industry and the public were lulled into a false sense of security.
But, not surprisingly, defaults change everything. It is the current credit crisis, and consequent record foreclosure rates, that is now revealing a multi-year stretch of systemic consumer protection violations.
This is apparent from the significant rise in mortgage-related litigation. Navigant Consulting, Inc., a consulting firm, recently released a report that showed the number of mortgage-related cases filed in federal courts have surged in the first quarter of 2008, dramatically outpacing 2007 filings. The total filings are close to surpassing the savings-and-loan crisis litigation of the early 1990s. According to the Navigant Consulting report, the number of mortgage-related cases exploded in the first quarter of 2008, increasing 85 percent over the next busiest quarter. A staggering 170 cases were filed during the quarter. Borrower class actions were the largest category of cases filed.
Similar to the crisis that led up to Sarbanes-Oxley, this is going to be a painful process marred by more executive firings, possible criminal charges and loss of franchise value for some of the financial services industry’s most consumer-oriented brands.
What are the biggest concerns your customers have?
Our clients are most concerned with protecting their brands, which ultimately means protecting their clients. Most of our clients are large, diversified institutions with consumer-oriented brands. The intangible costs of consumer protection violations—by this I mean the “headline risk”—is of major concern.
The biggest near-term concern our clients and prospective clients have is how to manage compliance risk while budgets are shrinking. The industry is in survival mode and is concerned foremost with cutting costs. Consequently, compliance resources are being scaled back, just as compliance risk is growing.
The mortgage industry is predicated on smartly bearing risk. But, a financial cost/benefit analysis lacks appropriateness when it comes to complying with consumer protection laws. Unlike credit or collateral decisions, compliance is rooted in laws designed to ensure social equity. This makes a purely economic approach to tolerating compliance risk unacceptable and profoundly corrosive of the industry.
This notwithstanding, it is debatable whether the costs of non-compliance are properly understood. Like many of the mortgage “quant” models that have turned out wrong, expected losses from regulatory violations are based on skewed data and rickety assumptions. There is no historical precedent for the past three years. Never before has the industry transacted so widely across the credit spectrum and with such explosive growth in its product menu. There have never been more federal and state laws to trip over. We are in what statisticians call a “fat tail” – a term that describes extreme events that occur more frequently than theory predicts.
Clearly smart decisions have to be made about how to maximize dollars spent, and even then it is impossible to bullet-proof an institution. But, public records—and our own experience—reveal that a large number of institutions are taking on a reckless amount of risk. One of the things we do for our clients is perform assessments of their compliance risk management practices (or those of their counterparties), as well as assist them in formulating cost/benefit analysis.
Future Leader’s Program.
You were named a Future Leader in 2007 by the National MBA. Describe that experience.
Exhilarating. Exhausting. I guess it was exhilar-austing.
What benefits did the experience bring?
The experience afforded me the occasion to meet and work with some of the industry’s brightest and most experienced individuals, gain an appreciation for the scenic and culturally rich island of Puerto Rico, and represent our industry in contributing to the growth and sustainability of the Puerto Rican community.
What were the downsides?
The downside is that the class divided into teams. Consequently, I did not have the opportunity to work closely with many of the outstanding individuals in the program.
Looking back, anything you would change?
I probably wouldn’t have had that last mojito the night before our first all-day session. But, field work is important.
To whom would you recommend the program?
Those interested in building a long-term career in this industry should become involved with the Mortgage Bankers Association. Those with a particular taste for suffering should become Future Leaders.
Anyone to whom you would not recommend the program?
The program involves an enormous amount of effort and requires individuals to work well in teams. I would not recommend it to those without the time, dedication or interpersonal skills.
Tags: Future Leaders, Industry Involvement, Mortgage Banking - General by the Editor
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