Social Media for Lenders Webinar featuring Lee Negroni

ANDREA LEE NEGRONIResearch assistance of Joya Raha, JD gratefully

acknowledged

AUGUST 4, 2015

Social Media: Mortgage Regulators Respond

What are financial agencies saying (and doing) about social media?

THE ARCHIVING PLATFORM

WELCOME! – OUR PROGRAM WILL BEGIN SHORTLY…


LET’S GET STARTED! - A FEW HOUSEKEEPING ITEMS BEFORE WE CONTINUE…



ANDREA LEE NEGRONIResearch assistance of Joya Raha, JD gratefully

acknowledged

AUGUST 4, 2015

SPEAKERS FOR TODAY’S WEBINAR

ANDREA LEE NEGRONI, JD

MIKE PAGANI SR. DIR. OF PRODUCT MARKETING & CHIEF EVANGELIST

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BRIEF INTRO

ABOUT SMARSH

MIKE PAGANI

SOCIAL MEDIA: MORTGAGE

REGULATORS RESPOND

ANDREA LEE NEGRONI

FINAL THOUGHTS

+Q&A

AGENDA FOR TODAY’S WEBINAR

INTRODUCTION

THE

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QUICK FACTS:

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CORE FEATURES AND SPECIALIZED MODULES

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SOCIAL MEDIA: MORTGAGE REGUALTORS RESPOND

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Is social media an unsupervised opportunity to advertise and originate loans, a regulatory compliance risk, or both?

• Recordkeeping rules weren't written for social media. Complying with these rules for social media messages is complicated.

• We polled state regulators on their own social media activity, their monitoring of social media use in the mortgage industry, and their views of the risks and benefits of social media.

• Their views were neither comprehensive nor uniform.

What’s a lender to do?

WHAT’S A LENDER TO DO?

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Step 1: Review existing guidance on social media for and by financial institutions.

• In 2013, the FFIEC summed up potential uses of social media by FIs, and addressed its challenges:

• “Financial institutions may use social media in a variety of ways, including marketing, providing incentives, facilitating applications for new accounts, inviting feedback from the public, and engaging with existing and potential customers, for example, by receiving and responding to complaints, or providing loan pricing.”

• “Since this form of customer interaction tends to be both informal and dynamic, and may occur in a less secure environment, it can present some unique challenges to financial institutions.”

START WITH 3 KEY STEPS!

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Step 2: Adopt a social media policy for employees.

• Per the FFIEC Guidance:

• “Training and guidance should be provided to employees regarding official use of social media – that is, when employees communicate on behalf of the financial institution.” (The Guidance doesn’t address employee use of social media for personal use, but sometimes business and personal uses overlap.)

• The policy should provide for monitoring of the institution’s social media postings and presence.


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Step 3: Add social media oversight and controls to the institution’s risk management program.

• Again, from the FFIEC Guidance:

• “Financial Institutions should ensure their risk management programs provide oversight and controls commensurate with the risks presented by the types of social media in which the financial institution is engaged.


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… and vital to business success!

• Social media are computer-mediated tools that allow people to create, share or exchange information, ideas, pictures and videos in virtual communities and networks. – Wikipedia

• “Social media has been broadly defined to refer to ‘the many relatively inexpensive and widely accessible electronic tools that enable anyone to publish and access information, collaborate on a common effort, or build relationships.” – Murthy, Dhiraj (2013). Twitter: Social Communications in the Twitter Age.

• Social media originated as strictly a personal tool … but were later adopted by businesses that wanted to take advantage of a popular new communication method to reach out to customers, for example, by informing them of sales and offering them special coupons. – Investopedia

SOCIAL MEDIA IS A COMMUNICATION TOOL

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# Today’s consumers demand dynamic, fast interaction

# Consumers want to do business on their smartphones & tablets

# Consumers are influenced by their peers

# Lenders can achieve repeat exposure to customers & keep tabs on customers

# Lenders can leverage opportunities to influence and engage users by sharing information

# Social media is constantly changing & adding tools that benefit lenders (such as geo-location and sentiment analysis)

# Social media can establish a company as a credible knowledge leader

# Social media use is highly correlated with a company’s financial performance

# Proficient social messengers can gain a competitive advantage over competitors with less effective social media programs

LENDERS NEED TO “LIKE” SOCIAL MEDIA

See: Mortgage Lenders Use of Social Media, CohnReznick, June 2014, at http://www.cohnreznick.com/sites/default/files/pdfs/CRMortgageLenders_SocialMedia_June2014.pdf

http://www.cohnreznick.com/sites/default/files/pdfs/CRMortgageLenders_SocialMedia_June2014.pdf

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From the State of Washington

Laws & Rules: Consumer Loan Act, RCW Ch. 31.04Administrative Rules, WAC Ch. 208-620

Recordkeeping Requirements: A licensee shall keep ... such books, accounts, records, papers, documents, files, and other information as will enable the director to determine ... (compliance) ... The director shall have free access to such ... information wherever located.

Record Retention Period: 3 years after final entry on a loan.

What General Records Must be Maintained: ... the books, accounts, records, papers, documents, files, and other information relevant to a loan or servicing of a loan ...

RECORDKEEPING: A PRIMER

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(a) All loan agreements or notes and addendums, riders, or other documents that supplement the final loan agreements;

(b) All forms of loan applications, written or electronic (e.g., Fannie Mae 1003);

(c) The initial rate sheet or other supporting rate information;

(d) The last rate sheet, or other supporting rate information, if there was a change in rates, terms, or conditions prior to settlement;

(e) Rate lock agreements and the supporting rate sheets or other rate supporting document;

(f) All written disclosures required by [Washington law] and federal laws and regulations (e.g., GFE, TILA disclosures, ECOA disclosures, affiliated business

arrangement disclosures, and RESPA servicing disclosure);

(g) Documents and records of compensation paid to employees and independent contractors;

(h) An accounting of all funds received in connection with loans with supporting data;

(i) Settlement statements (the final HUD-1 or HUD-1A);

(j) Broker loan document requests (also known as loan document request or demand statements) that include prepayment penalties, terms, fees, rates, yield

spread premium, loan type and terms;

(k) Records of any fees refunded to applicants for loans that did not close;

(l) All file correspondence and logs;

(m) All mortgage broker contracts with lenders and all other correspondence with the lenders;

(n) All documents used to support the underwriting approval;

(o) All documents that evidence a financial commitment made to protect a rate of interest during a rate lock period.

SPECIFICALLY, WHAT RECORDS MUST BE MAINTAINED?

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From the State of Washington• What Advertising Records Must be Maintained: ... newspaper & print advertising, scripts of radio and

television advertising, telemarketing scripts, direct mail advertising, and advertising distributed by delivery, facsimile or computer network.

• What is Advertising? ...s ales or promotional materials used in connection with the business, including newspapers, magazines, leaflets, flyers, direct mail, indoor or outdoor signs or displays, point-of-sale literature or educational materials, other printed materials; radio, television, public address system, or other audio broadcasts; or internet pages.

Advertising on the internet or any electronic form (including text messages): ... includes in any medium where a licensee holds itself out to provide licensed services.

Prohibited: Advertising rates or fees as the "lowest" or "best." (Rates described as "lowest," "best," cannot be proven when advertised. Therefore, they are a false or deceptive representation.)

ADVERTISING RULES

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• Permitted? Yes, if the licensee maintains the electronic display equipment and makes it available to the regulator for examination or investigation.

• The hardware or software needed to display the record must be maintained for the retention period.

• Hard Copies May Still Be Required: The lender must provide hard copy records upon request.

ELECTRONIC RECORDKEEPING

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• Q1: Where does record keeping compliance fall on the spectrum of compliance issues?

• All violations are considered serious.

• Q2: Where does non-compliance fall on the spectrum of compliance problems?

• Record keeping violations are common, mainly involving failure to provide all required documents to a particular borrower, rather than system-wide failures.

• Q3: What is the most common record keeping non-compliance?

• Failure to keep copies of documents, failure to completely fill out documents, and failure to maintain records for the required period.

REGULATOR’S COMMENTS

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• Q4: Does the agency use electronic or e-discovery tools to reveal compliance or plan to?

• No; off the shelf programs have been investigated but there are no immediate plans to adopt them. Loan files are reviewed in hard-copy, PDF form, or through a database.

• Q5: How does the agency examine communications between the mortgage company and its customers via social media, like Facebook, LinkedIn?

• Examiners review social media communication that does not require an account number or approval for access. Without access, the agency may request the information from the licensee.

• Q6: Are social media communications subject to record retention requirements?

• Failure to keep copies of documents, failure to completely fill out documents, and failure to maintain records for the required period.


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• Q7: Does the agency have, or plan to have, rules on record keeping for social media?

• No; the existing rules apply to social media.

• Q8: How do rules apply to electronic communications that could "disappear" (e.g., Snapchat)?

• There are no specific rules relating to these.

• Q9: When a mortgage company has multiple loan officers, how does the regulator examine communications via smart phones & social media?

• We examine the communications we find or are made aware of.


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• The previous sentence sums up the current approach to social media messages and their retention:

• “We examine communications we find or are made aware of.”

• The Texas Banking Department said the same about social media use by money transmitters:

• “If a consumer complaint is received, the Department will investigate.”

• Regulators don’t seem to be anticipating problems but say will address them when & if they occur.

PROACTIVE, REACTIVE, …OR?

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• Some regulators are mum; others doubt lenders and borrowers use social media except for advertising; and a handful discourage it.

• An Arizona official “couldn’t envision” loan-related communications via social messages, other than advertising.

• Indiana’s regulator has “no plans to expand oversight to include social media.”

• Minnesota has “not made any adjustments” for solicitation, advertising, or negotiation of mortgages through social media.

• Maryland says social media is “currently under review.”

• Utah’s regulator expressed “concern” about loan officers communicating with borrowers via social media.

• A Rhode Island official called social media messages “that IT stuff,” for review in “the future.”

…INACTIVE?

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• New Jersey Banking Department• Social media communications should be “retained like any other records of a

transaction,” or records of advertising and solicitation activities.

• New York Department of Financial Institutions • “does not prohibit mortgage brokers or their employees from utilizing social

media sites” if it does not violate federal or state laws.

OTHER AGENCIES ARE STRAIGHTFORWARD

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• Brokers must “establish policies and procedures governing the use of social media sites by employees.”

• Policies should include direction on the information that may be posted, examples of postings that could trigger violations, and penalties for noncompliance.

• A broker with multiple MLOs is responsible for monitoring their social media activities.

• NY ordered ride-sharing companies to submit their social media policies -- will mortgage companies be next?

SOCIAL MEDIA POLICIES FOR NY MORTGAGE BROKERS

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• Social media is firmly on the radar of securities regulators. Consider four areas for social media legal compliance identified by the Ohio Division of Securities:

1. Record Retention

2. Advertisements

3. Suitability (broker-dealers) & Fiduciary Duty (investment advisers)

4. Supervision

• Record retention in the Ohio securities industry applies to recommendations or advice, including communications via social media and blogs.

See Ohio Securities Bulletin, Issue 2, 2014 at http://com.ohio.gov/documents/secu_Bulletin2014FourthQuarter.pdf

ARE SECURITIES REGUALTORS ESTABLISHING PROTOTYPES FOR MORTGAGE REGULATION?

http://com.ohio.gov/documents/secu_Bulletin2014FourthQuarter.pdf

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• The SEC leads mortgage regulators in considering appropriate use of social media.

• The SEC relaxed a ban on solicitation and advertising of offerings, saying website postings might meet disclosure requirements. The SEC looks at websites, media outlets and other information sources when reviewing registration statements. Investment advisers have been penalized for “tweeting” recommendations.

• Common concerns in the securities and mortgage industries: • What constitutes “solicitation?”• Can you tweet rates & terms?• Are adequate disclosures provided on social platforms?

See “Guide to Social Media and the Securities Laws, by David M. Lynn, Morrison & Foerster, June 23, 2015 at http://www.bdiaregulator.com/2015/06/the-guide-to-social-media-and-securities-law/

THE SEC IS ALSO OUT FRONT…

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• New York regulators are concerned about encrypted communications, which might permit FIs to delete records or make them unavailable for inspection unless regulators have access to the messaging platform.

• Some platforms market disappearing message features: • “…Communications disappear for good once they are read or after 24 hours,

whichever comes first … It can be a message … to a business associate in a negotiation. Or it can be a blast to any number of associates or followers knowing that, unlike other apps, your message won’t have your name on it or live on the internet forever.”

EMERGING ISSUES

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• Despite scarce rules, enforcement will occur (focused on misrepresentation, missing documents and fraud)

• Arizona acted against mortgage brokers who failed to include interest rates & license numbers in advertising and failed to maintain original documents in mortgage files.

• The Florida Office of Financial Regulation identified social media (and crowdfunding sites) as a persistent threat of online fraud.

• Washington brought enforcement actions against Quicken Loans, Mortgage Investors Corporation, Academy Mortgage Corporation and Nations Lending Corporation based on unfair, misleading or deceptive advertising practices, failure to monitor advertisements, and failure to maintain advertising records.

• Utah fined lending managers and loan originators displaying unapproved signage (amounting to misleading advertising) and failure to secure records with borrowers’ personal information.

• Virginia imposed a $250,000 fine against licensees falsely stating or implying affiliation with a government agency or a depository institution.

ENFORCEMENT

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• Electronic recordkeeping is accepted, but e-records preferences vary. One size solutions don’t fit all!

• The Virginia Bureau of Financial Institutions doesn’t want to review separate PDF images for a single document or separate PDF documents for a single loan.

• Nevada mortgage licensees must submit advertising for pre-approval. • Not efficient for social media messaging ... about 350,000 tweets are sent every

minute. Tweet now or forever hold your peace.

See The Virginia Compliance Connection, Vol. 1, 2015 at https://www.scc.virginia.gov/bfi/news/cc/15_vol1.pdf

RECORDS ODDITIES

https://www.scc.virginia.gov/bfi/news/cc/15_vol1.pdf

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• Mortgage regulators accept electronic record keeping with conditions, subject to non-uniform rules; there’s no “one size fits all” records compliance strategy. A records vendor (archivist) should understand and promote compliance.

• Expect records rules to change as social media gains ground.• Regulators consider social messages to be advertising, but are much less familiar with how social

media is used to conduct transactions. As their knowledge increases, they will eventually attempt to examine social messages underlying loan transactions.

• The default rule is “keep everything,” including social messages, which may be examined based on complaints. Keep (and monitor) complaint records!

• The scarcity of “rules” doesn’t mean regulators like social media in the mortgage space; they may deem it deceptive and take enforcement action based on unfairness.

• As lenders adopt social media, mortgage regulators may take pointers from securities regulators, so lenders should watch developments and social media guidance in the securities industry.

CONCLUSIONS


Q&A




THANK YOU!

