Is Your Credit Union Just Paying Lip Service To Compliance?
Sometimes I think that credit unions get so frustrated with feeling picked on by regulators and overwhelmed by the mountain of regulations with which they have to comply that they overlook the fact that regulations are sometimes put in place for good reason. Complying with them is no more or less a cost of doing business than is paying for a teller or employing a loan underwriter. Two recent examples show why due diligence and vendor management are so important.
On Monday, New York’s Attorney General Eric Schneiderman, who is leading a task force of state and federal prosecutors charged with looking into mortgage lending practices, unveiled its first legal action, a civil suit seeking unspecified damages against J.P. Morgan for the sins of Bear Stearns and a subsidiary that JP Morgan took responsibility for when it bought the companies in 2008. The defendants are accused of peddling mortgage-backed securities comprised of residential mortgages it knew were shoddy. In fact, the banks pointed to their due diligence practices as a reason why investors could be confident they were making a good investment. According to the AG:
“Defendants failed to use due diligence as a tool to identify and eliminate the many defective loans that they purchased from originators. Rather, and in order to preserve their relationships with loan originators, Defendants routinely overlooked defective loans that were identified through the due diligence review and ignored deficiencies that they knew existed in the due diligence review process itself. Furthermore, Defendants failed to disclose to investors the defects in the loans that they purchased and the deficiencies in their due diligence process.”
