The end of the year is a busy time for most businesses, especially lenders who have a host of tasks that are necessary to meet customer expectations and regulatory requirements. The hectic nature of the fourth quarter means some of these important tasks may not receive the attention they deserve. When this happens, your teams operate with more stress, and you can even incur fines for late reporting.
To help you prepare for year-end, we’ve compiled a list of important tasks that apply to mortgage lenders. Get a head start on these tasks, as many require significant effort and collaboration.
Prepare for 1098 and 1099-C Tax Forms
Your firm must ensure 1098 tax forms are issued to most borrowers with Social Security numbers who paid more than $600 in interest during the prior year. Borrowers who have had more than $600 in debt forgiven or discharged must also be sent a 1099-C tax form. Failure to provide these forms to borrowers by January 31st and the IRS by March 31st can result in steep penalties for each late document.
To prepare for tax form issuance, validate customer contact information and data retention processes. You need to verify that you have a valid mailing address for each borrower or permission to electronically send these important forms. Further, verify that your company will retain the underlying data for three years following the reporting date to meet compliance requirements for 1098 tax forms and four years for 1099-C forms.
Following the delivery of borrower 1098s, your customer service teams should prepare for inquiries from borrowers, which can be significant. You can reduce the number of calls and messages that your team receives by posting a Frequently Asked Questions document on your website or sending it directly to borrowers. Additionally, you can minimize repeat calls by preparing robust internal documentation to help customer service representatives answer questions fully and efficiently during the first interaction.
Review Home Mortgage Disclosure Act Reporting Criteria
The Home Mortgage Disclosure Act [HMDA] requires financial institutions to collect and publicly report loan-level data about applications and originations each year. You should be collecting this data continuously, but it is wise to complete an internal review at year end to confirm you have accurate information to file the report in the first quarter.
A good starting point for this review is the “Guide to HMDA Reporting” from the Federal Financial Institutions Examination Council. This PDF explains which institutions must submit loan data, the information that should be reported, and the process for collecting data compliantly.
Complete Annual Escrow Analysis
The Real Estate Settlement Procedures Act [RESPA] requires your team to perform an annual analysis of escrow accounts and provide the results to borrowers. This task has several parts – comparing collected amounts with actual disbursements, managing shortages or surpluses, and answering borrower questions.
In our escrow analysis tips, we propose staggering escrow analysis throughout the year rather than completing it for all borrowers at the same time. This method helps regulate the workload for staff, but even with this staggered approach, there is work to be done at the end of the year.
Review your procedures for returning escrow surpluses and collecting shortages to determine if they meet regulatory requirements and business needs. You should also take the time to review training and reference materials for customer service staff, so they have simple access to the information needed to answer borrower questions. Finally, review customer feedback to identify additional opportunities for efficiency and improving the borrower experience.
Strengthen AML Procedures and Training Programs
The end of the year is also an excellent time to review foundational compliance programs like Anti-Money Laundering [AML] and Bank Secrecy Act [BSA] procedures. Your risk assessment may need to be updated if you’ve expanded into new client segments with different risk profiles or introduced new products that have different exposure to risk.
If you identify new or increased risk, you’ll also want to update your training programs to help employees identify and flag suspicious activity. A strong training program significantly mitigates your regulatory risk, so take the time to refresh and refine these procedures for the following year, even if your risk profile remains stable.
Year-end preparations are vital to maintaining compliance and reducing risk for the upcoming year, but they require careful planning in addition to the right team and technology. Fortunately, a partnership with an experienced loan servicer allows you to meet your compliance goals without the need for additional resources.
A Partnership with AmeriNat Makes Year End Painless
At AmeriNat, our loan servicing solutions help reduce effort year-round, which is especially important during the hectic fourth quarter. We issue 1098 tax forms, perform HDMA reporting, complete escrow analysis, and review AML procedures upon request.
Our team also handles borrower questions surrounding their tax forms and loans. With these tasks off your plate, your team can focus on growing and strengthening your loan portfolio.
To learn more about the ways we reduce effort for lenders and get started with loan servicing, contact a member of our team today.