March 2020 is a month the real estate industry will never forget. In a moment’s notice the “nice to have” tasks on our to-do lists became the new crises du jour. Over the course of a few days, much of the private real estate sector transitioned from office buildings to home offices. The most prepared companies had pandemic and business continuity protocols in place. Still, none of us could have imagined what would be coming our way, and how to manage post-COVID.
In preparing this article, we asked mortgage, real estate and title professionals to share the experiences and challenges they face in dealing with compliance issues during this pandemic. Their answers were no surprise. What was interesting – even across different sectors of the industry – was that the expressed concerns pointed to a similar solution. Here is what we learned: For those who endured the 2007 crisis, market stability was the most immediate concern…and still continues to be.
Soaring demand for refinances almost overwhelmed the mortgage and title industries, and the purchase real estate market was disrupted by government restrictions without adequate instructions. Most important, when making day-to-day decisions, professionals did the best they could with the information in hand at the time. Some are forging ahead in whack-a-mole fashion. All would appreciate guidance on how to comply with the surge of legal and regulatory changes.
Throughout this article, you will see some of their shared insights as Professional Tips.
While we cannot predict market changes, this article offers best practices and suggestions on how one should approach compliance in this post-COVID-19 environment.
Managing post-COVID compliance risk
The outbreak of COVID-19 incited a barrage of legal activity across the country. As of the time this article was published, the federal government has enacted unprecedented economic stimulus and family medical leave legislation. Most, if not all, federal agencies have adopted COVID-19 guidelines. State legislatures across 26 states have 169 bills in various stages of the legislative process, covering COVID-19 topics from “fist bumps” for the duration of the pandemic to public works and budgets. Hundreds of local ordinances and emergency orders govern the people and places under their respective jurisdictions.
Equally abundant are news articles, opinions and summaries of these laws that fail to consider how any of this activity may apply to your business model. Equally lacking is guidance for implementing these changes. And record-level workloads are overwhelming, making it difficult for compliance personnel to strike a balance between supporting business operations versus implementing legal changes. This leads real estate professionals to ask: How do we balance it all?
Balancing compliance risk
Prudent risk managers know to take a 360-degree approach to compliance by identifying – and implementing procedures designed to continually reassess – the most critical threats to their organizations. Focusing on human capital and staying connected, current and relevant will go a long way in managing the following risks facing the real estate industry in this ever-changing climate.
Safety and performance of employees in a post-COVID-19 world are critical to organizational success now more than ever. Procedures that successfully manage human resource risk will provide clarity on employee health, benefits and performance during the pandemic.
Employee health and benefit information:
Sick Leave – Revise handbook and/or communicate written policy on sick leave related to COVID-19 and whether your company provides federal leave benefits under the Families First Coronavirus Response Act.
Insurance – Advise employees on COVID-19-related insurance benefits, which may include $0 copays for COVID-related illnesses, free COVID testing or $0 copay employment assistance services such as pandemic counseling services.
Workplace – Put protocols in place for employee safety by consulting COVID guidance issued by the Occupational Safety and Health Administration, the Centers for Disease Control and Prevention and the Equal Employment Opportunity Commission.
Contingency – Create a contingency plan based on differing health scenarios and implement cross training to cover critical operational functions.
Pandemic work-from-home plan – If applicable, create or update a written work from home policy that communicates company expectations, restrictions such as company travel and current projections for the location of work during the pandemic.
Company policy – Work closely with human resources to ensure that company policy is equally and consistently applied throughout the organization to avoid conflicts with employees.
Employee check-ins – Meet regularly with people managers to check the pulse of teams critical to the line of business.
Connecting with end-delivery stakeholders, connecting with trade organizations, and leveraging existing partnerships will pay dividends. To avert from making mistakes in the detection and implementation of legal and regulatory changes and to avoid departing from industry standards in execution, companies should consider the following:
Failure to follow investor, insurer and regulator COVID-19 guidelines can hit your bottom line quickly and significantly. This is a critical risk that demands concentrated support and execution. In reviewing investor, insurer and regulator COVID-19 guidelines, a compliance program should include the following industry-based reviews.
- Conventional GSE and private purchasers of mortgage loans such as Fannie Mae and Freddie Mac, bank and nonbank investors:
- Match loan types to investor requirements and clearly communicate the difference internally.
- Understand and articulate COVID-19 options and terminology.
Follow black-letter requirements and engage partners such as trade organizations and leveraging partnerships below to determine industry response and best practices.
- Government insurers and guarantors such as FHA and VA:
- Reconcile pre- and post-COVID-19 changes to programs and delivery requirements.
- Do not assume insurers and guarantors have the same requirements as GSEs when they adopt some aspects of GSE program guidance.
- Sign up for governmental updates to COVID-19 communications.
Federal and state regulators:
- Federal regulator websites have a wealth of information and should be regularly reviewed for updates.
- State regulator websites are a mixed review. Instead of visiting each one, focus on organizations that report on combined state efforts for the issues you are managing such as the Nationwide Multistate Licensing System, which has a state agency COVID-19 guide with hyperlinks to go directly to that portion of the state regulator’s website.
Real Estate Commissions – State licensing regulators have published COVID-19 guidance and other helpful information such as FAQs and best practices.
All of the major title insurance underwriters have issued COVID-19 guidance and online resources for closing practices, alternative locations and implementation of electronic solutions such as remote online notarization.
State licensing agencies that regulate title insurance have published COVID-19 guidance and issued bulletins on changes such as the Texas Department of Insurance, which issued B-0013-20 on electronic signatures for escrow checks and directly issued policies, and B-0011-20 on escrow check signatures and audit reports.
Connecting with trade organizations
Now is a good time to connect with or increase participation in trade groups that address your business model. Organizations such as the Mortgage Bankers Association, state Realtor associations, the National Association of Realtors and the American Land Title Association are covering COVID-19 issues that impact daily operations. Specifically, these organizations provide general information and links to federal, state, and (in some cases) local legislation, rules and guidelines. They also centralize industry feedback and experiences in almost real time along with maintaining established committees of professionals that meet regularly or online groups and communities that can field questions and provide answers.
These companies can provide education and webinars led by industry-specific experts while also advocating and lobbying for the industry using established channels
Examine your existing partnerships
Who do you already work with? Reaching out to your partnership network is a safe way to identify and manage risk. Partners are a part of an overall ecosystem that is critical to your survival in the industry, and are not direct competitors. Partners also have firsthand knowledge of key issues and players that impact the viability of your competitive space.
Connecting with end-delivery stakeholders, connecting with trade organizations and leveraging existing partnerships can impose checks and balances against internal operations and provide confidence that your organization is taking on an appropriate level of legal compliance risk.
Times of crisis inevitably shine a spotlight on areas of operational risk for employers. Consider whether you have the basic procedures and personnel in place to meet company objectives and make any necessary adjustments. Successful management of operations risk in high-impact, high-stress environments will require focus.
First things first: Keep business objectives top of mind and be ready to realign staff and redistribute tasks to meet production and financial goals. Leaders must avoid temptation to burden operations with unnecessary compliance requirements.
Disruption to operations should only be for absolute requirements. Compliance staff must interpret and set clear guidelines for operations staff.
To reduce stress, you should meet challenges head-on. The COVID-19 environment will continue to evolve. Operations will continue to transact. Prepare to become a resource that may not have all of the answers but is willing to find them. Consider creating an internal task force with elements from each core business unit to collaborate on COVID-19 risks and response. Operations personnel have direct insight into daily areas of potential risk. Operational risk is probably the most challenging to manage because every minute of every day informs it.
By the same token, operations management creates an opportunity for immediate feedback and correction of ineffective policies that could become large-scale problems if replicated. A strong alliance between compliance and operations personnel will result in a net gain of respect and confidence in the organization’s ability to solve complex problems.
There is no doubt COVID-19 is changing the game. Businesses must stay relevant to survive. Effective management of organizational risk in this environment would involve several initiatives including the development of a scenario-based business plan which will lead executives to weigh potential risks based on best to worst outcomes and position the organization for financial, legal and operational success regardless of the outcome.
Crisis management introduces a survival of the fittest competitive environment. Businesses should focus on the responsible implementation of products and services that will allow them to maintain or exceed market share in a post-COVID-19 environment. In volatile environments, appropriate compliance advice is critical to managing organizational risk. If you don’t have in-house compliance staff to advise you on COVID-19 legal and regulatory changes, outsource or hire a law firm and/or compliance consulting firm to help establish policy and procedures and support business objectives.
Conducting business operations from different locations, especially employee residences, creates new areas of cyber and information security risk. Due to access to accounts such as email, funding and escrow, customer and sensitive company and vendor information will continue to be the target for cyber criminals who will take advantage of gaps in security protocols.
Now is a good time to review current policy in light of operational changes in response to COVID-19 to verify requirements, shore up equipment and test breach reporting and SLA agreements. Updated or refresher employee training on information security protocols will be helpful to keep these issues top of mind.
Implementing the foregoing procedures will either inform you on where to make adjustments or confirm that you are on the right track when it comes to managing compliance risk within your organization.
Different pockets of the industry, same formula for success
If nothing else, this pandemic has already shown us that we can make incredible strides in challenging times. When it comes to this ever-changing landscape, the nimble and capable will survive. If you find yourself struggling to meet requirements, please associate with someone today and expand your network. You will find an open community ready to assist you in your endeavors. So relax. Take a deep breath. And…get ready. Get set. GO!
To read the full September issue of HousingWire Magazine, click here.
