In this episode of Lykken on Lending, titled “Threading the Needle: Making Compliance Work in Mortgage Lending,” David Lykken is joined by Brian S. Levy—seasoned attorney, Harvard Law grad, and author of the widely-read Mortgage Musings newsletter—for a candid and insightful conversation on navigating the complex legal landscape of mortgage banking. Together, they dive into hot-button topics like RESPA reform, LO Comp challenges, the future of the CFPB, state-level enforcement, and how AI is impacting compliance and legal risk. Brian brings a rare combination of legal expertise, industry perspective, and practical creativity to the table, offering lenders and compliance professionals real-world strategies for staying compliant without killing innovation. If you’re in the business of mortgage lending, this is a conversation you won’t want to miss.
[David] Listeners, you know what it says about an attorney? You always want to have one around, but you don’t always like listening to what they have to say. That’s an exception today. We’ve got Brian Levy joining us. So, we’re going to hear all about his background. I enjoy his musings that he writes. He publishes and writes well. He speaks at a lot of conferences and at the first of the year, back in January, Brian and I were to gather at a conference and I really enjoyed his perspective and so I have not had this attorney on before. We’ve had lots of other attorneys on at times. I’m really excited for you, our listening audience, to get to know Brian. Brian, welcome to the podcast.
[Brian] Thank you so much, David. It’s a pleasure to be here. Enjoyed our conversation back in January and looking forward to today. You’re one of the few people who’s ever excited to see an attorney. When I first got my law license, my dad said to me, sent me this little, those old New Yorker cartoons. It was one of those little cartoons that said, one guy saying to the other, how come every time I see an attorney, I feel like I should have seen an attorney first?
[David] That’s funny. Maybe I join attorneys because I do legal expert witness work. So, I work for you guys enough times on litigation, but really I think what I’ve learned, Brian, over the years, having owned three mortgage banking companies, a software company and other businesses, I wished I had gotten a law degree or at least taken more law classes because when it comes to reading contracts, I’ve gotten good at it over the years. You better hit with what we have to deal with contractually in our industry, but it’s really valuable. Some of the most valued counsel I have received as a business owner has come from my legal professionals that I have retained and worked with and I really like something you said in your bio and I want to dive into that. You provide actionable and creative compliance. Those two words leaped out at me because a lot of people will give an opinion about something but it’s not always actionable and I don’t sense there’s any creativity about it. So you pick up on your actual ability and your creativity in your newsletter. And so I want to put a plug in for that right there. And then I want to get into answering the question about actual and creative. So let’s put a plug in for your newsletter. Where can people get it? It’s really well written. You publish it. You’re quoted on Chrisman and a number of other blogs regularly. So where can we see that?
[Brian] It’s just www.mortgagemusings.com it’s free for anybody that wants to read it again it’s not designed to be a legal blog with case sites and yada about what this judge said or that court said it’s much more accessible hopefully it’s not supposed to be a chore to read it’s supposed to be fun I’ve cultural references and cartoons and I don’t know whatever comes to my mind as I’m writing. Yeah, I get a lot of good feedback I’ve up to about 2,500 subscribers at this point and it’s been a lot of fun, a labor of love. I’ve been doing it for a little over five years now and it’s one of the most enjoyable things I do professionally.
[David] I love it. And the name of it again is mortgage musings, www.mortgagemusings.com I believe is where you can go. Correct.
[Brian] If you go to that site, you’ll be able to sign yourself up to get a free email every time and I don’t sell email addresses or anything like that.
[David] Good. Yeah. No, it’s really well done and from your writing style, you’re more concerned about the discussion around a regulatory issue or a compliance issue, and you bring good perspective from multiple angles. And the best part is you do walk away with some actionable, intelligent things that you can draw away from that. So I want to encourage our listeners right from the beginning. So let’s talk about the actual and the creative compliance. Put those two together for us and create a construct around that if you could.
[Brian] Yeah. So I’ll give you a little bit about my background. I was at a big law firm doing mostly commercial real estate work for about five years coming out of law school, 1989 through 94. Then I took a job in-house being general counsel of the bank. had three mortgage subsidiaries, wholesale, retail, and wholesale second mortgage lending company. I left there in 2009. So it’s been a little over 15 years. And the thing that really that in-house experience gave me was the understanding that giving legal advice, frankly, it’s pretty easy from the perspective of, just can say, here’s how I think you should do this. The hard part is executing and executing requires not only that you got to get people to do what you want them to do. You got to have systems that can make that work. You got to put procedures that can implement it. Executing is the hard part. That’s what business people do. And I’m at least sensitive to that. I was on the receiving end of a lot of advice and a lot of good advice. I was a lot of good attorneys, people that I still view as colleagues today that taught me what I’ve learned being in the industry. But also it is really important to sometimes understand that, gosh, you’re not going to be able to do something even if it’s what the law says you have to do or the compliance rule reg has to tell you. Making that work can be very challenging.
[David] I think it really, it’s a challenge of how to work. A regulatory risk, legal risk, operational risk, with the risk of just running a business. And sometimes it’s not compromising the risk per se, but it’s finding a way to thread the needle so you can get the business in the door. And the safest territory is inside the middle and no one does business in the middle. We’re all out there having to compete on the outside. How do you navigate that? What’s some of the principles you would share with our audience? Someone listening is saying, I want to see if I want to retain Brian here.
[Brian] I love the people in this industry, mortgage banking industry, mortgage lending. They’re very creative, very sales oriented. And frankly, desire to be compliant, desire to follow the law. They’re not trying to be.
[David] Most aren’t. Yeah, there’s are a few I sadly I think.
[Brian] They’re really trying to do things the right way and they’ll come to me with an idea and we want to do X, Y, and Z. And I’ll tell them we can’t do X, Y, and Z, but you can do X, Y, and Q as long as you do the certain things. Now I’ve learned over the course of my experience that you have to be very careful with how you say yes, but because like by the time.
[David] That’s funny. I’m checking because I’ve heard you have your say before.
[Brian] Already doing what they asked you and you didn’t get the but part out to say these are the things you have to do to make it work. But I do try and philosophically to find a way to help people accomplish their objectives. That’s always been my sort of North star is that in life, what I want to do is help people achieve their objectives, help facilitate transactions, help facilitate conversations and business plans. And that’s hopefully what I’ve been able to do in my career.
[David] You see how many people at the conferences that we speak at, how many people respect you, come up and talk to you, and that are clients of yours. And so obviously you found a way to do that and do that very successfully over a long period of time. We honestly should note that you’re a Harvard Law School grad. So kudos to that and that’s not a bad place to have gotten your law degree from. Let’s talk about some of the things with thinking about what’s going on in DC right now. CFPB, I want to get some of the things you’ve written about this on your newsletter, but for our audience, I want them to go be teased to go back and read some of your newsletters on this topic. But what is going on? CFPB happenings.
[Brian] Yeah, it’s, guess I never really imagined what we’re seeing today could actually happen. There was a lot of conversation in the first Trump administration about what would the CFPB look like under Trump. And initially we had Mick Mulvaney as an interim director who called the agency a sad, sick joke. That’s why he showed up the first day with a box of donuts to maybe smooth things over. I’m not sure that would be the best way to do it, but this time around there’s no donuts.
[David] That’s all doughnut. It’s just a sludge hammer.
[Brian] The idea is at least, you know what I’m.
[David] A dynamite may be appropriate, more logical, or more better explanation of what they’re trying to do. There is a sense of wanting to blow it up per se. I remember going through the Dodd-Frank era and when we went through, we were combining all these regulatory bodies, they mashed together so many different regulatory bodies into the CFPB. I get really concerned about not having some type of oversight on our industry for the fringe elements that push us that have an impact on all of us. We watched what happened the last housing crisis when we just went too far afoot that brought about the CFPB. Your thoughts on all of that.
[Brian] Yeah, very clearly there are some babies in the bath water at the CFPB and the things that they administer. I would put in that category, the ability to repay rule, QM. That’s a rule that protects lenders from racing to the bottom. And you’re writing standards. We got way over our skis. It created a housing crisis, whatever you want to call it, a meltdown. It was bad. Let’s put it that way. And I think that rule does a good job of keeping us make can succeed in their loan. There was one CFPB consent order or not the sent order, but a clay case that they had just filed recently. They dropped it as part of this new administration. They dropped virtually all of their enforcement actions. But that doesn’t mean that there’s no law anymore. It doesn’t mean that there’s no enforcement to be had. First of all, the states can still enforce most of that. Right. And there’s nothing to say that the CFPB isn’t going to regroup and look at what are very clear violations instead of the kind of things that they were doing, which was stretching the law, this regulation by enforcement that everybody was troubled by because it was really hard to know where they were going next. Changing how he said, did Wells Fargo really need to be told that opening accounts for people that they never authorized was unfair and deceptive? that, that it’s pretty obvious that certain things are violations of law. Other things when you’re stretching the RESPA or stretching some law into areas that you just you never really thought were going to be a problem and certainly we can talk about fair lending as well. It’s very difficult to know how to operate in business and business like certainty to be able to build and to grow. So right now we actually have uncertainty in terms of how things are going to be enforced. Yes. But keep in mind on a lot of these consumer rules that formerly were transferred over to the CFPB, there’s a lot of private rights of action on those as well. the industry used to deal with class actions all the time when I started. We haven’t really seen that since the CFPB. And if the CFPB backs away, you might see class actions start coming back again.
[David] I get more concerned about that going out to the states. We’re recording this on Thursday the 20th of March and we’re hearing about doing away with the Department of Education. is a pretty substantial rumor going on. I think that would take an act of Congress, but he can certainly defund it to the point where it’s factually gone away. I get worried about, not going into that issue, but I’m using that as example. CFPB going away and getting pushed out to 50 CFPBs effectively in each state creates a nightmare for lenders. And that one, that is something that It’s very disconcerting to me when we look at we’re all trying to struggle to maintain or manage our costs. How do you do this when you’re a multi-state lender? That becomes very complicated.
[Brian] I think the difference between this how the CFPB operated and how the states are likely to operate is the states don’t have any interpretive powers over these. Yeah, they’re unlikely to stretch the OK, engage in regulation by enforcement, which isn’t to say that they can’t.
[David] Very good point. I think you have a couple states which have been fairly famous for stretching what California be.
[Brian] And they also, but what I was also going to say is they have their own statutes. Yeah. They then can interpret or seek to stretch interpretations of certainly California, New York, New Jersey, these kinds of States. They have their own laws that may be more stringent than the federal laws. So you have to be aware of that.
[David] Then they have to ask you. Yeah, I think the whole no CFPB and then going out to the States, you bring up some really good points on there. I’m looking at our lenders that are struggling already to maintain complexity or compliance to the complexity that’s out there and it’s only going to go extra or so. I can sit and spend a lot of time on that one. Let’s talk about RESPA reform. What are your thoughts? What is realistic, Brian, that we can anticipate?
[Brian] Well, it’s interesting as I think the MBA proposed a very detailed RESPA reform. That’s right. Proposal. They rolled it out last year at the end of the meeting. I was actually involved in helping put that together with the other attorneys. I wasn’t the only one. was a lot of other people that had a very big role. And I’m actually thinking given the way the CFPB or maybe the Trump administration doge this whole philosophy of eliminating regulations eliminating the regulators, deregulation. It almost seems to me like the CFPB will be looking for opportunities at some point in the future here to roll back regulations, but. I think where they’ll start is with some of the things which are pending or easily turned around. Servicing regulation hasn’t been finalized. Policy statements that can be reversed very easily. Those are the things where they would probably start things like Respa, LL Comp. LL Comp, just I’ve written many times about why that has absolutely no positive benefit for consumers, but, certainly not for the industry. Those kinds of things will require additional congressional action or regulatory action that’s more formalized. So you’ve got to do the hard lifting for those kinds of things. so the rest of the reform question, which you started with. Maybe we can ask for more as an industry than what we did in there at this point. Cause I think we just under, we’re operating in a mindset of a regulator that was very reluctant to give the industry anything in terms of flexibility. And I don’t know, maybe there’s a greater opportunity now where you’re looking at a philosophy that says we start from zero and then we only do what we absolutely have to do instead of we start from a hundred and try and make it a thousand.
[David] Good point. Yeah, good point. One of the areas you touched on was LO Comp. It’s another one of those areas which is not serving the consumer well. It’s not serving the mortgage industry well. What is the probability of LO Comp changing?
[Brian] Probability, can’t really measure at this point, honestly, it’s higher now than it would have been had we had a different election result. That’s right. The industry’s been.
[David] Would you agree that it’s necessary, is needed?
[Brian] Yeah, so the industry, this would have been back probably at least seven or eight years ago, sent a letter to the CFPB saying we want to see that the LO Comp be amended to allow for discounting at the point of sale, to allow for discounting for bond loans and low income housing kind of loans, and then also to allow for chargebacks to loan officers who make errors. Those seem very commonsensical kinds of things. Like what would be the problem with lowering the cost for consumers or for charging back for errors, doesn’t, it didn’t seem to make any sense why they wouldn’t agree to that. But yet that was difficult for them to even, and then they ultimately did nothing with that proposal. Now you look and you say, we have a law that says that people can’t reduce their own compensation to make a deal work. That’s the law. That’s what LL comp says. You’d have to think that a much more market oriented, market oriented regulator, right. See the wisdom in getting rid of that.
[David] Solution. Regulation, Yeah. I hope that one actually happens. The next one that’s on the list is one of my favorite topic is fair lending. We, that is a legitimate concern. How do we deal with some of the inequities that I have? We know it’s been out there and we start, look at even the issues within DULP and we still find inherent issues in fair lending. It’s somewhat systemic across the.
[Brian] So, let me just start by saying throat clearing that it’s that fair lending is important that we have a disparity in this country, particularly for black homeowners, that their rate of homeownership is significantly lower than whites and Asians. And actually Hispanics have been improving in that regard, but still below what other racial categories have. We should do better. Yeah. Okay. We should find ways to do better. That said, the law around fair lending has gotten ridiculous.
[David] It feels like it’s been weaponized almost.
[Brian] It has and so the fair lending laws say you cannot discourage somebody from applying and they’ve converted that concept in this reverse redlining concept to say discouragement means the failure to encourage. In other words, if you don’t encourage somebody, you’re discouraging them and how they.
[David] Where’s the boundary on that?
[Brian] Is that you need to open offices in their area, which I mean, is that what drives people to come in to get a loan, to have an office on the corner? I don’t know, but it seems unlikely. Everyone’s doing things on the internet these days. The kinds of things that they are identifying did not move the needle from the perspective of, we doing anything to actually impact the rates of home ownership? Those kinds of things were just ridiculous. And she doesn’t say ridiculous, they were ineffective and the industry was being held hostage to these things, which was a political agenda and not to achieve the result that again, I started with that we should be working on.
[David] Really good point. Really makes a really solid points on there. One of the things you talk about in your musings is rule of law. I’d love to get, if you could just expound on that a bit, what you mean, you really write well on this one. Yeah. On all of it. I don’t mean to say you were, but I particularly enjoy some of your writings when it comes to rule of law.
[Brian] Thank you. It’s sort of the bedrock of our constitutional society here, right? We’ve agreed to live by this constitution. And one of the things that is required is that we all agree to the rule of law. That’s part of our social compact with each other. That if the courts make a determination that we are going to, we’re going to live by it. One of the big worries, and we’ve walked up to the edge many times with this current administration is, is the president going to abide by the rule of law? And many people would say he hasn’t already. He’s doing whatever he wants. I’m not sure about that. He’s appealing decisions. He’s complaining about decisions. He’s walked pretty close with this deporting of the Venezuelan gang members and not turning the plane around when the court issues an order. There’s some pretty questionable things there in terms of rule of law. But I also saw what Chief Justice Roberts said, which was essentially, hey, we don’t deal with decisions we don’t like by calling for impeachment. We deal with decisions we don’t like by appealing them, which is the right answer.
[David] Which is what he’s doing. lot of this comes into in my opinion, how it’s been reported. Thank God we’ve got podcasts down. have a lot of different ways that information news is getting out. there has been, it seems like, Brian, there’s been an agenda within certain news organizations to steer things a particular way. And let’s return to a rule of law. And I encourage people to sign up for your mortgage musings because it’s so well written, Brian. And I just like your perspective in there. I was getting ready for this interview. I went through and I was going to highlight some of my favorite ones. go, I’m highlighting the whole dad game thing. It’s really good what you write and your perspective you come from. So I really encourage people to listen. Where do you think we’re heading? Just as an industry Brian, you’ve been in this, I’ve been at 51 years. You’ve been at a bunch of years. Where are we heading? Is this a pendulum swinging? Are we heading into a new paradigm or a new era per se?
[Brian] Yeah, it’s a great question. This is a cyclical industry. Nobody listening to this doesn’t already know that. I started in the industry. very first thing I did 1994 was I spent most of my coming out of commercial real estate. Most of the things what I was working on was trying to get out of leases, sublease space and terminate leases. We were just trying to cut. People were getting laid off. was a, it was a, it was a rough time. And then all of a sudden we had, I don’t remember exactly what year that was the year I refinanced my house four times. It was funny. Like, 70, something like that. And I remember thinking, I have nothing to do at work. I’m the lawyer, new ideas. Nobody needed me. They needed me to help close loans.
[David] It made economic sense to do that. Yeah.
[Brian] I work weekends and help close loans, but I couldn’t do that. So I’m tapping my pencil and everybody else is busting their tail off to try and get loans closed. So you asked me, where is the industry headed? I don’t think cyclicality is gonna get rung out of this industry. I think we’re still gonna be facing a lot of cyclicality, but you may see a lot of new ways of the way in which homes are sold, I think is changing, bought and sold, all these changes with the NAR, the MLS, a lot of that is going to impact what it is that we do as mortgage lenders. Consolidation, think, is certainly
[David] It’s going to continue, yes.
[Brian] And not just consolidation of mortgage companies becoming bigger, but also becoming more diverse. So you saw rocket just acquired, and I’ve been very involved with affiliated businesses throughout my career, but never on that scale and size. I haven’t seen that. And, I think you’ll see more of that. And I do think, I guess I maybe in one of my musings, I called it the Amazonification of.
[David] I thought that was a really good observation. I think you want to be coined and ever since.
[Brian] What’s stopping Amazon from selling real estate and being the marketplace for that like they’re the marketplace for everything else and certainly would be convenient for shoppers. Yeah, I think there’s going to be a lot of changes. You got to be nimble. Interest rates could come back down and we see all kinds of refinances. Interest rates could go back up and things slow down, but
[David] I think the introduction of AI is going to be real game changer. Any thoughts on how AI from a regulatory standpoint, is it going to help us or hurt us?
[Brian] I haven’t thought about it in terms of regulatory, how would it impact the regulatory world? I have a thought about it, how would it impact my job as an attorney? I think also in terms of compliance officers and auditors, I think it should dramatically assist.
[David] You have a huge impact. Yeah, assist is the key word there because what you we talked about at the very beginning of our interview was actionable and creative. And I think what you do really well and other attorneys need to learn how to do this well is how to help navigate to actionable product that’s going to help the business grow and without being in violation and do so in a creative but not take creative to the point where you’re going over bright lines and I think that’s one of the things that I wanted to underscore when I was reading that I highlighted that in your bio. I think that’s one of the things that AI will never be able to solve. It goes through immense amount of data. can bring us a lot of information assist, as you said, but at the end of the day, the creative part of it and help what’s going to be good for business rules. I think it may be a little while before we see AI.
[Brian] AI, the problem, the hallucination thing with AI is a real
[David] You brought that up. was talking about it when I was in New England at the New England mortgage expo and I, and you brought it up because I was talking about the new one that I’m using that I have gotten so perplexity. And you said, Dave, you raise your hand from the audience and say, let me tell you, there’s some serious hallucination that can go on within perplex within perplexity. And I think it’s that probably a good place to talk about what you raise your hand to mention about this. Our race to rely on or be enabled by AI is good, but boy, you got to use some boundaries on that.
[Brian] Perspective. And by the way, still use perplexity a lot, notwithstanding the fact that I’m aware that it has problems, but I’ve asked it like to, cause I wanted to find, I’ve done like 80 some of these mortgage musings and I always like to refer back to the ones rather than repeating everything. I just refer back to what I’ve already written. And I asked it to find the one that I wrote about the dispute or the rivalry between UWM and Rocket. And it gave me one and I wanted an older one because I’ve written about it a bunch of times and then so I asked it no give me another one and then it basically just gave me a list of fake ones. I wrote and I was like the headlines were something I might say but I was like my gosh this made up tons of shit. So you have to
[David] Did I never? Yeah, that’s just… Crap!
[Brian] Review this information with a filter of experience and knowledge. I’ve been able to have AI chat GPT can write a great letter. I was asked to write a demand letter for an employee who was overpaid. I’d say about 80 and the tone was right, but 85 % of the letter I was like, I can use this and this is the kind of thing that maybe like a first or second or third year associate attorney might be able to do. It’s not bad. But again, asking for factual information, be very careful.
[David] Be very careful. Great perspective. Brian, I’m just so thrilled that you took time to come on and be on my podcast. was a delight to meet you. And again, I’ve gotten to know you more through your mortgage musings since I met you. And I’ve always heard you quoted and talked about, but now I understand why people respect you to the level that you do. And I’m really grateful that you took the time to come on my podcast. Thank you. You bet. How good people reach out to get to know you connect with you. go, I like this guy. First of all, subscribe to mortgage musings.com folks, go sign up. It’s free. It’s valuable. And your perspective will bring you and it’s written in such where the average non-legal person will understand it. And that’s what I appreciate about more than anything else. But other than that, how can people reach you, Brian?
[Brian] Yeah, the easiest is brian@mortgagemusings.com. That’s not my legal email address. I mean, terms of, you’re looking for specific legal advice, I’ll switch you over to my Katten Temple email address, which is blevy@kattentemple.com. But the easiest one to remember is probably the brian@mortgagemusings.com
[David] Yeah, start with Brian at mortgage museum and if you have a specific issue, he’ll direct you over. Katalin is K-A-T-T-E-N Temple,
K-E-M-P-L-E. I said C, I meant K-A-T-T-E-N Temple. Brian, thanks for being here. Appreciate it so much,
[Brian] Thank you too. Enjoyed it.
[David] You bet.
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Brian S. Levy, Of Counsel with Katten & Temple, LLP in Chicago, provides actionable and creative compliance, transactional and regulatory guidance for mortgage lenders, banks, and related providers to the settlement service industry. Brian has unique sales and in-house experience enabling him to offer practical guidance and effective training on matters such as RESPA, LO compensation, mortgage repurchase defense, loan sale and technology agreements, transaction and business structuring, new business initiatives, and various regulatory and enforcement issues. Levy also has a thriving practice representing owners and prospective buyers of summer camps and is a member of the Board of Directors for the American Camp Association.
Brian is a thoughtful industry pundit and the author of the provocative, insightful, and heavily footnoted with humor, Levy’s Mortgage Musings. Sign up for a free subscription at www.mortgagemusings.com. He is also a frequent conference speaker, magazine contributor and webinar/podcast guest. Brian was General Counsel for a mid-sized midwestern bank (and its 3 mortgage banking subsidiaries) for 15 years and prior to that handled primarily commercial real estate matters at a large law firm in Chicago. Brian graduated from the University of Illinois at Urbana-Champaign, (A.B., 1986, Summa Cum Laude) and Harvard Law School (J.D.,1989). Brian can be reached at 262/241-7977 or blevy@kattentemple.com and can be followed on LinkedIn @BrianSLevy.