Three moves lenders should take now to stay ahead of AI regulation

"Mortgage lenders don't have the luxury of waiting for AI regulations to settle. While states and Washington spar over who sets the rules, lenders remain fully accountable for how artificial intelligence is used in underwriting, servicing, marketing and fraud detection. The question is no longer if AI will be regulated; it's whether lenders are ready when scrutiny lands. Here are three moves lenders should take now to protect themselves, scale responsibly and avoid becoming test cases for regulators."

"AI risk management cannot live in a slide deck. Lenders need a formal governance framework that inventories every AI-driven tool in use, documents how models are trained and defines who is accountable for outcomes. That includes understanding data sources, monitoring for drift and bias and establishing escalation paths when AI outputs affect borrower eligibility, pricing or disclosures. Regulators are signaling that we rely on a vendor will not be an acceptable defense."

"If AI touches a consumer outcome, lenders will own the risk. Just as important, governance must be operational, not theoretical. Compliance teams, legal, IT and business leaders need shared visibility into where AI is deployed, how decisions are made and how exceptions are handled in real time. When governance is disconnected from day-to-day workflows, issues surface only after harm occurs, which will be exactly the moment regulators and plaintiffs' attorneys start paying attention."

Mortgage lenders are fully accountable for any AI used in underwriting, servicing, marketing, and fraud detection and must prepare for regulatory scrutiny. Lenders need a formal, operational governance framework that inventories AI tools, documents model training, identifies accountable parties, monitors for drift and bias, and defines escalation paths when outputs affect eligibility, pricing, or disclosures. Reliance on vendors will not excuse lack of transparency or control. Vendor contracts must be tightened to address training data ownership, audit rights, bias testing, explainability, and data segregation. Vendor oversight must function as a core compliance activity with shared visibility among compliance, legal, IT, and business teams.

Read at www.housingwire.com