WASHINGTON — As artificial intelligence becomes increasingly embedded in mortgage lending operations, lenders and brokers may be exposing themselves to new compliance, privacy and regulatory risks that many have yet to fully recognize, according to one analysis.
Peter Idziak, a principal at the law firm Polunsky Beitel Green who advises mortgage companies on compliance matters, told National Mortgage Professional that AI technologies are creating new categories of records and data that could significantly expand the scope of regulatory examinations.
Among the emerging concerns are AI-powered transcription tools that record and transcribe borrower conversations and large language model platforms that store user interactions, potentially creating extensive records that regulators may seek during examinations.
“If you’re in a business where you are not necessarily required to save every communication you have, now you have transcripts of every call that you’ve ever made,” Idziak told National Mortgage Professional. “I would not be surprised if you have an exam and the regulator says, ‘Well, give me all these transcripts and then I will run them through my AI and see if it thinks that you’ve engaged in any sort of prohibited conduct.’ In the past, it just wasn’t a source of information that’s available.”
Comparisons to Emergence of Email
Idziak compared the current evolution of AI-generated records to the rise of email in the 1990s, when organizations accumulated vast amounts of communications that were difficult and costly to review. Advances in technology eventually made it easier for regulators, litigants and compliance personnel to analyze those records.
“Regulators themselves really couldn’t have done it sometimes,” Idziak told the publication. “But don’t be surprised going forward if it’s much more of a heftier document request being asked. And then you just have a lot more documentation, a lot more information about your contacts with the borrowers.”
‘That Could be a Problem for You’
The National Mortgage Professional analysis noted that another concern involves data governance and privacy. Idziak warned that mortgage professionals using consumer-grade AI applications may inadvertently expose non-public borrower information by entering sensitive data into systems that are not designed to meet financial industry compliance requirements.
“If you just have an off-the-shelf subscription to Claude and you’re putting in non-public borrower information, that could be a problem for you,” Idziak told the publication.
The attorney also raised concerns about the use of AI in marketing and borrower acquisition. According to National Mortgage Professional, Idziak said questions remain about whether AI-driven targeting tools could create fair lending concerns if they filter or prioritize prospective borrowers in ways that correlate with protected classes under the Equal Credit Opportunity Act and Regulation B.
At the same time, Idziak cautioned that lenders should not expect regulators to excuse compliance failures simply because an AI system made a mistake.
Attorneys Sanctioned
National Mortgage Professional noted that courts have already sanctioned attorneys who submitted AI-generated legal filings containing fictitious case citations, rejecting arguments that responsibility rested with the technology rather than the user.
“If someone tries to raise the defense of, ‘Well, I bought this AI solution, and it’s not my fault that it did what it did,'” Idziak said, “I don’t think regulators are going to be very accepting of that.”
The regulatory environment surrounding AI remains unsettled, according to National Mortgage Professional. Federal and state policymakers continue to develop rules governing AI use, while some state laws have been criticized for being broad enough to potentially encompass longstanding technologies such as automated underwriting systems.
“AI is the same as any other technology that you’ve had to deal with across 50 states,” Idziak told National Mortgage Professional. “The issue is more that because AI is evolving so quickly, the statutes and regulations are struggling a great deal to define precisely what an artificial intelligence system is.”
Showing Good Faith
Despite the uncertainty, Idziak said most mortgage lenders and brokers are making good-faith efforts to comply with evolving requirements. However, varying state laws and a lack of regulatory consistency are making compliance increasingly challenging.
“The vast majority of brokers and lenders, especially people at scale, are trying their best to comply with the law,” Idziak said, according to National Mortgage Professional. “The industry gets a bad rap sometimes.”
At the same time, he warned that overly permissive AI regulation could create new risks for consumers and the industry.
“But to just have a very loose regulatory framework for AI usage, my worry is that it leads to an increase in fraud and fraud at scale, and oftentimes against the most vulnerable members of society,” Idziak said. “And it just makes for a less trusting society. You want your borrower to have a good customer experience. You want them to think well of the industry. Public perception is very important.”
