Five questions with … Ari Karen

The 25-year-old Baltimore-based law firm Offit Kurman recently formed a pioneering mortgage compliance affiliate, C3 Compliance Consultants, to help lenders across the United States conform with regulations launched this year by the federal Consumer Financial Protection Bureau (CFPB), a creation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Veteran mortgage banking and employment law attorney Ari Karen is founder and director of the new venture. C3's services are in high demand by companies from Los Angeles to Boston, Karen said. He's been traveling so frequently in recent months to meet with far-flung clients, he said, it has become a joke among his colleagues that he no longer knows which Offit Kurman office is his home base.


In addition to having a headquarters in downtown Baltimore, the law firm has three other Maryland locations and outposts in Philadelphia, Wilmington, Del., and suburban Washington. Karen is working to expand the firm's mortgage compliance staff in all of these locations, he said.

Explain the impetus for the formation of a mortgage compliance company. What benefit did Offit Kurman see in launching it?


The basis for this venture was the recognition that the CFPB's new examination guidelines significantly raised the bar for nondepository and small-depository institutions. Compliance now requires a more formalized, ongoing and proactive approach to compliance that necessitates affirmative management of a lender's compliance in a manner that many lenders were not prepared for in terms of current staffing. To develop the compliance department internally for these companies would be extremely expensive and time-consuming. To hire an external consultant would also be very expensive on a project basis and require a company to essentially write a blank check to a compliance company that had no incentive to control costs. We believe that (as in other related fields) a lender should have the option of hiring an external company on a flat-fee basis to achieve the compliance levels required by the CFPB at a fraction of the cost of developing an internal compliance staff.

Under the new regulations, all mortgage lenders must have a compliance officer. How does Offit Kurman's new division fulfill that role?

The CFPB expressly stated that a company could utilize outsourced or external compliance staff. The key is that the compliance personnel have the aptitude and experience to be able to institutionalize compliance and ensure that the lender is in a position of being able to identify and correct problems before they arise. The critical element, therefore, is having a combination of industry experience, a working knowledge of the ever-changing regulations and industry standards, and the know-how to implement and monitor new procedures in a way that will cause every employee to realize the need to consider compliance at all times. Hence, it's far more important to have the combination of skills as opposed to physical contact. In other words, it's less difficult to find people who can carry out a compliance strategy as opposed to developing and amending that strategy as needed.

Generally, how has the CFPB changed mortgage lending regulations?

Mortgage lending from a compliance perspective was previously a reactionary protocol initiated by government intervention. If and when a company was cited for a problem, an appropriate response and potentially remedial actions would need to be taken, specific to the issue at hand. Now an institution is required to adopt policies, procedures and practices that will prevent problems and identify the potential problems before they actually arise so that appropriate remedial actions are instituted prior to any injury (however slight) to a borrower. In short, this represents a 180-degree shift from a scenario where the government would identify something requiring a specific response to a situation where effective, broad self-regulation is demanded and expected with severe consequences if such compliance is not properly instituted and maintained.

How does C3 Compliance Consultants ensure its clients are complying with regulations while operating mostly off site?

It must remembered that part of what the CFPB requires is a compliance management "team." Compliance is not nor can it be a "one-man show." It is simply impossible that one person working alone could ever perform up to the standards currently mandated by the CFPB. What C3 offers is the outsourcing of the chief compliance officer who would typically orchestrate and adapt the compliance strategy as well as respond to specific issues that arise.

To do this, the most important component is having the skills needed. Industry knowledge, awareness of the regulations and legal standards, understanding how to institute regulatory processes and procedures, recognizing the challenges in implementing new policies and procedures are the key skills. C3 has these skills. Working through a liaison at the company (who would otherwise be employed as part if its compliance management) a dedicated C3 team (that includes both an attorney and compliance specialist) would provide a client an external component to lead its compliance effort, thus performing the highest-level (and highest-cost) compliance functions at a fraction of the cost alongside internal resources that would have otherwise assisted a chief compliance officer in carrying out his/her duties.

You've been spending a lot of time in New York in recent months, meeting with clients. What's one thing New York has that you think would be an asset to Baltimore?

The New York subway is great. You simply do not need a car to live in New York. The availability of good, quick eats all night, anytime is also a plus.



Ari Karen

Title: Founder/director of C3 Compliance Consultants, an affiliate of Baltimore-based law firm Offit Kurman.

Age: 42

Hometown: Silver Spring

Current residence: Potomac

Education: Bachelor of Arts, University of Maryland, College Park, 1992. Juris Doctor, Emory University, 1996.

Family: Married to Catherine, also an attorney. They have two girls, ages 15 and 3.

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