Mortgage

SOC Reports Explained: A Guide for Mortgage Service Providers 

The mortgage industry faces an ever-growing list of compliance requirements and security challenges. System and Organizational Controls (SOC) reports have emerged as a critical tool for demonstrating a service organization’s commitment to robust internal controls and data security.  They help proactively address organizational risks and drive trust and transparency with customers, prospects, and stakeholders. As a service organization, you should expect your customers to request SOC reports from you. Get compliant before they ask for the report.  

What are SOC Reports? 

System and Organization Controls, or SOC reports, are independent audits of a service organization’s internal controls. SOCs are conducted to verify the effectiveness of a service organization’s controls for handling customer data securely. There are a few different types of SOC reports based on your organization’s needs: 

SOC 1 is relevant for companies performing financial transaction processing or supporting transaction processing systems. This report focuses on any outsourced services that could impact a company’s financial reporting. This could include loan servicing platforms, general ledger systems, pricing, hedging, valuation or data and payment processing systems. SOC 1 reports are intended for use by management at service organizations’ clients and the independent auditors who audit and report on the client’s financial statements or internal control over financial reporting. 

SOC 2 is most commonly needed and is essential for any company that provides a service, performs outsourcing, or supplies IT systems. It involves evaluating internal controls, such as operational and security controls, to better secure your organization. By obtaining SOC 2 compliance, mortgage service providers demonstrate their commitment to protecting customer data.  

Types Within Types: Understanding SOC Report Classifications 

Each SOC report also includes a type, such as “SOC 1 Type 2” or “SOC 2 Type 1.” SOC reports are  divided into two types: Type 1 reports provide a snapshot of the service organization’s controls at a point in time whereas Type 2 reports provide a more in-depth assessment of the service organization’s controls over a period of time. 

• Type 1: Examines control design at a specific point in time. These are most often used for baseline assessments, significant changes to the design of new controls, or quick-turn customer requests. They can be completed more quickly than a Type 2 and can be used to identify any gaps or issues in the interim.  

• Type 2: Assesses control design and operating effectiveness over a defined period. These are used for ongoing compliance and assurance needs, such as when clients or regulators require evidence that the controls are well-designed and effectively working as intended. Type 2 provides a higher level of assurance and is generally preferred for ongoing compliance needs. 

Which One Do I Choose? 

With various types of SOC reports available, knowing which ones apply to your organization or the service providers you use can be daunting. As a mortgage service provider, you most likely need a SOC 2 report. If you provide outsourced services that could impact your clients’ financial reporting, then you also need a SOC 1. The type of report you choose will depend on your objective.  

However, SOC reports are only one part of an effective security posture. Your organization should also conduct annual risk assessments, IT internal audits, vulnerability testing, and comprehensive risk management strategies which are key to maintain a robust security program.  

The Competitive Advantage 

SOC reports will become increasingly important in the mortgage industry and demonstrating your data security is essential. By embracing SOC reports and a comprehensive security approach, you’re not just checking a compliance box – you’re building a foundation of trust that will set your business apart in an increasingly security-conscious market.  

SOC examinations can be complex, but their importance cannot be overstated. If you’re feeling overwhelmed, seek expert guidance from Richey May. We understand the unique challenges servicers and vendors face. Our expertise allows us to provide tailored insights into System and Organizational Controls (SOC) reports, which are crucial for compliance and risk management in today’s competitive landscape. Contact us at info@richeymay.com today.