BLOG VIEW: The Consumer Financial Protection Bureau's TILA-RESPA Integrated Disclosure (TRID) rules are now scheduled to take effect on Oct. 3. Most lenders already have a plan in place concerning how to comply with the regulations.
For a majority, those plans include increasing headcount. In a recent survey conducted by Capsilon Corp., 67% of the lenders polled reported that they had already hired additional in-house staff or engaged with outsourced staff to handle compliance-related activities, including managing TRID compliance.
For many lenders, ‘staffing up’ to manage compliance with new regulations has been the standard course of action. But with nearly 1,000 compliance changes since 2008, lenders are struggling to keep up – and adding labor to address compliance-related activities is getting expensive.
For most lenders, this approach to managing TRID compliance is unsustainable – and leveraging technology to automate TRID tolerance checks and other quality checks is a superior approach.
Hiring labor to manage TRID compliance is an unsustainable approach for several reasons. First, identifying, hiring and training qualified staff is a time-consuming and expensive endeavor. Plus, loan turn times are likely to slow as new hires navigate the learning curve of complex and important steps in your loan production process.
Also, along with new hires comes an increased risk of human error, and quality suffers. What's more, the approach isn't scalable and won't allow lenders to respond immediately to changes in volume or as more compliance regulations are enacted.
Hiring outsourced help may seem simpler, but relying on third-party service providers presents its own set of challenges. First, training your vendor to follow the processes and procedures you require is an investment of time and money. And, lenders have little control over the type of employees engaged with their projects, so quality is always a concern. Plus, there's no guarantee that the help trained today will still be employed by the vendor tomorrow or that the vendor will even remain in business. Finally, using vendors likely increases the lender's exposure to risk. In the event of any problems, the lender will be held accountable.
Whether a lender adds in-house or outsourced staff, personnel-related loan production costs will increase – sometimes to an unacceptable level. In the Capsilon survey, 80% of respondents say their loan production costs will continue to rise this year, driven largely by personnel costs. Recent data from the Mortgage Bankers Association reports that personnel-related loan production costs now average $4,000 per loan, a staggering amount by historical comparison. In fact, today, personnel-related loan production costs are more than double what they were in 2009.
Adding labor may have been an acceptable solution to handle compliance-related issues in the past, but in today's regulatory environment, a better option for lenders is to adopt technology that automates much of the loan origination process, including quality control and compliance checks.
For example, data extraction technology could be used to extract critical data from a number of loan documents, compare values, run the data through a rules engine, and provide alerts on any values that fall outside of established parameters or tolerances. Rather than relying on labor to perform a time-consuming "stare and compare" check, in which a human being looks back and forth across two or more documents to verify that information is complete and accurate and then performs calculations on selected data, technology should be used to save on labor costs, expedite the process, remain consistent and repeatable, and eliminate human error.
What's more, most of the technology used to automate TRID tolerance checks and other quality checks is highly scalable and can seamlessly handle shifts in volume. What's more it can easily include additional data points as regulations change or expand.
As the effective date approaches, most lenders already have a plan in place for dealing with TRID – and most of those plans involve hiring additional labor. Hiring additional staff, or additional outsourced labor, may seem like a good approach to meet the deadline, but it's an unsustainable approach in the long run. Moving forward, technology needs to be the default choice for managing compliance-related activities, not labor.
On a positive note, the mortgage industry is increasingly embracing technology to optimize the loan process. In fact, our survey reveals that 82% of respondents plan to spend "significantly more" or "somewhat more" on technology this year versus what they spent in 2014. No doubt that many of these same lenders have added headcount to deal with TRID but have already recognized that technology is the better long-term choice.
Sanjeev Malaney is founder and CEO of Capsilon Corp., a provider of cloud-based document imaging and data capture solutions for mortgage lenders, servicers and investors.
(Do you have an opinion to share with MortgageOrb? Get in touch! Send an email to pbarnard@zackin.com.)
