Penny A. Showalter On The Changes That Reshape Mortgage Banking

13032_penny_showalter Penny A. Showalter On The Changes That Reshape Mortgage Banking PERSON OF THE WEEK: Last year was, by all accounts, a tumultuous time for the mortgage banking industry. But what can the industry expect this year? To chart out 2013, MortgageOrb spoke with Penny A. Showalter, managing director of Durham, N.C.-based Cognitive Options Group LLC.

Q: On the whole, how are mortgage bankers coping with the new federal and state regulatory requirements being placed on the industry?

Showalter: There are differences that cover every possibility. Some small lenders are moving slowly and, in fact, are unaware of some of the requirements. The larger players are gearing up for the new CFPB examinations. Vendor management is a new concept for many mortgage bankers, and some are struggling with how to implement. The amount of potential changes is overwhelming, and more are on the way.

Q: CFPB Director Richard Cordray has made a number of comments related to mortgage banking, particularly the servicers, that could be perceived as being hostile. From your observation, have the CFPB's dealings with the industry been hostile – or has the agency been somewhat friendlier in direct communications with individual companies?

Showalter: The CFPB was tasked with trying to manage a mountain of regulations that came out of Dodd-Frank with specific implementation dates. With that, the agency appears to be overwhelmed with comments from a variety of interest groups, including our industry advocates and associations.Â

I don't view the response as hostile, but just a reaction to be overwhelmed. Our hope is that the implementation of some of the reform will be delayed through congressional interaction, and Cordray will be part of an oversight group, as opposed to a single director, that includes mortgage and financial services veterans that can help manage the daunting task that lies ahead.Â

With the election over and the essentially the same power structure in place, our hope is that fine-tuning the legislation will occur since major overhaul or changes seems unlikely.Â

Q: The CFPB has a mandate of offering protection to consumers. To date, has the agency achieved any specific goals relating to consumer protection?

Showalter: The one area they have achieved a stated goal is the Complaint Database. Consumers have been using the site, and 43% of the complaints received have been on mortgages.Â

Another achievement was the completion of a rule that allows the agency to supervise the large credit reporting agencies. This is a first for federal oversight for these entities. The companies will be subject to review of compliance systems and procedures, on-site examinations, and discussions with relevant personnel, and they will be required to produce relevant reports. The CFPB will take complaints as well as answer questions, for example, on determining credit scores which calculations are mostly mysterious outside the industry.

Q: In recent weeks, we've seen a number of major merger and acquisition (M&A) announcements, which ultimately result in a smaller and more consolidated industry. Do you believe that the new wave of M&A activity is connected to the increased level of regulatory oversight on the industry?

Showalter: I do think that is a factor in the M&A activity. The cost of compliance has increased and will increase next year as we start implementation of the CFPB proposals. There are other factors playing into recent industry consolidation: access to warehouse lines, reduced wholesalers, agency licensing, buyback issues, risk retention and rule differences based on lender type. The prospects of the new Basel III requirements are also a contributing factor.


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