Although the Consumer Financial Protection Bureau (CFPB) announced in December that it would be relaxing its enforcement of new reporting requirements under the Home Mortgage Disclosure Act (HMDA) – and would also be “reconsidering certain aspects” of the rule finalized last summer – mortgage lenders nonetheless had to forge ahead with their HMDA technology investments and prepare for the new rule.
On Dec. 21, the bureau announced that it “does not intend to require data resubmission unless data errors are material or assess penalties with respect to errors for data collected in 2018 and reported in 2019” under HMDA. In addition, lenders will not have to pay penalties for minor errors in their 2017 and 2018 reported data.
The new rule took effect on Jan. 1.
In its announcement, the bureau says it “expects that any supervisory examinations of 2018 HMDA data will be diagnostic, to help institutions identify compliance weaknesses, and will credit good-faith compliance efforts.”
Although that certainly takes some pressure off lenders for now, what about 2019?
Further, what other compliance concerns will mortgage lenders need to address in the coming year?
To find out, MortgageOrb recently interviewed Steve Butler, vice president of business development for QuestSoft, which offers software that helps lenders automate compliance with HMDA and other regulations.
Q: Beyond adjusting to the new HMDA reporting requirements, what will be the most important compliance issues mortgage lenders face in the coming year?
Butler: While many are relieved that the initial date for the last of the major CFPB regulations, HMDA, has now passed, we feel that HMDA changes are far from over. So, continuing issues with HMDA, the volatility at the CFPB, and digital mortgages are going to produce the most pressing new compliance issues.
I believe the compliance impact of the progression to digital mortgages and an increased focus on fair lending will be the most impactful issue before the end of 2018. Digital mortgages are taking the concept of frictionless banking and applying it to the mortgage process using online applications, digital documentation and electronic signatures. This results in loan approvals in just a few minutes, with consumers never having to leave their home or mobile device. Due to the automation required to push these loan speeds, lenders will most likely face renewed efforts to ensure that consumers understand the loans they are committing to, in light of the shortened time spent on each step of the mortgage process.
The volatility at the CFPB will continue to create uncertainty in an industry that has yearned for stability over the past decade. As part of the administration’s changes at the bureau, many existing regulations may be revised, but nothing is imminent or certain at this point. HMDA is not as settled as many people believe. There could be an entirely new set of reduced data points or procedures for 2019 and beyond.
Q: How has the availability of massive amounts of loan data collected and submitted for different regulations changed the approach regulators take regarding compliance and enforcement?
Butler: The increase in digital data opens up many new fair lending concerns. Since more data is available to the lender, regulators and consumer advocates, each lender is now essentially operating in a glass house.
This can be a good thing, however. Prior to the new CFPB data requirements, requesting and receiving industry-wide loan data was difficult. New regulations regarding data may actually help the lender, since there will be more transparency and more accuracy. Lenders looking to refine their market area can also examine what others in their region are doing and where there are market opportunities.
Q: Compliance used to primarily focus on confirming validity edits post-closing, but why should lenders focus on ensuring compliance and testing loan data at every step of the loan process from application through closing?
Butler: Everything in the mortgage industry is moving toward cutting every possible bit of wasted time out of the loan process. It is just not feasible to wait until after closing to test a loan for compliance any longer. The excess time and expense of reissuing documents, not being able to sell the loan, or potential fines make it crucial that lenders ensure compliance prior to closing.
What lenders are finding is that with today’s technology, they can determine the level of compliance within a loan in 30 seconds or less. Compliance software, which is often integrated into the leading LOS providers, helps lenders find mistakes early in the loan process, eliminating costly errors.
Q: How can compliance automation facilitate the migration to digital and paperless mortgages?
Butler: Again, the name of the game when it comes to paperless and digital mortgages is speed. When compliance verification takes 30 seconds or less, it helps all parties involved in the mortgage – including the borrowers. Borrowers don’t want to wait 20 days to see if all of the loan details are correct. They don’t want to submit documentation only to be told a week later that something else is needed. The ability to determine all of this information within seconds enables them to move at the speed of the borrower.
Q: How can lenders use automated compliance to help monitor and comply with subjective regulations such as CRA or fair lending?
Butler: While compliance software is often assumed to only handle those regulations that are objective – HMDA, Truth in Lending, Ability to Repay, etc. – analytical tools can provide lenders with valuable insights into more subjective regulations. For example, analytical mapping tools can help lenders evaluate CRA and fair lending areas. Using these types of tools, lenders can identify how the financial institution is serving the needs of low- to moderate-income borrowers in their service area. They can also identify potential gaps in compliance or evaluate new areas to expand services that increase their fair lending performance.
Compliance software, combined with the more transparent data available to lenders, can also be used to conduct competitive analysis to identify potential errors. Making minor corrections early can avoid costly and embarrassing regulatory actions or punitive actions from consumer activist groups.