Government agencies are completely changing the pace and manner in which the mortgage industry does business with a host of new regulatory requirements. This, in turn, has caused compliance to become the new focal point for lenders, servicers, and others in this space.
Jerry McCoy, Senior Policy Advisor to The Collingwood Group, talked with DS News about the full circle of compliance and how the mortgage industry should be taking on these rules.
What compliance trends are you seeing currently in the housing market?
McCoy: I think that we’re seeing a general trend of increased compliance across the landscape, from an origination standpoint as well as on the servicing side of the equation–both from a regulatory standpoint–and when I say regulatory that could be from the state side, it could be from a federal regulator like the Consumer Financial Protection Bureau (CFPB), also could be some from the banking regulators or credit union side when I say regulation. So all of those have been increased in relation to the mortgage side in the overall equation. There is an increased emphasis in all of these on really the lens from the consumer side, so I think all of these are focused on what does the consumer side look like. Are they confused? Are they not? The regulatory side has been very edged against. It has dialed up significantly in terms of the equation and I would expect that trend to continue going forward.
How does compliance impact the consumer?
McCoy: It’s kind of a full circle if you think about it. So the compliance and regulatory environment–the rules–are focused on really two pieces. One is: does the consumer understand what they have? What they’re getting? What somebody is communicating to them, do they fully understand that? So they can make an informed decision. If you look at it in its core, that is fundamentally what a lot of the compliance components are around. You start there, and then you build rules around it. What rules can you put in place so you can ensure that is fundamentally what is the objective? And then from those rules–now that I have these rules–do those rules become the regulations? Those regulations you then have to turn around as an operator or as a business and ensure they have controls in place to make sure they’re able to meet those regulations. So as a result of that, they have increased levels of validation, asking for more information. There’s a lot more effort that goes in on that side, because the lender has to do more work and effort there. It then turns around and the customer experience is also impacted, because now you’re asking for more information from the customer and so then we start all back over again, if that makes sense. So all of these things have a direct cause and effect–positive and negative–in terms of what goes on in the equation. So there’s an increased cost associated as well. At the end of the day, as regulation increases, the cost to comply goes up.
What new or upcoming regulations will directly impacting compliance?
McCoy: If you look at this from two angles, obviously you have the new origination–you have TILA-RESPA Integrated Disclosure (TRID) and all the things associated with TRID and its impact with that. On the origination side, which is coming down the road–I think it deploys effective in 2017–but there are new Home Mortgage Disclosure Act (HMDA) disclosures that are going to be part of the equation, which are an increased data set. So that’s increasing the effort in terms of making sure you have good information and moving that through. On the servicing side of the equation, there are an extensive number of servicing guidelines and best practices that have been deployed not at the regulatory front but also from the investor side, in terms of addressing all of the servicing practices. And that’s core servicing, escrow management, insurance management, core payment processing, just basically going through the core, foundational servicing processes.
How are mortgage companies faring with these new regulations?
McCoy: I think everybody is absolutely, 100 percent focused on ensuring that they’re meeting all of the requirements. Everybody is after to try to get it deployed and managing toward it. Failure is not an option, is the way I would kind of look at it, in terms of–in this equation. Given the multitude of things and processes that are touched as a result of these regulations, it adds a great deal of stress to the franchise to ensure that they’ve teed off and covered off every one of the potential implications within the process. So it has a fairly extensive implication across the franchise. Not only from systems, it includes documents to the consumer.
What role does technology play in compliance?
McCoy: I think that technology certainly has to be adaptable. And some firms have a better ability to do that than others, mainly because their information where their technology’s stacked might be newer – newer capabilities versus some older capabilities that are there. So they’re depending on the age and the way they’ve approached it, will have different impacts from a systems standpoint. I think that one of the big areas that relates to the systems themselves is around information management. So we’ve got a lot of systems that are there. How do we bring that information together from all those disparate systems so that you can now take actionable approaches to meet the compliance department – to help in that process.
It has certainly had an impact on innovation, because it stifles it a bit, and the reason behind is it as you might want to move forward and try new products or new processes, it’s incredibly important that when you step out, you’re able to do that in a way that is–all of the requirements. Failure’s not an option. In the environment we’re in today, really has to be tight all the way through. Just because we have a great idea, if we can’t really navigate that great idea or that great process through the compliance and regulatory environment, it’s going to be a problem. That doesn’t mean innovation doesn’t happen. Part of it around how you navigate through the process, make sure you’ve met all the compliance requirements, at the same token of reaching that new, innovative way to do it.
What’s an outlook for compliance in 2016 and beyond?
McCoy: It is here to stay. I think that it will increase in the process. I don’t think the pendulum has swung back down yet. It’s going to be increased level that’s there, you have an increased level of transparency that now exists. So with the increased level of transparency, things such as TRID, the new HMDA guidelines, the variety of other things that will come into play, that will then lead into additional views and processes, so I would in essence see the regulatory environment will be a very top priority focus for folks in terms of managing their business going forward. It’s here to stay, and it’s the firms that embrace–incorporate it into their process, incorporate it into their cultural components. Culture is extremely important in this equation, and say, how do we make sure that we are absolutely committed to doing all of the right things and ensuring that our systems are in play to do that? Do we have good transparency to ensure that we’ve got there? And that all of the folks on our team are focused on helping us get there. And helping us get to the right spot. And unfortunately, it’s also going to have some increased costs, some increase components to it. Again, you just have to navigate through how that works.