Op-Ed: Submit Exam Data Electronically--Or Face Compliance Penalties

Roth, Jason

June 09, 2016


Jason Roth is co-founder and chief technology officer with ComplianceEase, Burlingame, Calif. a division of LogicEase Solutions Inc., and a provider of risk management services to the financial services industry. The company's platform, ComplianceAnalyzer, combines regulatory expertise and technology to power risk management services that help financial institutions improve compliance controls and increase profitability. Roth co-founded the company in August 2001. His previous experience includes stints with Patkai Networks, Adobe Systems Inc. and Nytec Inc. The company's website is www.ComplianceEase.com.

It's a sign of the times: from the IRS demanding that taxes be filed and paid electronically, to insurance companies in New York doing away with written prescriptions and mandating that doctors send them to pharmacies electronically.

So it should come as no surprise that mortgage regulators, at both state and federal levels, are now insisting that lenders use Lending Examination Format files to submit their data and information electronically for mortgage regulatory examinations.

In a way, our industry has enjoyed an exceptionally long grace period, because many state regulators have requested LEF submissions through the RegulatorConnect portal since 2010. But on September 29, 2015, the Multi-State Mortgage Committee of the Conference of State Bank Supervisors noted in an industry bulletin that failure to submit electronic information correctly is no longer acceptable.

"Despite years of preparation and anticipated compliance, the mortgage industry has regularly failed to provide clean data in a format acceptable to the regulators' technology platform," the bulletin said. "The MMC will continue to rely heavily on this technology and will consider companies that cannot provide data that is complete, accurate and properly formatted to be non-compliant with respect to records production."

So, now lenders are on the hook not only for what their files show, but also for how those files are formatted and delivered.

Given all of the changes that our industry has had to absorb in the past three years, it's hardly surprising that LEF requirements have been pushed down the queue at many LOS providers and other tech companies.

When our company developed the LEF concept and the RC portal back in 2010, we also devised a testing and certification program for LOS's: RC Certify. To date, more than 10 LOS companies and other tech platform providers have participated in this program. Being able to seamlessly capture data and produce an exam-ready LEF file is a big advantage for these companies' lender clients. While the LEF itself is quite straightforward, the weeks or months it takes to build an exporter or to assemble files by hand is time that most lenders would prefer to spend closing loans.

Recently, we've been redesigning the RC Certify Program to create an easier, more standardized path for technology providers to update their systems to export loans according to the latest LEF specifications.

The new process was motivated in part by our belief that more data-intensive exams are on the horizon in the wake of the TILA-RESPA Integrated Disclosure/"Know Before You Owe" rule. Although regulators have indicated that they will adopt an informal ‘grace period' and look for ‘good faith' efforts to comply with TRID, we expect that examiners will soon be reviewing for compliance with TRID requirements, and will expect electronic data to be readily available.

The re-vamped RC Certify Program will help industry software developers at each step in the design, development, integration, and testing of LEF file exports. With the proper focus and resources, technology providers will be able to complete the certification process in two months or less. And when they do, their lender clients will be able to export LEF files with just one click.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions; articles and/or Q/A inquiries should be sent to Mike Sorohan, editor, at msorohan@mba.org.)

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