One Year After Trump Win, Compliance Continues to Be Hot Topic for Lenders
By John Vong, CMB, CMT
November 28, 2017
John Vong, CMB, CMT, is president and co-founder of ComplianceEase, Burlingame, Calif., and a frequent contributor to MBA Insights. He can be reached at firstname.lastname@example.org.
A year ago this month, Donald Trump was elected president. At that time, many observers believed that this would lead to a quick and dramatic rollback of regulations and that lenders would get a "hall pass" when it came to enforcement activities.
So far this hasn't happened, and the overwhelming sentiment at our company's inaugural Risk & Compliance Summit in San Francisco earlier this month was that it won't--at least not in the near term or to the extent that pundits initially predicted.
Instead, the more than 100 participants--a cross-section of senior compliance executives and legal experts--focused on how to comply with current regulations, GSE mandates like UCD and the coming changes to TRID and the Home Mortgage Disclosure Act slated to take effect next year. Attendees also heard from state examiners on their plans for enforcement and from cybersecurity experts who discussed our industry's potential vulnerabilities, given the sheer amount of personal and financial data that we collect.
Here are some of the highlights and major takeaways from the summit:
Donald Lampe, a partner with Morrison Foerster, spoke to the overall state of the regulatory environment. While he acknowledged the possibility of Administration-mandated changes to current regulations, he advised attendees to prepare for more, not less, demands for compliance-related data.
Meeting these demands will require investments in technology and resources by both originators and servicers, he said. He particularly called non-lenders' attention to the Consumer Financial Protection Bureau's new focus on compliance management systems, which he said is not a single "system" but grouping of mandatory organizational configurations, corporate governance and senior management accountability measures.
Ken Markison, formerly of MBA and now president of Ken Markison Advisors, noted that starting January 1, new HMDA rules will require covered lenders to collect 48 new or modified data points for loans they "action." All of this new information will create greater transparency into lending practices and have the potential to lead to more Fair Lending challenges and class action suits.
A panel consisting of Angela Kleine, Partner with Morrison & Foerster; Amanda Phillips, Senior Legal and Compliance Counsel with Mortgage Cadence; and Brian Fitzpatrick, President and CEO of LoanLogics Inc., discussed best practices in data collection and review. Panelists warned against waiting until year-end to review HMDA data and instead advised lenders to do monthly self-examinations and to prepare and submit LARs (Loan Application Registers) on a quarterly basis. A poll conducted during this panel found that 52% of the attendees intend to do HMDA reviews monthly; 43% quarterly.
Regarding TRID 2.0, Markison and attendees agreed that lenders needed time to absorb, interpret and operationalize changes that will be implemented. There was also consensus that the so-called TRID "Black Hole" should be resolved. Comments submitted in support of a proposal to allow changes to the closing disclosure include re-baselining tolerances based on permissible changed circumstances and borrower requested changes regardless of date. Our company recently developed a white paper on the steps that lenders should be taking now to prepare for next October when TRID 2.0 becomes mandatory.
Interestingly, when we polled attendees on which of the two upcoming regulations--TRID 2.0 and HMDA--would have the greatest impact, 81% said HMDA.
The future direction of the CFPB if the rumored (now confirmed) departure of Director Richard Cordray took place was discussed, as was the Mortgage Bankers Association's white paper on what the industry would like to see in a CFPB 2.0 world. But one message that attendees heard loud and clear was that no matter what direction the CFPB takes, state regulators are stepping up their oversight and examinations.
Chuck Cross, SVP of Consumer Protection and Non- Depository Supervision for the Conference of State Bank Supervisors, commented on the continued areas of focus for state-level examinations. While the CFPB conducts about 175 larger scale examinations of larger banks and non-banks, state-level examinations amount to more than 32,000 per year, resulting in up to 10,000 enforcement actions.
A cybersecurity panel, led by Justin Kirsch, CEO of Access Business Technologies; Alex Wood, VP and Chief Information Security Officer with Pulte Mortgage; and Jason Roth, CTO of ComplianceEase, with moderation from Rick Hill, VP of Information Technology with MBA, discussed the many high-profile data breaches and the associated substantial financial and reputational enterprise risks. Cybersecurity scams and breaches represented worldwide losses of more than $3 trillion in 2016 and could grow to $6 trillion in 2021, representing the greatest transfer of wealth in human history. Attendees were told that state and federal regulations will continue to drive the need for tighter compliance and information security to prevent future Equifax-like breaches.
Since no industry conference would be complete without a discussion of the transformative impact of digital mortgages, there was also a panel that looked at the potential and the pitfalls of digitization and FinTech disruption. When asked what percentage of the current origination process is automated, half of the respondents said less than 10%; 40% said that 25% of their process was now automated. Finally, when asked to rate their own company's FinTech innovation, 19% responded it was good when their LOS works properly, while 65% agreed they still had a long way to go.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)