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How the Industry Should Approach Compliance

MAR 18, 2013 1:27pm ET
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Last time, I noted that many in the industry seem unprepared to implement the new CFPB rules—kind of like watching a freight train barreling straight at you while wondering what to do next. While it’s true that some are waiting to take action, many organizations are taking a very hands-on approach to compliance right now.

And this is a good thing.

Proof of this is that legal and compliance professionals are once again in high demand. Yes, the headhunters are calling. The national compliance conferences are setting attendance records. Mention “CFPB”, “Dodd-Frank” or “rulemaking” in an article, blog post or podcast and the hit rate skyrockets.

There’s no question people are concerned about the need to help their own companies cope with the onslaught of regulatory changes. The trick is to figure out how to properly manage this process.

I’ve spoken with many mortgage originators who have—or are in the process of—ramping up their compliance teams. One mid-size lender in particular is quickly moving from a compliance and QC staff of three to four to a staff of 30. That’s a huge increase, coupled with recognition of the “new normal”.

Regardless of the size of a compliance staff, another key issue is how to manage the changes from a technological standpoint. I don’t have to tell you that your IT staff is likely overloaded with important projects already—upgrading your loan origination system, ensuring seamless data transfer between disparate databases, making changes to keep pace with new product offerings, etc. In 2013, in addition to these routine upgrades and enhancements, you will now be asking your tech team to do things like adapt to all-new integrated RESPA/TILA disclosures, catch loans that fall outside of the QM (and pending QRM) definitions, verify an all-new APR calculation and more. These will require significant development time to implement without question.

The payoffs for this investment should more than offset the potential costs of future non-compliance. In an environment where a single non-QM loan in default could cost upwards of $100,000 to prosecute, plus the added costs of sanctions from state and federal agencies for a failure to act “reasonably in the origination and servicing of mortgage loans, the reality is there is little in the way of alternatives.

Now is the time to be asking important questions, like: To what extent can I automate the new compliance tests coming from CFPB rulemaking? What will be the costs/tradeoffs to creating new automation? What will happen if we fail to automate as much as we can? How much time does it take to perform these tasks? Does it make more sense to outsource this function to firms that provide these services? How do I choose the best firm for the job?

Clearly, much of the new rulemaking can be automated into your workflow. Doing this speeds up the process and promotes uniformity and accuracy throughout your organization. The key is to know how to do it right, and to be able to budget your time wisely so that the automation is completed well in advance of next January’s enforcement date.

Comments (4)
Great article! Thanks Roger.
Posted by Erin F | Monday, March 18 2013 at 1:49PM ET
So informative! I enjoyed your presentation last week at the workshop, too. I appreciate your knowledge and willingness to share it.
Posted by Barbara A | Thursday, March 21 2013 at 12:57PM ET
Well said. The current state of affairs for companies, banks, and servicers of all sizes represents what I now like to call the "Compliance Chameleon". While certain aspects of the new regs are specific (effective dates etc), the impact and scope of any change management and implementation effort will be vastly different depending upon the entity. The right outcome depends upon careful analysis, planning, and solution design.
Posted by Douglas T | Thursday, March 21 2013 at 1:41PM ET
Marketing also needs to be included in their compliance efforts. Allowing marketing to be left in the hands of the individual loan originator has become too big a risk. The new marching orders are: Control and Compliance.
Posted by | Saturday, March 30 2013 at 2:59PM ET
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