The Consumer Financial Protection Bureau’s (CFPB) wave of new rules affecting financial institutions, originators and mortgage professionals has arrived amid much anticipation and preparation. Designed to protect consumers and establish sound business procedures, the fine print of each rule will undoubtedly place the key to survival in compliance.
Under the Ability to Repay (ATR)/Qualified Mortgage (QM) Rule, financial institutions and originators must retain evidence that all ATR/QM guidelines were met, including prepayment penalty limitations, for three years after closing. However the CFPB recommends retaining these records longer for business purposes. As technology continues to play a role in assisting mortgage professionals with the regulatory environment and moving the industry toward standardization, there are three areas of technology that will help collect, archive and report this information to the regulatory agency.
Documentation is critical. It defends businesses from consumers, investors or regulators and ensures that policies are being followed. New regulations require the reworking of numerous in-house processes, and to take this upgrade a step further, originators should move away from static documents and implement an internal standard of generating dynamic documents.
The complexity of regulations and the potential for updates or new guidelines renders static documents inefficient and inflexible to match today’s changing environment. Dynamic documents import XML data directly from a loan origination system (LOS) and build content a sentence or paragraph at a time based on consumer data. This type of flexibility is truly necessary in today’s regulatory environment as there is no ‘one size fits all’ any more. Updating systems to adhere to new regulations is a daunting and expensive task. Dynamic documents eliminate libraries or redundancies in a loan package while dramatically reducing the labor expense necessary to manage, update, edit and send static document packages and libraries.
The CFPB’s “Know Before You Owe” disclosure reform–which consolidates disclosure documents into two integrated forms, The Loan Estimate and The Closing Disclosure–is scheduled for implementation in August 2015. The reform will simplify the loan application and closing processes for borrowers, however if originators choose to move toward a dynamic document business environment, e-disclosures are undeniably the next step to simplify the processes for them as well.
E-Disclosures enable originators to generate, distribute and track the forms electronically while ensuring compliance with regulations through electronic delivery. Borrowers can receive documents immediately and originators can keep tabs on when documents were opened. E-Disclosures integrate the most time-consuming and expensive steps of the loan process into a secure audit trail-effort that simplifies compliance.
Third Party Relationships
Implementing technologies to satisfy e-processes is not for every business. Many may choose to outsource specific business procedures to third party providers in order to spend more internal time and resources on other operations. The CFPB outlines its third party relationship standards and duly notes that a compliance management system is required in order to accurately oversee business relationships and ensure compliance with consumer financial law.
The CFPB has stated that it will hold lenders responsible for the actions of their vendors. No matter the institution, it’s imperative that all service provider relationships are closely monitored and due diligence is effectively conducted. This includes, but is not limited to, appropriate data security standards and procedures, documented change control policies and business continuity, and disaster recovery plans, which is a difficult operational standard for small or local providers to meet. In order to remain profitable and compliant, partnering with a venerable team to satisfy document management requirements enables businesses to focus more on internal competency while streamlining processes.
The complexity and cost of document management processes and compliance is a burden. No longer can businesses internally handle regulatory requirements and continue to utilize processes that are archaic in comparison to today’s technology advancements. As the mortgage industry evolves, so should its processes.
Scott K. Stucky is chief operating officer of DocuTech Corp.