As the real estate market continues to recover, regulatory pressures are pushing mortgage executives to place consumers and their interests front and center in mortgage transactions.
This is a departure from the way the industry has previously been regulated. Traditionally, regulators judged mortgage originators' credit decisions against the government housing agencies' underwriting guidelines which sought to ensure the safety and soundness of the banking system.
While that mandate remains in effect, consumer protection has been added to the mix. With the advent of the Consumer Finance Protection Bureau, lenders must pay more attention to ensuring high levels of customer satisfaction without compromising consumer protection.
It is sometimes tempting to treat regulatory compliance in a checklist manner: know the rules, comply with the rules, and check the right boxes. But rote compliance is no longer a sufficient strategy. In light of the wave of post-financial crisis regulations, it is clear that regulators expect strict adherence to not only the letter, but also the spirit, of the law.
In Accenture’s experience, the majority of the top ten IT initiatives being worked on by major lenders are compliance oriented. This makes sense. The CFPB has made clear its intentions to hold lenders responsible for the actions of their employees, contractors and vendors, with substantial fines for violations.
Avoiding such fines requires a deep understanding of the new rules, not an easy task when most of them have only been in effect for a few months. But one thing is clear: financial institutions are expected to take the consumer experience into account when delivering financial services.
While the vast majority of lenders have reserved capacity for CFPB projects, many are still keeping fingers crossed that they are delivering a compliant customer experience. Investing in a "CFPB health check" is one way to assess compliance ahead of any formal audits. The health check involves a four- to six-week analysis of each rule after it has been implemented. It identifies areas of vulnerability and can help prioritize process improvements going forward.
Another strategy is to review the CFPB public consumer complaint database and analyze the trends. Lenders who proactively devise a plan that addresses the root cause of the consumer complaints are best positioned to avoid ongoing penalties.
Nearly half of all complaints the agency receives involve mortgages, far more than any other product. Mortgage complaints currently average around 4,300 per month. These complaints "make a difference by informing our work and helping us identify areas of concern, which then feed into our supervision and enforcement prioritization process," CFPB deputy director Steve Antonakes recently said.
In short, banks must rethink compliance. No longer will it be sufficient to have a small compliance staff sift through regulations in search of a few big potential compliance risks. Mortgage bankers must be appropriately staffed with risk analysts, process engineers, legal consultants and customer advocates. Systems for monitoring compliance must be implemented and continually updated. And, last but not least, lenders will need to train loan production staff—especially those who interact with consumers—on how to adjust their behavior in this new regulatory environment.
Ghazale Johnston is a managing director with Accenture Credit Services.