SEP 19, 2012

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Part 3: Technological Considerations for Leading in the New Mortgage Marketplace
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Compliance Matters

CFPB Appraisal Move Could Challenge Lenders

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One of the great things about being an American is that we’re lucky enough to live in a culture of helping one another. Certain states have so-called “Good Samaritan” laws that require us to help strangers that are facing danger. The majority of successful businesses have based their mission statements and customer service policies on the concept of helping one another. It’s in the music we listen to. It’s on bumper stickers. Virtually every big-budget action film is based on a storyline where the hero helps the helpless.

I’d like to argue that helping one another is an innate instinct—sometimes we just need to take the time to reconnect and remember it. Most folks I know, and 100% of the people I admire, relish the feeling of knowing they’ve done something to help others. They know helping others creates a world where everyone wins.

I’d really like to see that culture extend further into the mortgage industry. The Consumer Financial Protection Bureau, for instance, was created to help individuals, and there are a lot of opinions on whether or not it’s capable of truly doing that. I’ve heard a lot of complaints and concerns on how much trouble it will be for the professionals in our industry to comply with its new standards.

Our industry, and that includes vendors as well as lenders, would be better off if it could collectively shift its focus away from compliance challenges, and focus more on the satisfaction of helping customers. Take this example. The CFPB recently proposed that lenders be required to inform borrowers that they have the right to receive a free copy of all appraisal reports and home value estimates from the lender. And that they’re to receive these copies no later than three days before the loan closes. This benefits customers greatly, but for some lenders the request will be cumbersome to implement because a lender's systems and processes are not designed to be flexible.

Nowadays, when lenders use flexible technologies, they can spend less time engaged in the hassles of making changes, and more time being the helping hand that builds repeat and forever-customers. As a mortgage and technology veteran, it’s mind-boggling that our industry still uses technologies that won’t flex and bend with a customer’s needs and wants.

The changes that the CFPB is proposing shouldn’t change processes radically for lenders. Lenders already disclose to borrowers that they have a right to a copy of the appraisal. The disclosure will have to be modified to support the CFPB’s new recommendation and it’ll have to provide the consumer the ability to waive the three-day option, but that will be a change to the existing process, not an entirely new process.  Lenders that take loan applications online will not face much of a burden. Some enhancements may be required, but nothing too major. For lenders with manual processes, there will be changes but even so, nothing too major since they’re already disclosing anyway.

There will, however, be additional costs to the lender. They’ll have to produce copies and distribute electronically or otherwise.  The language says they can charge reasonable amounts for the cost of producing the appraisal or valuation, but that’s typically being done today anyway. These costs will eventually make their way to the borrower.

The bigger issue is that these processes are stepping-stones to creating a much more educated borrower.  For the first time ever, most borrowers will actually see the values at which their properties were appraised. Some of those borrowers may have concerns about what they see on the appraisal. We have yet to see whether the CFPB is also going to give the borrower the opportunity to opt-out of the loan if they don’t feel good about the value on the appraisal.

If I were to give a nickel’s worth of free advice, I’d tell lenders to pick their battles—and their technology providers—wisely. You don’t have to agree with every mandate, but you do have to comply. The most cost-effective way to do that in today’s world is to use flexible technologies that allow you to move with the changes and do business the way you want. If you feel like a burden to your technology provider any time you ask for a new rule to be configured, for Pete’s sake, change providers and move to a company that wants to help. Battling with your technology provider and working around inflexible technologies only drains the energies you can be investing in helping borrowers through education and information—not to mention reducing the risk of compliance-based fees and fines.  

Comments (1)
I think a big issue here is the CPBP has not allow for the lender to provide the borrower the option to receive the appraisal in electronic format. IF the lender can not provide in electronic format the 3 three days prior to close now becomes a minimum 5 days prior for the lender and greatly increase cost of shipping and admin time. The CFPB also has not indicated IF the appraisal is sent in hard copy if it most be in 'color' which again increase cost and processing time.
Posted by Jeff Jurin | Monday, September 24 2012 at 12:37PM ET
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