WE’RE HEARING while servicers have been under siege from regulators in recent years, it’s the origination side of the business that will be in the regulatory spotlight next year.
The implementation of new qualified mortgage rules will drive that shift in the focus.
Kevin Wall, president of First American Mortgage Services, told me that next year the industry’s focus is going to be on “compliance, compliance, compliance” because of the changing regulatory landscape. It sounds a lot like the way Realtors chant “location, location, location” when talking about home values.
He expects 2014 to be a challenge for the mortgage industry, as rising rates may impact loan origination volume and an improving housing market diminishes demand for default-related services. A lot of lenders and servicers now find themselves having to “right size” their operations, he noted.
But he believes that by focusing on the market’s need for transparency and compliance, FAMS can move ahead through innovation and technology enhancements. Moreover, “market disruption” caused by merger-and-acquisition activity in the markets that FAMS serves also could create opportunities for the company to pick up business, he said.
“Even though the markets are bearish for both origination and default business, we would still have a strategically, bullish view to increase our relevancy to our clients.”
Today, the company’s technology focus is on improving system integration with clients, making connections more streamlined and efficient to improve cycle times and service levels, Wall said. FAMS’ prospects in a shrinking market rely upon quality, innovation and relevancy, he said.
“We are working very hard to reduce the barriers to integration,” he said. “Trying to make access to our infrastructure easier and more fluid is a big focus for us.”
For Wall, who took the helm at FAMS in August, this is his second stint carrying a First American business card. Years ago, he joined what became CoreLogic not long before that company separated from First American.
“It’s a bit of a welcome home for me,” he said.
I asked Wall what surprises he faced in his first few months heading FAMS. The rapidly evolving changes in the industry are what caught his attention.
“Even in the time that I’ve been here, our clients’ perspective as to what they needed from us six months ago versus what they need us to do today and what they expect to need us to do six months from now is extremely fluid,” he said.
He said that First American, as one of the nation’s largest title insurance providers, is well positioned to provide risk management services to mortgage lenders and servicers, where risk often gets moved along a pipeline from one party to another in the mortgage supply chain.
Determining how the new rules affect business will occupy the minds of executives at technology and service vendors as well lenders.
“I think a lot of firms are trying to get their arms around—as we go into the budgeting time of year—the cost of compliance,” Wall said.
Because of litigation, regulatory settlements, and home retention programs such as HARP and HAMP, compliance has been a hot topic in the servicing arena for the last three years.
Wall said the shift in focus to the origination business is being reflected in the changing role of some top mortgage executives. During the crisis, many former origination officials moved over to the risk management side of the business. Now, some of those executives are re-emerging back on the origination side.
Right now, Wall said FAMS is working with large lending clients to get ready for the new HUD forms that will be used for consumer disclosures under the new rules. He said FAMS is working feverishly to develop and implement the new disclosure template and also to figure out how to manage the audit trail.
“A lot of time and energy is being spent around the disclosure space,” he said.
Quality control around the closing process and pre-closing activities are also a concern for lenders, he said. FAMS is working on ways to help lenders better prepare estimates of closing costs at various times during the origination process. The goal is to make sure the closing cost estimates keep up with the various iterations of underwriting.
One aspect of the qualified mortgage regulation that could vex some lenders is the rule that they cannot collect more than 3% of the loan amount in fees from affiliated service providers, such as captive title companies. For lenders that have several in-house service providers or joint ventures, that 3% cap could limit revenue, especially on smaller balance loans.
Ted Cornwell has covered the mortgage markets since 1990. He is a former editor of both Mortgage Servicing News and Mortgage Technology.