While meeting past compliance deadlines has often felt like running a marathon, many in the banking industry view meeting the approaching Consumer Financial Protection Bureau's mortgage servicing deadline as a flat-out sprint.
Effective Jan. 10, these final rules include amendments to the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z).
What do these regulations—and the looming deadline—mean for financial institutions? The final mortgage rules pertain to several mortgage servicing areas, including periodic statements, interest-rate adjustment notices, prompt payment crediting and payoff payments, force-placed insurance, error resolution and information requests, early intervention with delinquent borrowers, continuity of contact with delinquent borrowers, loss mitigation procedures, and general servicing policies, procedures and requirements.
The regulations also add an exemption for organizations that service 5,000 or fewer mortgage loans.
Loan servicers are racing to understand the new regulations and make the necessary changes in lending processes by the January deadline. This may involve system enhancements, internal procedure reviews and an examination of staffing requirements.
When it comes to maintaining compliance with these new regulations, financial institutions should be especially mindful of information management and data integrity, and the complexity and challenge of completing the end-to-end loan process across multiple, disparate systems.
Data integrity—ensuring the accuracy and consistency of stored data—is often one of the biggest challenges for loan servicing. When loan files and histories were examined in the aftermath of the mortgage crisis, discrepancies were often found that made it nearly impossible to understand systems and decision-making processes.
In light of new regulations created in response, it's especially important to ensure the accuracy of the loan file and maintain a comprehensive loan record that includes all signed legal documents. Automated systems take manual entry and its inherent risks out of the equation.
With an increasingly complex lending environment, lenders and loan servicers are looking for ways to become leaner and more efficient—and for ways to manage compliance with the new requirements that may not be supported by traditional lending technologies.
A comprehensive compliance management system can capture and retain content, compare and route data, and track documents to minimize loan processing time, improve portfolio value and reduce lender exposure.
Standardized workflows and reporting functions further streamline processes and help facilitate potential audits. Automated systems provide an accurate record of work, help make sure the system of record matches the original, track missing documents across multiple processes, archive documents and communications, and remove paper-based systems from the process.
Maintaining compliance with Regulation X and Regulation Z may be an arduous task, but for financial institutions that take a broader view, there are other potential benefits that go beyond regulatory compliance. Loan servicers that move technology to the front of the process by capturing documents and using automation tools throughout the loan process save time, lower production risks and gain efficiencies.
An altered regulatory environment has changed nearly every aspect of the lending process. In the end, it's all about a fundamental shift to a more quality focused, borrower-centric lending model. By simplifying regulatory compliance, loan origination and servicing processes, loan servicers can reduce risk, increase customer satisfaction and enhance profitability.
Gregg Lehman is product manager, enterprise content management at Fiserv.