Tech, reg relief creating a 'nexus of change' in mortgage lending
Reducing unnecessary compliance burdens will pave the way for economic growth, larger job creation and wage increases, and re-evaluating technology will play an important role in doing so, according to Craig Phillips, counselor to the secretary at the Department of the Treasury.
Phillips hosted a session at the Mortgage Bankers Association's National Secondary Conference in New York on Monday.
To make businesses more competitive and create more opportunities for workers, the regulatory system needs to be more effective and efficient. And with regulatory technology being outdated, specifically in mortgage lending, Treasury finds it necessary to rethink digital approaches to compliance.
"Today is truly an exciting time to be working on financial services policy. In many ways it feels we're at the nexus of change in witnessing the industry evolve like some other industries from a brick-and-mortar branch focus to the imperative in having a strong digital footprint and vast technological capabilities," said Phillips.
"With these changes come many, many opportunities both for established players and many new entrants, but it also brings challenges. One of these challenges will be to navigate a regulatory system that was designed in and for a different era," he continued.
New developments in technology will help maximize access to credit while also reducing the cost of credit by improving operating models, and improving credit flows will also help improve the economy.
"Credit is plentiful, but not uniformly available, and not available in the best possible terms — which can be achieved if the regulatory burden was recalibrated. Far too many qualified consumers, especially homebuyers seeking mortgages, find it still too difficult to get credit," said Phillips.
In addition to growing credit access, technology can also increase the country's competitiveness internationally.
"If we don't take steps to improve our technology we will fall behind compared to other countries in the world. With mortgage originations in capital markets, there's tremendous opportunity for innovation," said Phillips.
As far as specific recommendations for regulation, Treasury has suggested changes to regulatory overlap, fragmentation and duplication.
Treasury was largely focused on midsized and regional banks since they play such a vital role in regulating the economy. But, many rules in regulation have trickled down to community banks and created hurdles for these smaller financial institutions.
Some proposed changes from Treasury include relieving some of these pain points by streamlining regulation for community banks.
Tailoring is an overused word but accurately depicts a persistent problem in regulation, according to Phillips.
Regulatory requirements from the Consumer Financial Protection Bureau are also sour topics for mortgage professionals as they significantly impact the industry. But, reforming these guidelines remains an issue.
"There's no magic bullet to relieve this challenge. We very much want to protect consumers but we have to have a balance in mortgage lending in particular that maintains high standards but does not prohibit the access to credit," Phillips said.
Acting CFPB Director Mick Mulvaney recently issued a report to Congress with proposals for legislative changes for the bureau. Among those, Treasury saw eye-to-eye with Mulvaney on two main suggestions: the CFPB should be subject to congressional appropriation and a single director structure should be accountable to the president.
Still, Treasury's vision didn't align entirely with the bureau's.
"We found that the CFPB relied excessively on enforcement actions rather than notice and rulemaking, which has resulted in an unstable and unpredictable regulatory environment for market participants," Phillips said.
This was also a belief heavily cited from both the largest and smallest of financial institutions that typically comply through regulators or the Federal Deposit Insurance Corp.