Battling Compliance with Technology
It is clear that throughout 2013, compliance will be at the forefront of technology, origination and service initiatives with a significant focus on nonbanks, community banks and credit unions scrambling to adhere to the Consumer Financial Protection Bureau requirements and the Dodd-Frank Act, among others, due to a severe lack of resources and subject matter expertise.
The housing crisis brought the need for many levels of transformation from a capital, mortgage process, product and technology standpoint. As the cost to originate and serve loans has significantly increased, the relevance of technology has grown exponentially. Given the emergence of cloud technology and Web-based applications, the ability to improve efficiency and precision can be key drivers to reduce costs.
But to understand the road ahead, it’s important to take a look at where the industry has been. In 2008, the Federal Reserve Board used its delegation of authority to regulate unfair, deceptive and abusive practices to address servicing, however, it did not address servicing issues.
Two years later, Dodd-Frank amended the Truth in Lending Act and the Real Estate Settlement Procedures Act to codify the 2008 regulatory changes as well as add other servicing requirements, such as shorten existing time frames for responding to qualified written requests and prohibit fees for responding to QWRs, among others.
Like the regulations in 2008, the Dodd-Frank amendment still did not address systemic servicing issues. It did, however, further prohibit servicers from failing to comply with any other obligation found by the CFPB “to be appropriate to carry out the consumer protection provisions of the act.”
Fast forward a few more years to today and the servicing world has greatly changed. With the amount of rapid and complex developments in the mortgage industry, lenders, investors and servicers face several quality and compliance related problems. To add to that complexity, many analysts expect tighter regulations from state and federal agencies in the future. It is a growing concern that must be addressed.
So how does the industry deal with these changes?
Many lenders find it complex to manage an efficient quality management practice within their organization, as it calls for significant investment in management, sourcing resources, training and retraining them on acts such as Section 32, in addition to operational challenges such as volume spikes, productivity loss and lack of training.
In today’s dynamic and ever-changing regulatory environment, however, ensuring complete accuracy within the mortgage servicing market is paramount.
Recognizing this, institutions should consider an outsourced Compliance Management System to ensure operational efficiency and regulatory compliance. By partnering with an experienced team, institutions can better rely on experts dedicated to staying abreast regulatory changes, allowing them to focus on their core business, especially as regulations continue to change and will for some time.
Servicers can not only better maintain compliance, but benefit from significant cost savings. In many cases, servicers are saving as much as three percent per loan, bringing the average technology cost per loan down to 15%. For a midsize servicer, that translates into nearly $78,000 in cost savings each year.
Supporting those cost savings, servicers that outsource are no longer burdened by added staff expenses. In an interview with American Banker, Tom Hughes, president of The Bank Mortgage Network, said, "If you have to employ all of the people it would take to perform these checks, it would take the work of about six people to produce a loan. That's six salaries plus benefit plans plus vacations and all of the things that go into that. With outsourcing, I'm paying by the loan and hopefully we'll be able to keep growing and kicking loans out."
Institutions today must think more strategically about their operations. They can no longer consider simply hiring more staff. Now, institutions need to determine what their core competencies are and outsource their other business components. In doing so, lenders and servicers will be better equipped for success and the future of the mortgage servicing industry.
ISGN is a provider of end-to-end technology solutions and services to the U.S. mortgage industry, supporting more than 1,000 customers including large global banks and a majority of the top 10 lenders in the country.