Mortgage lenders rarely view compliance as a competitive advantage. But banks and institutions that maximize the efficiency of their reporting and regulatory efforts stand to gain a clear edge over companies that stick to a lowest-common-denominator, "tick-the-box" approach to compliance.
The latter approach, which has been the industry default, is typically slower, more error-prone and therefore more expensive. By contrast, lenders that take a forward-looking perspective on compliance may even look to use new or changed regulatory requirements as a springboard for transformation — to improve business performance in ways that go beyond strict compliance. There's no reason to let new regulatory pressures go to waste.
Take the Consumer Financial Protection Bureau's integrated disclosures rule slated to go into effect on Aug. 1. The impact of the rule goes
That may sound like
Consider how a smoother loan origination process and sharing of disclosure information earlier in the process might improve the borrowing experience for buyers and help lenders differentiate their offerings. Similarly, centralizing the data collection process could eliminate the inefficiency of asking borrowers to submit the same information about themselves and the properties they hope to purchase multiple times. Such automation also reduces the risk of lost personal information.
These improvements would be a net benefit to lenders, whether it's
Lenders' increased responsibility for accuracy and timing of disclosures will also change their relationships with third-party service providers. Lenders will be required to collaborate earlier in the process with settlement agents to determine fees and other content for the closing disclosures. Today, these processes are usually manual and paper-based. By digitizing and automating access to information, these processes could become more efficient and accurate. The pay-off here would also come in the form of easier and more accurate reporting, better relationships with closing agents and a more seamless and timely experience for borrowers.
As daunting as the integrated disclosures rule might seem at first glance, it's important to remember that this isn't the first time regulation has disrupted an industry — and it won't be the last. Consider the automobile industry. Corporate Average Fuel Economy regulations were first enacted by the U.S. Congress in 1975 and have imposed increasing fuel economy standards on automakers ever since. U.S. automobile manufacturers were understandably concerned. But between active debate on the effectiveness of the regulations and several lawsuits, some interesting and unintended things happened that benefitted consumers.
First, the SUV was born. Recognizing that CAFE standards for trucks were less stringent than they were for cars, Chrysler marketed mini vans as alternatives to station wagons, while certifying them in the truck category to allow the less strict rules to apply. Eventually, this same idea led to the promotion of the SUV. Later, manufacturers like GM advertised fuel economy improvements and developed corporate branding for their fuel efficient technologies, effectively turning the CAFE regulations to their advantage. In 2007, the fuel efficient Toyota Prius outsold the top-selling SUV, the Ford Explorer.
The TILA-RESPA Integrated Disclosures rule is a fact of life. Thus, compliance investments should be directed so that they both please consumers and
Mike Jones leads the mortgage industry Practice at Infinitive, a management consultancy.
