Remediation, stabilization, transformation.

Author:Ricci, Mark

Consumer Financial Protection Bureau (CFPB) guidance to the Truth in Lending Act (TILA)-Real Estate Settlement Procedures Act (RESPA)

Integrated Disclosure rule (TRID) states that the rule changes will "broadly impact" origination, processing, closing and post-closing departmental staff and processes. [paragraph] CFPB's guidance also states, "Meeting all of these demands will be costly and time-consuming if you're completing these forms manually or working on disparate systems" (see http://files.consumer finance, gov/f/201403_cfpb_tila-respa-integrated-disclosure rule_compliance-guide.pdf). [paragraph] That's an understatement. [paragraph] As the latest post-meltdown regulation coming out of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the CFPB, TRID is one more signal of the end of one era in bank lending and the beginning of a new one focused on the consumer. [paragraph] It turns out that simply meeting TRID compliance requirements with current systems and processes may be unsustainable for many lenders going forward, if only because of costs. To remain viable and provide the consumer-focused lending service that the rules require, many lenders need to rebuild their operating processes.

TRID is just another in a long line of examples of why lenders should strongly consider reinventing and/or rebuilding their mortgage processes and systems. If a lender has not already started implementing change for TRID, it probably will not be ready when TRID takes effect on Oct. 3.

Ultimately, all lenders will need to be able to provide an experience for the consumer that is accurate, timely and informative; a process that is compliant, cost-effective and recognizes the differences between borrowers; and technology that enables lenders' operations and capabilities, and provides a superior and seamless customer experience.

However, change of this magnitude can't happen overnight. All players are facing the challenge of managing the day-today business and at the same time reinventing themselves. Yet, through a systematic and phased approach--from remediation to stabilization to transformation--lenders can gradually achieve the operating models needed to comply with regulations and stay competitive.

What needs to change

Faced with both internal and external challenges, mortgage lenders have mostly succeeded in exacerbating these challenges.

Instead of investing in process and technology solutions in response to regulatory demands, lenders have created new positions, hired staff and installed multiple process overlays, including manual processes; and they have responded to recent government-sponsored enterprise (GSE) buyback requests by taking a risk-averse approach to all lending and borrowers, meaning "exception processing" for all.

With no central control and only limited automation, these systems are inflexible and expensive to maintain. Month- and quarter-long change cycles inhibit speedy responses to market and regulatory changes. Increased staffing has produced increased risk--exactly what it is supposed to mitigate. Over-documentation of loan files and unnecessary process steps make for more handoffs, slower turn times, limited scalability, greater complexity and increased costs.

Mortgage applications and processes for all borrowers have become increasingly complex and time-consuming, often forcing the borrower to provide additional information and fulfill repeated requests for documentation.

Most importantly, risk-averse lending standards have resulted in reduced options and excluded some borrowers from the market, while misinformation and lack of outreach have disenfranchised others.

New operating model

Given the evolving regulatory framework, the increased risks and unsustainable costs incurred by lenders as they try to comply, and inadequate credit being provided to...

To continue reading