Bank Board Letter December 2015 : Page 3

AutomAtion: Key to DeAling With mortgAge CompliAnCe By Leonard ryan C ommunity banks face compliance burdens on every front. From the Bank Secrecy Act to cybersecurity and safety and soundness exams, bankers often feel like they spend all of their time dealing with compliance issues. In the last five years, mortgage compliance has grown in complexity and scope to become one of the most significant challenges facing banks. Just recently, community banks Ð along with every mortgage lender in the nation Ð rolled out new disclosures and workflows to meet the combined demands of the new Truth in Lending/ Real Estate Settlement Procedures Act Integrated Disclosures. This regulation requires lenders to not only adopt new document packages, but to also change the waiting periods for closings, re-fine fee structures and increase the demand on reporting. And if you think the Consumer Financial Protection Bureau is done with changes to the mortgage industry, think again. The CFPB is working to increase the type of data collected through the annual Home Mortgage Disclosure Act report, which will arm regulators with even more information to identify borrower abuse and risky lending practices. When taken as a whole, all of the changes impacting com-munity bankers’ mortgage departments means the burden of collecting more data will require banks to rethink existing data collection processes and software, in order to achieve compli-ance without sacrificing excess cost or time. regulations morphed with the Community Reinvestment Act. The standardization of the format and proposed new re-quirement to use Mortgage Industry Standards Maintenance Organization, or MISMO, data standards developed by the Mortgage Bankers Association means community banks will be using a required standard for lenders that is embedded inside of all loan origination software. This also means lenders should have the ability to provide this information to a regulator on demand. Regulators traditionally examined a relatively small percentage of loans due to the time-consuming nature of fair lending analysis. As more data is available in a native digital environment, regulators are able to quickly examine every loan in the reports, reducing the margin of error. While community banks generally compare favorably to other mortgage lenders, lack of attention to the quality and ac-curacy of the data will be very painful in this information-rich environment. More fields being collected means that there are more opportunities for errors if community banks do not have built-in tools and systems to maintain data integrity and test loan files for compliance issues. automation inCreases Data integrity, reDuCes errors The CFPB’s implementation of new TRID and HMDA rules, as well as all of the other regulations on the books, underline the need for a data-secure automated compliance program. When evaluating their needs for compliance software, community banks should consider looking for tools that provide third-party validation of loan data, correct errors pre-funding, and elimi-nate the need for multiple data entry into the loan application. When it comes to validating loan data, a third-party tool that draws data directly from the loan origination system is critical. It is common in the mortgage industry for multiple pieces of a loan document Ð title insurance, flood insurance, escrow and underwriting Ð to meet for the first time upon merging for the final report. An automated compliance system can identify mistakes well before a deadline Ð reducing, if not eliminating the chance for buybacks or post-origination issues, thus saving thousands of dollars from costly errors. Automated compliance tools can also protect community banks from a post-funding audit by ensuring pre-funding compliance. The process of correcting compliance errors before the closing table will enable bankers to close loans confidently and accurately ª bypassing audit setbacks. If an audit is unavoidable, the bank can comply with auditors’ requests knowing that their loans were ef-ficiently streamlined to guarantee compliance and accuracy. And finally, unsecured loan documents offer the opportunity for someone to input an incorrect letter or number, and repeti-tive fields across multiple databases offer numerous chances to make mistakes. One simple error can upset the entire process. It would be easier if data elements like name, address, date, amount of interest and other recurring pieces of information are automatically populated throughout the entire document upon initial entry. Big Data Driving automation for ComplianCe Data is everywhere in mortgage lending, and regulators have discovered the enhanced analysis opportunities that data pres-ents in monitoring lender activity and establishing benchmark comparisons. For community banks, the increase in data re-quirements promises to have an impact on how they are per-ceived by the public. This “big data trend, which involves more regulatory bodies requiring more information Ð while concur-rently publishing analytics Ð will affect future HMDA and fair lending compliance, along with existing reporting requirements. The expected reformed HMDA rules for data reporting clearly illuminate the idea that an increasing amount of mort-gage data will be made available to regulators, consumer groups and the general public. The CFPB states that more than 40 new reportable data fields are expected to be or added or modified. The CFPB is also recommending that the additional data ini-tially be withheld to today’s public file in the first data collection year but eventually more data is sure to be published online for public access at the sole discretion of the CFPB. This additional (credit decision) data Ð which includes credit scores, loan-to-value, debt-to-income and pricing information Ð will provide all regulators with the instant, automated ability to analyze your pricing and credit policies and take regulatory or legal action based on the information gathered. Another concern for community banks is that the increase in compliance data will result in a heavier focus on fair lending

AUTOMATION: KEY TO DEALING WITH MORTGAGE COMPLIANCE

Leonard Ryan

Community banks face compliance burdens on every front. From the Bank Secrecy Act to cybersecurity and safety and soundness exams, bankers often feel like they spend all of their time dealing with compliance issues. In the last five years, mortgage compliance has grown in complexity and scope to become one of the most significant challenges facing banks.

Just recently, community banks Ð along with every mortgage lender in the nation Ð rolled out new disclosures and workflows to meet the combined demands of the new Truth in Lending/ Real Estate Settlement Procedures Act Integrated Disclosures. This regulation requires lenders to not only adopt new document packages, but to also change the waiting periods for closings, refine fee structures and increase the demand on reporting.

And if you think the Consumer Financial Protection Bureau is done with changes to the mortgage industry, think again. The CFPB is working to increase the type of data collected through the annual Home Mortgage Disclosure Act report, which will arm regulators with even more information to identify borrower abuse and risky lending practices.

When taken as a whole, all of the changes impacting community bankers’ mortgage departments means the burden of collecting more data will require banks to rethink existing data collection processes and software, in order to achieve compliance without sacrificing excess cost or time.

BIG DATA DRIVING AUTOMATION FOR COMPLIANCE

Data is everywhere in mortgage lending, and regulators have discovered the enhanced analysis opportunities that data presents in monitoring lender activity and establishing benchmark comparisons. For community banks, the increase in data requirements promises to have an impact on how they are perceived by the public. This “big data trend, which involves more regulatory bodies requiring more information Ð while concurrently publishing analytics Ð will affect future HMDA and fair lending compliance, along with existing reporting requirements.

The expected reformed HMDA rules for data reporting clearly illuminate the idea that an increasing amount of mortgage data will be made available to regulators, consumer groups and the general public. The CFPB states that more than 40 new reportable data fields are expected to be or added or modified.

The CFPB is also recommending that the additional data initially be withheld to today’s public file in the first data collection year but eventually more data is sure to be published online for public access at the sole discretion of the CFPB. This additional (credit decision) data Ð which includes credit scores, loan-tovalue, debt-to-income and pricing information Ð will provide all regulators with the instant, automated ability to analyze your pricing and credit policies and take regulatory or legal action based on the information gathered.

Another concern for community banks is that the increase in compliance data will result in a heavier focus on fair lending regulations morphed with the Community Reinvestment Act. The standardization of the format and proposed new requirement to use Mortgage Industry Standards Maintenance Organization, or MISMO, data standards developed by the Mortgage Bankers Association means community banks will be using a required standard for lenders that is embedded inside of all loan origination software. This also means lenders should have the ability to provide this information to a regulator on demand. Regulators traditionally examined a relatively small percentage of loans due to the time-consuming nature of fair lending analysis. As more data is available in a native digital environment, regulators are able to quickly examine every loan in the reports, reducing the margin of error.

While community banks generally compare favorably to other mortgage lenders, lack of attention to the quality and accuracy of the data will be very painful in this information-rich environment. More fields being collected means that there are more opportunities for errors if community banks do not have built-in tools and systems to maintain data integrity and test loan files for compliance issues.

AUTOMATION INCREASES DATA INTEGRITY, REDUCES ERRORS

The CFPB’s implementation of new TRID and HMDA rules, as well as all of the other regulations on the books, underline the need for a data-secure automated compliance program. When evaluating their needs for compliance software, community banks should consider looking for tools that provide third-party validation of loan data, correct errors pre-funding, and eliminate the need for multiple data entry into the loan application.

When it comes to validating loan data, a third-party tool that draws data directly from the loan origination system is critical. It is common in the mortgage industry for multiple pieces of a loan document Ð title insurance, flood insurance, escrow and underwriting Ð to meet for the first time upon merging for the final report. An automated compliance system can identify mistakes well before a deadline Ð reducing, if not eliminating the chance for buybacks or post-origination issues, thus saving thousands of dollars from costly errors.

Automated compliance tools can also protect community banks from a post-funding audit by ensuring pre-funding compliance. The process of correcting compliance errors before the closing table will enable bankers to close loans confidently and accurately ª bypassing audit setbacks. If an audit is unavoidable, the bank can comply with auditors’ requests knowing that their loans were efficiently streamlined to guarantee compliance and accuracy.

And finally, unsecured loan documents offer the opportunity for someone to input an incorrect letter or number, and repetitive fields across multiple databases offer numerous chances to make mistakes. One simple error can upset the entire process. It would be easier if data elements like name, address, date, amount of interest and other recurring pieces of information are automatically populated throughout the entire document upon initial entry.

Standardized compliance software that eliminates duplicate and/or erroneous data entry would require little adjustment while at the same time decreasing the likelihood of a bad loan due to clerical errors. Consistent calculation of point entry throughout the loan will also ensure the borrower is charged the same amount of points and is not under- or over-paying.

With today’s regulations, corrections cannot be made post-closing on compliance and disclosure issues. Pre-closing corrections, working in tandem with third party verifications, result in a manageable origination process and are also easy to adopt and implement.

Leonard Ryan, leonard.ryan@questsoft.com, is founder and president of Laguna Hills, Calif.-based QuestSoft (www.questsoft.com).

Read the full article at http://omagdigital.com/article/AUTOMATION%3A+KEY+TO+DEALING+WITH+MORTGAGE+COMPLIANCE/2346622/284688/article.html.

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