Even for IT departments, providers and consultants who are long-accustomed to aiming at moving targets when it comes to mortgage compliance, the fluid nature and pace of the new rule-making is staggering. All mortgage technology will have to be upgraded and recalibrated, an investment of time, money and staff that's still emerging, and will certainly have an impact downstream on more forward-looking customer acquisition tech.
"I do compliance, I do tech and I'm head of products. If I'm focusing all of my energy on compliance, I'm not focusing on products," says Ryan Grandi, an svp at Weststar Mortgage, an Albuquerque-N.M-based direct lender.
The cost of staying clean will compete with new online and mobile plays like GPS-aided smartphone real estate shopping apps, the use of tablets for loan officers, and emerging social media-driven marketing. "Within the mortgage space, [regulation] does affect other innovation," says Craig Zander, a principal in Capgemini's global banking practice. "There are significant tweaks to comply. For example, there are disclosures related to changes in interest rates, and what the potential changes to [mortgage] payment amounts are. All of the tech to do this can be found in systems that are being used today, but the calculations have to be changed."
Most of the rules focus on disclosure and information about loans, including the monthly costs, risks to consumers, how pricing is determined and ways to track and report performance. These rules portend greater use of document management software across the entire lending process, as well as data management, analytics and modeling. "There's a big difference between data and information," Tirabasso says. "There's a lot of raw numbers out there to populate systems. But 'information' is more of a challenge, which is about making that data meaningful for people to inform decisions about compliance."
New Rules
The regulations and laws affect every stage of lending, and in almost all cases are still interim, evolving or pending. The Dodd-Frank law, for example, creates a Consumer Financial Protection Bureau whose role is still in development, but will likely include the ability to produce user-safety rules for financial products, with additional oversight over uniform disclosures for home purchase and financing transactions.
Other regs include TILA/RESPA and REG Z, for which new payment schedules and forms went into effect on Jan 30, replacing interim rules that were implemented in the fall. The rules will require lenders to disclose "worst case" consumer fee scenarios during the first five years for most mortgage products, or over the lifetime of a loan if it's an ARM. Other new regs under fair lending laws also now require lenders to provide borrowers with credit score disclosures, such as how the score was determined.
"It's a huge change from what it was, and creates a tremendous amount of stress around IT and compliance," says Marsha Williams, counsel for MRG, a mortgage document IT company.
As these regs change, Williams advises the tech firm's product development team, which writes programs for changes in document production that accommodate where and how rates, payment summaries, and other disclosures appear on reports and forms that are delivered to lending clients, and then consumers.
Weststar's Grandi, an MRG client, says it's also helpful that the system integrates with the lender's LOS (Mortgage Builder) and other document management and processing systems. "You have all of these systems to keep in compliance. When these systems can communicate, it's even better."
Wells Fargo, one of the market's largest originators with more than $100 billion in yearly production, is updating its LOS, including more data analysis.
It's also leveraging a corporate effort around business activities tied to mortgage lending to study, understand and anticipate the general regulatory framework, and make that mix of disclosures and consumer information part of its general CRM tech and strategy-marrying compliance with marketing in an effort to improve customer experience.
"If you're proactive about [anticipating regulatory frameworks], when the changes do come, you just enter the new calculations," says Kathy Gray, svp and one of the executives overseeing the internal efforts to oversee upcoming compliance issues. Wells did not say if compliance was affecting other IT strategy.
Get Ready for Sales Pitches
There's no shortage of tech firms lining up to make hay of the compliance tech boom, which also covers other regulations such as loan officer compensation, appraisals and FTC rules designed to clarify fees for loan modifications and foreclosure avoidance.
Ellie Mae has renovated its Encompass product to include 24 upgrades designed for compliance, such as the ability to store company and branch licensing information, create user-accessible master fee lists, as well as tech for new risk-based pricing rules and the ability to import appraisals in an XML file format, as required by the GSEs.
Other offerings include new tech from The Loan Post, which is selling private label loan modification software which produces a bank-ready pre-qualified HAMP+NPV loan modification package-an exception to a new FTC ban on advance fees charged by third parties for foreclosure avoidance services.
And Pegasystems, a BPM and CRM firm, has developed a new platform that enables lenders to quickly comply with changes for Fannie Mae and Freddie Mac guidelines to avoid that buybacks that can result when mortgage documentation has mistakes-automating the lending process to avoid manual errors, lag time and data entry.
