Before United Community Mortgage Services' Kathy Weber can even describe how emerging technology is necessary to manage accuracy and compliance for the boatload of new mortgage documents required in the post-crash world, her description of the scope of the corresponding rules makes the argument for her.
"We provide loans in five different states in the southeast. Each state can have different real estate regulations and their documents can vary. We have to produce initial loan disclosures for each loan, and these disclosures not only apply to the state we're doing business with and the type of loan, it can also apply to the documents [used by mortgage investors]," says Weber, a vice president in charge of origination support for the mortgage lending arm of United Community Bank (UCBI), a $7 billion-asset bank based in Blairsville, Ga.
Given the fast pace of regulatory change in the mortgage lending, and the government's migration toward making lenders more responsible for the integrity of the documents used to deliver information obtained from third parties, lenders are under lots of pressure to ensure appraisal, income, and other data tied to mortgage lending is being presented, populated into documents, and managed in a manner that matches current state and federal laws. For lenders, the pressure will come from both regulators and vendors' sales departments.
"There's an opportunity here for tech firms that do any kind of due diligence," says Craig Foccardi, a research director for CEB TowerGroup.
United Community has hired DocuTech, a document preparation and automation firm, to help ensure the documents it uses to accumulate and disclose information to borrowers are up to date with regulatory changes on both federal and state levels. "We want to feel confident in our providers that they are up to date …we want to produce compliant and accurate documentation in a format that's easy for us to use," Weber says.
DocuTech deploys a team of paralegals to track updates to regulations, and executes changes to document templates and disclosure forms on behalf of lenders. The lenders then use those forms to obtain information about borrowers from third party sources, and then communicate loan status and make disclosures to borrowers and investors. The challenge for banks — particularly smaller banks that do business in multiple states — is to keep abreast of minute yet important changes to rules that often fall through the cracks at the local service providers that supply data used to credit and pricing decisions. "Many of the providers [of the third party services] are small and don't provide the proper controls in the way that their services are delivered and deployed," says Scott Stucky, COO of DocuTech.
Mortgage lending disclosure rules are covered by state regulations, federal statues such as the Real Estate Settlement and Procedures Act (RESPA) and the Truth in Lending Act (TILA). Under the Dodd-Frank law, these mortgage regulations are being updated to mandate more disclosure and to integrate the two rules into a single disclosure standard, which would impact the forms and documents used by lenders and third parties. The process is complex, with numerous drafts and proposals, making it difficult for banks to keep abreast of individual changes or updates. At the same time, the Consumer Financial Protection Agency (CFPA), which was created by the Dodd-Frank law, is placing pressure on lenders to take more responsibility for the documents tied to appraisals and other third party information via implied lender liability for violations. "The Consumer Financial Protection Bureau is going to put lenders a bit more on the hook to ensure their providers are complying with the law," Foccardi says.
Other providers of technology and services that help mortgage lenders manage third party compliance include Wolters Kluwer (WKL), Harland (JH) and the large core banking vendors. Another provider is CSI (CSVI), which sells managed compliance services through its ATTUS subsidiary. ATTUS recently released a new Dodd-Frank planning module to help institutions identity and understand the impact of pending reforms such as the new third party document guidance from the CFPB.
The ATTUS Dodd-Frank suite includes online content, software downloads and access to subject matter experts. Part of the service includes self-assessment software for internal exams and a strategic planning tool. The strategic planning tool includes descriptions of each mortgage reform section within Dodd-Frank, with a implementation date content on each key section-giving lenders the chance to assign staff for upcoming items and create timelines for compliance plans. The ATTUS service can integrate with CSI's core banking platform or operate as a standalone. ATTUS says its services can also be used to inform service level agreements between lenders and third party providers.
"A lot of the services that third parties are providing touch on other regulatory requirements and banks may be leaving that compliance process up to that provider. For example, there are many regulatory or consumer protections that apply to mortgage servicers, and if there isn't oversight by the financial institution, there could be a violation that the financial institution would be responsible for," says Lori Moore, director of compliance for ATTUS.