Decoding Compliance

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feature By Chuck Green A s mortgage originators and banks double-down on efforts to reboot how they conduct business, companies are tapping into emerging technologies the industry once ignored. Now turning to tools like e-signing platforms and mobile phone applications, lenders are striving to enhance efficiency and heft operations. And for many professionals, new solutions could be the key to staying in business. Capturing headlines across the financial sector, the Consumer Financial Protection Bureau (CFPB) rolled a slew of significant reforms to start the new year and announced a rapidly approaching timeline for implementation, establishing January 2014 as the deadline for compliance with the latest round of regulations. Among the mandates released by the CFPB in January: long-awaited components of the Dodd-Frank Act, including the Qualified Mortgage (QM) rule. Despite the critical issuance of QM standards, however, the housing finance industry and its technology providers cited the Ability-to-Repay rule, also set to take effect in January 2014, as the statute most likely to create headwinds. Designed to protect consumers from irresponsible practices by requiring that lenders make a reasonable, good faith determination regarding a borrower's ability to repay a mortgage, companies fear its influence on the jumbo loan market and the correlating trickle-down effects that could impact the broader lending environment. According to Curt Novy, a California-based mortgage and real estate market analyst, the CFPB wants to ensure the U.S. "never again falls prey to loose lending standards that sunk our economy." And while Novy's statement is unequivocally true, an overcorrection by the CFPB could spell a different kind of disaster for some—but not all— sectors of the industry. Which entities appear on track to benefit from the regulatory boom? Technology providers. And mortgage banking's leading web-based innovators may offer an advantageous boost to the lenders and servicers they cater to in the process. A Day Late? T hough emerging technologies for meeting regulatory challenges are abundant, Vlad Bien-Aime, CEO of Global DMS, stated that, generally, the mortgage industry tends to cling to the tried and true, shifting gears only reluctantly and when required. Noting the industry's inclination to be reactive versus proactive in adopting new strategies and solutions, Bien-Aime continued, "Sometimes, it's hard to get people to change; some lenders assume that what might have worked before, will work again." On the other hand, lenders are "very good about hard deadlines. If you don't meet compliance regulations, you're pretty much going to be out in the cold," BienAime added. Not all companies display the reticence described by Bien-Aime, however. Weighing in on the assertion, Novy said that newer, "up and coming" mortgage banking firms seem to be more aware that technology "needs to change, to expand, to meet borrower demand." Senior research director for CEB TowerGroup Craig Focardi echoed Novy's statement, emphasizing that industry professionals recognize the advantages provided by technology—especially when attached to regulatory requirements. Forcardi said that while "some might say [lenders] won't automate unless they have to, or that they'll do the bare minimum," originators and banks embrace technological benefits when presented with cost-effective, riskmitigating opportunities for their businesses and their clients. Speaking from the lenders' perspective, Chris Cash, operations manager for Envoy Mortgage in Houston, recognized the need for new tools to manage compliance and for legislative initiatives, which he called "a reaction to past events, like market fallout." Underscoring the importance of the industry's evolution, Cash stressed adaptation and advancement, noting that lenders should continue toward a more proactive stance to avoid past problems. Sign Up for Savings W hat technological capability should mortgage companies and banks be investing in now? According to Dominic Iannitti, president and CEO of DocMagic, e-signing should be a critical component in developing a strong compliance and risk strategy. Circumventing the use of paper, the electronic signature process not only enables lenders to instantly deliver initial disclosure documents, but it also provides a way to track and log e-sign events. For lenders, that means if issues should arise with a loan, log files and other auditing tools are readily available to rebut arguments related to signatures, documentation, transparency, and disclosure timelines. Iannitti also cited the "somewhat nimbler" process achieved by a paperless environment, a real coup for the industry given the statutory three-day time period by which lenders are required to send out disclosures to the borrower after application. Pointing out pitfalls in the current system, where paperwork such as federal and state mandatory disclosures and notices must be mailed manually, Iannitti added that complying with time frames can get dicey—not to mention pricey. By comparison, Iannitti estimated that around 70 to 80 percent of the documentation will be delivered and acknowledged in a timely manner via paperless platforms that deploy e-signature capabilities. When it comes down to it, he said, lenders will benefit from the technology because it ensures that borrowers remain integrated in the process. "It's messy; documents come from everyone—the closing agent, the lender, the borrower—and often one doesn't know what the other's sending," Iannitti elaborated. With e-signing, documents will already exist in the form of an electronic file and "no one will have to scurry toward the end of the process, scanning and imaging to make a file truly electronic; it will simply be that way from the beginning," Iannitti concluded. As for Cash, he also believes e-signature products are the best emerging technology solutions available because they help unburden consumers by allowing them to complete disclosures or documents from work, home, or on the go via a smartphone. The M Report | 27

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