TheMReport — News and strategies for the evolving mortgage marketplace.
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feature ORIGINATION Or ig i nat ion s e r v ic i ng Fear Not, Lenders Although it may seem a herculean task, complying with the CFPB's new rules and regs shouldn't be cause for alarm. By Paul Mass, President of ClosingCorp Mistakes of the Past L enders should not forget that operating in a stringent regulatory environment is nothing new. The regulations forthcoming from the CFPB this year will continue a policy approach first adopted by HUD and other federal regulators in and around 2010. HUD's revisions were the most dramatic at the time. Prior experiences should reduce the anxiety this time. The past has shown that even without publication of the CFPB's final rule, preparation should take place throughout the implementation of any new regulation—lenders and others affected cannot afford to scramble to make internal changes after rules become final. Additionally, the past showed lenders the potential harm in avoiding areas of risk instead of tolerance violations as well as internal labor costs associated with their efforts to more effectively comply with the regulations. This time around, lenders cannot ignore the inevitable changes that need to be made to better manage the CFPB's coming rules. Managing CFPB Anxiety R egulatory changes do not happen overnight. In terms of the CFPB's proposed mortgage disclosure rules, we should not expect to see the final regulations implemented until the third quarter of 2013, which may be followed by a period for public comment before implementation. While this timeline indicates that regulations likely will not apply until 2014 at the earliest, there are still lenders and vendors overly concerned over future changes. They must take an active approach by using the time they have to explore what they are able to accomplish internally and where they need to seek outside assistance or new technology to ensure proper compliance. Some lenders have been so anxiously awaiting the CFPB's final The M Report | 43 se c on da r y m a r k e t While most lenders would agree that some regulatory changes were inevitable following the market's downturn, regulatory rulemakings always create concerns for lenders and businesses that serve the banking industry. For some lenders, it has even prevented them from making the timely decisions that will ensure both long-term compliance and enduring success. addressing regulatory changes. According to Bart Shapiro, a former office director at HUD and senior advisor at the CFPB, lenders may allow credit risk to become regulatory risk, which then may become reputational risk. These lenders may decide to limit their exposure by removing particular product lines, determining that vulnerability to enforcement actions is not worth the potential profit. For example, a rural bank that provides agricultural lending might eliminate its residential lending unit to avoid the associated risk. To remain competitive today, institutions should not have to eliminate entire product lines to avoid such risks. Instead, they should manage the regulatory environment proactively by preparing for new standards. When HUD lifted its moratorium during implementation of the RESPA reform process in May 2010, lenders became responsible for inaccurate closing cost estimates and potential reimbursements to borrowers at closing. Not planning for the impact of HUD's regulations, many banks, large and small, experienced material costs from a na ly t ic s T he Consumer Financial Protection Bureau's (CFPB) mission to revamp the entire landscape of financial products and services to better serve American consumers is a lofty undertaking. Of the many financial services now in the bureau's hands, one of the most important sectors is residential mortgages. Lenders are certainly accustomed to regulatory change—they have managed new and evolving legislation long before the CFPB was established.