March 2016 - RIP Dodd Frank

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28 | TH E M R EP O RT FEATURE "Its' a domino effect. If you look at each rule in a silo you will miss how they impact each other." —Harmonie Taddeo, AVP, Copliance, Northwest Federal Credit Union interpretations of the regulation. I think sometimes the government or the agencies out there that write the regulations that we need to be compliant with can be more forthcoming in their interpretations of those regulations." The lack of consistency and clarity among the rules from fed- eral agencies is a sentiment shared by many in the mortgage industry. "The varying definitions of 'busi- ness day' interpretations, affiliate zero-tolerance fees, and which type of mortgage product each regula- tion applies to may cause mistakes. Not having clear guidance from the regulators on how to address certain scenarios can also lead to problems," said Harmonie Taddeo, AVP, Compliance, Northwest Federal Credit Union. Donna Gibson, President, Quality Control and Compliance at Inco-Check, said that she believes that the "agencies are trying to provide as much clari- fication as possible, however, the regulations are complicated and many different interpretations exist in the industry, especially surrounding TRID. She continued, "There certainly is a struggle right now to comply and continue to be able to sell loans on the secondary market. It will be a huge benefit to all when the rules are further clarified and issues surrounding compliance are further broken down into actual areas of agency concern and/or enforcement actions." On the other end of the spec- trum, there are those who believe that regulations are intended to be clear and are created and rolled out in a way that businesses will understand exactly what they need to do to comply. "Regulations are not intended to be ambiguous by design," said Nickalene Badalamenti-Kalas, President of Five Brothers. "A great deal of preparation and planning goes into the execution of new regulations. Further, regulatory agencies appear to be making every effort to be responsive to the indus- try as a whole, and are attempting to make sound and reasonable changes for the greater good." The Game of TRID T he TRID rule has been shaking up the mortgage in- dustry since October 3, 2015, and in turn, causing lenders every- where to completely alter their loan origination procedures. The mortgage industry is still adjusting to the regulation, and although the dust has seemingly settled, financial institutions are still battling with the rule. Moody's Investors Service re - ported that TRID compliance viola- tions are a widespread epidemic in mortgage originations. According to Moody's analysts Yehudah Forster and Lima Ekram, a number of third-party firms reviewed recent residential mortgage loans for TRID compliance and found violations in over 90 percent of the loans. The report showed that many of the TRID violations were only techni - cal, but still proves that lenders are struggling to comply with the new regulation. "Many of the violations were reportedly technical in nature, such as the need to use the same spelling convention for counterpar - ties or the absence of a required hyphen. However, the TPR firms still believed the violations were ma- terial because the extent to which a secondary market purchaser, such as a [residential mortgage-backed se- curities] trust, would bear damages or costs from delayed foreclosures is still unclear without further court or CFPB interpretation," the analysts explained. Gibson agreed that there is a trend in TRID compliance issues in today's housing market, and nearly every TRID loan audited at Inco- Check has some type of finding. "Some secondary market inves - tors are afraid to buy a TRID loan that has any type of issue, no mat- ter how small, due to uncertainty as to what the CFPB will focus on when it comes to TRID enforce- ment," she said. "Historically, com- pliance issues were allowed to be cured or explained by lenders and then could be sold, however, that seems at this time to no longer be the case." Even with all of the prepara- tion that went into TRID, which completely changed lender's busi- nesses, they are still running into roadblocks with the rule. "We see many lenders strug- gling with TRID implementa- tion–specifically around the pricing of services to the borrower," said Vladimir Bien-Aime, CEO of Global DMS. "Services, like ap- praisals, had to be scrutinized to ensure the right vendor was being utilized so that the borrower didn't incur any additional fees resulting in re-disclosures and ultimately causing delays in closing." Shortly after TRID was imple - mented, the CFPB announced the finalization of the Home Mortgage Disclosure Act (HMDA), which is intended to improve information about consumers' access to residen- tial mortgage credit by updating reporting requirements. "Its' a domino effect. If you look at each rule in a silo you will miss how they impact each other," Taddeo noted. "The aggregate of all the rules can be pretty overwhelming. It's important to understand how guidance and rules regarding one aspect of our operations impact another such as eSign and providing the required mortgage disclosures or fair lend - ing and HMDA reporting." Leaning on Technology T he heavily regulated mort- gage environment has caused technology innovation to become a new focal point of many businesses within this space. In the past, the housing industry has been slow to innovate, but recent years and additional regulation have brought about the need to streamline busi - ness operations. "It's a critical role. Think about the number of transactions that are happening daily, hourly, or every minute across this country," Ales noted. "There's absolutely no way that our current mortgage lending industry could do what it does now without technology. Technology is absolutely critical to day-to-day operations for any player in this industry." In the current regulatory environ - ment, Bien-Aime said that compa- nies are required to do more with less, but throwing bodies at compli- ance issues is very cost prohibitive. "As the costs of origination grow, it is clear that leveraging technology with tools that lever - age workflow and rules-based systems can alleviate an overbur- dened mortgage industry," he said. "Innovation is the ability to cre- atively solve problems, and these compliance regulations, although onerous but often necessary, re- quire innovation from technology vendors to assist lenders in forag- ing their way toward the future." Many mortgage companies are looking to cut costs and streamline

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