MReport January 2018

TheMReport — News and strategies for the evolving mortgage marketplace.

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TH E M R EP O RT | 15 COVER STORY "It's like a whole different era," Melchiorre says. "The changes in technology have been so innova- tive that they have driven much of the risk out and shortened many of the timelines." Though verification is essential, much of this can be done online, as long as the borrower agrees to provide access to certain informa - tion, Anderson says. "You know everything about the borrower on day one." Mobile technology has been a boon to the mortgage process as well. Consumers and lenders can start the loan application from a tablet or a smartphone. "APIs have allowed for much more stream - lined processes," Comer adds. Consumers have access to more technology as well, with Internet searches enabling them to see homes for sale, neighborhood information, and other details that they could only get a decade ago by doing some serious legwork via telephone, the library, and in- person visits. However, the online information shouldn't be seen as limiting the need to conduct good research to ensure that homeown - ers are buying the right properties and using the right lending instru- ments to do so, Clarke says. Regulations and Red Tape T he seeds of the enhanced compliance and regulation that lenders and others in the mortgage business have to deal with today were planted in 2008, giving rise to Dodd-Frank a couple of years later and TRID a few years after that. Dodd-Frank, TRID, and state regulations have led to an increasingly complex regulatory landscape, mortgage industry experts agree. The following are just some ex - amples of the TRID requirements: • Loan estimates must be provided no later than three business days after receiving the application and no later than seven business day before consummation • Closing Disclosure must be received by borrowers no later than three business days before consummation. • A revised loan estimate must be received by the borrower(s) no later than four business days prior to consummation. • A revised closing disclosure must be received by borrower(s) no later than three business daysbefore consummation if APR becomes inaccurate, the loan product changes, or if a prepay - ment penalty is added. "Regulation has been like a snowball rolling downhill," Clarke says of the increasing compliance burden. "Hopefully, the hill ends soon." The additional regulation has at least doubled the cost of process - ing a mortgage, according to McMahon. All of the new regulations have led to a costlier loan process, with lenders needing both additional automation and more personnel. Today's regulations mean stronger quality control is needed throughout the process, says Linn Cook, Director of Sales and Marketing for LendingQB. "We had to spend more than $1 million to change our software in order to support TRID. We had to add new fields and new screens." Even changes that look small when completed, such as adding new fields, are actually extremely complex," Cook explains. Any changes made in one area have to flow correctly through the rest of the system. The core data set has hundreds of links, so making a change to the core means reprogramming to ensure those hundreds of connec - tions reflect the updated informa- tion. New screens were built from the ground up. "Everything has to be arranged in a logical manner," Cook says. "Design is a huge problem." The regulations drove the advances in technology through - out lender systems, Cook adds. Without the need for greater transparency, accurate reporting, and tight timelines for disclo- sures, lender technologies would probably be largely unchanged from what they were a couple of decades ago, he says. Additional people are needed to work with the additional technology. Lenders that might have had a part-time compliance officer at the start of 2008 now have entire compliance teams at the beginning of 2018, according to Fisher. Internal audits are no longer just occasional, instead occurring on an ongoing basis to ensure that all disclosures are made in a timely manner. Failure to provide disclo - sures, accurate good-faith estimates, and renewed estimates any time there are updates results in costly penalties that lenders want to avoid. Now What? L enders have spent the last few years working out the details of regulations and the au- tomation of compliance, McGui- ness says. "The industry was in an absorption of regulation mode. Lenders had to get [regulations] right. Once they have that dialed in and correct, then they can look to scale. The last two to three years have been spent on deploy - ing the technology to facilitate the efficiency inside and outside of the loan origination system so there was total transparency to the consumer through every step of the loan. In 2018, we should see a race to more sophisticated customer acquisition strategies." There is another unknown, Schwartz points out: "We are looking at a change in leadership across many of the regulatory agencies. The jury is out on what this means and it will be interest - ing to follow. We all agree, we cannot have a repeat of the great recession due to housing mishaps. But we should be careful about the approach to the next decade and remain mindful about trans - parency, consumer protections, and safe and secure lending." PHIL BRITT has covered the mortgage industry since the mid-1980s, with work appearing in local newspapers, Savings Institutions, Community Banker, Real Estate Valuation & Appraisals, Wisconsin Appraiser, Independent Banker, Microbanker, MReport, and on numerous websites. "We all agree, we cannot have a repeat of the great recession due to housing mishaps. But we should be careful about the approach to the next decade and remain mindful about transparency, consumer protections, and safe and secure lending." —Faith Schwartz, Principal, Housing Finance Systems Strategy, LLC

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