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At last year’s new regulatory technology conference, RegTech Enable, two telling statistics revealed the mounting cost for financial lending institutions to maintain and respond to government compliance: United States banks paid out $150 billion in fines, settlements and penalties since 2008, and financial institutions spent $70 billion on regulatory compliance. American Bankers Association reported that 84% of banks needed to hire more staff to manage the growing influx of information and changes.

Thomson Reuters Regulatory Intelligence monitors more than 950 regulatory rulebooks worldwide published by more than 550 regulatory bodies. In 2015, it reported that daily updates for the financial industry increased by 127% from just 68 per business day in 2012 to 155 in 2014. That adds up to a total of 40,603 in 2014 alone - more than double from the previous year. “It’s not just documents,” explains Marsha Williams, a senior attorney on the legal staff of MRGDocs, a dynamic loan document preparation platform by Asurity Technologies. “There are numerous sources from which to gather information on what’s going to actually regulate a particular lender, including rulebooks, policy papers, speeches, and enforcement actions.”

The information pipeline

Approximately 70 individual regulatory entities sit at the center of lending compliance. The process of sifting through their many updates and requirements is layered, starting at the top with nationwide regulations on lenders produced by agencies such as the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), to name a few.

At the state level, regulations depend on the type of loan or specialized loan product. If a given lender wants to make a loan in Ohio for example, it needs to know which regulations apply to that loan type in that state. If the loan is sold, there is an additional layer of requirements imposed by the investor entity that must be considered.

“Comprehensively, the environment for making a single family mortgage loan is a complex spider web of regulation."

Investor organizations, including Fannie Mae and Freddie Mac, operate by a set of corresponding guidelines called “investor requirements,” which, alone, are thousands of pages worth of compliance requirements. That is thousands of pages of compliance requirements for a single mortgage loan in addition to implementing state-specific and federal lending regulations, reviewing enforcement actions regarding compliance, and knowing the subjectivity of regulation interpretations.

Lenders conducting business in multiple states must maintain the capacity to address that entire regulatory environment, because it determines the structure of the loan, documents, required disclosures, and eventually calculations for the interest rate, APR, and payment amounts.

There are varying degrees for how a regulator might regulate a particular mortgage lender.

Enforcement actions, for example, may not be consistent nor follow standard administrative procedures, but do indirectly regulate mortgage loans and therefore must be monitored and considered as well.

“Comprehensively, the environment for making a single family mortgage loan is a complex spider web of regulation,” says Mike Riddle, President of MRGDocs.

It takes a village

Within a financial lending institution, compliance management should begin with the chief executive officer who tasks the chief compliance officer or perhaps an internal auditor with regulation implementation within the business practices. With the emerging RegTech sector, there are a number of technology solutions to help manage compliance from loan document preparation to mortgage portfolio analysis. But who is keeping up with the ever-changing rules of compliance? One day you are in compliance, and the next day you could be out.

“We have a staff of 35 people that includes lawyers, compliance experts, programmers, and IT experts,” explains Mike, speaking to the type of expertise and size required of a dedicated team overseeing and implementing the many changes the regulatory agencies mandate in today’s complex environment. To keep up with the quick pace, MRGDocs stacks its specialized teams with individuals who have decades worth of experience and are dedicated to overseeing and implementing the many changes mandated by regulatory agencies.

“There’s a cumulative experience level that informs the process,” says Mike. “Our claim to fame is that we have that collective compliance experience that most lenders cannot afford to buy.”

But it is not enough to simply monitor the updates; they must be interpreted, evaluated, integrated, and disseminated.

For example, if the CFPB issues a new regulatory interpretation about how lending disclosures are to be made on a particular type of loan, MRGDocs picks up that regulation and sends it to their lawyers to review. If the lawyers determine that the regulation changes the status quo, they must identify which lenders and loans it affects and the impact it will have. This change could potentially disrupt the lending process of a single loan or multiple loans - requiring adjustments in documentation, marketing areas, and business practices - across the entire lending business. Once MRGDocs’ lawyers determine what the change means and who is affected, there are three paths the information can take.

The first is directly within the MRGDocs platform, which might require minor quantitative adjustments to calculations or data organization. If the change affects the client's operations, such as how loans are marketed or disclosed, MRGDocs notifies specific clients about the relevant directive so they can address it directly. If the regulatory interpretation has a broad enough impact, MRGDocs conducts a comprehensive analysis of how it will affect the world at large and distributes that information in a regular update that is sent to the entire body of clients.

Managing compliance in real-time

“Our job,” says Mike Riddle, President of MRGDocs, “is to ensure that regulations are understood and adjusted on a timely basis so that documents always remain compliant.”

Keeping current is half the battle of any lender, but there’s another, equally important half: forecasting.

“For lenders, you not only worry about the regulations being released but also the person who is dictating that process,” says Marsha. “You’re concerned about who is the head of the CFPB, or chairman of the house or senate financial services committees because that person is going to have a direct impact on that particular agency and the regulations and legislation it produces.” 

To ease the burden and free up more resources for monitoring what is coming down the road, or simply because there is a lack of bandwidth, organizations can rely upon their document preparation company to manage the present day concerns.

It sounds understated to say that this is a major responsibility. “They are trusting us to not only stay up to date on all the changes but to correctly interpret them, incorporate them into the document packages, and make sure that there aren’t any conflicts or inconsistencies across state and federal levels,” explains Cheryl Bump, MRGDocs’ Director of New Product Development, whose career in mortgage lending began in 1985.

Dedicated teams with many years of collective experience, like those at MRGDocs, are best suited for the challenge of managing compliance in real-time because they have the bandwidth and depth of knowledge to respond swiftly, accurately, and reputably.

“Our compliance is real-time,” says Mike. Adjustments are made depending on the regulatory change - some are immediate, and some take effect on a given date, programmed into the document content to reflect the newest requirements as soon as they are live. “Our job,” says Mike, “is to ensure that regulations are understood and adjusted on a timely basis so that documents always remain compliant.”

For lenders, that is one less thing to worry about.

A version of this article will be published in an upcoming issue of Tomorrow's Mortgage Executive.

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