Nearly twenty years later in 1934, The New Deal emerged along with the Federal Housing Administration, the 30-year mortgage loan, and a number of regulations to fuel America’s economic recovery, protect consumers, and increase home ownership among middle income brackets. The mass of the regulatory system was relatively small then, and the force necessary to counteract regulation only needed a relatively small amount of energy.
Mortgage document preparation was a simple process thirty-plus years ago, Michael Riddle, founder and president of AsurityDocs recalls. Within 48 hours, you prepped a set of documents on an IBM Selectric typewriter, sent them to a title company with a note to close, and then shook the hands of a happy new homeowner.
In the same span of time that witnessed the typewriter’s evolution into a handheld supercomputer built for efficiency, the regulatory system in equal opposition swelled in complexity.
“The CFPB has been direct in saying that the more comprehensive a CMS, the more they will believe in a bank.”
Andrew L. Sandler, Founder, Asurity Technologies
For every regulator action, there is an equal and opposite compliance solution.
The regulatory system of today is an expansive and complex environment embodied by a number of housing, finance, and regulation bureaus that dictate compliance for nearly every aspect of a loan. The mortgage industry alone supports an incredible variety of loan products and an immense amount of data, and a single document package can require nearly 60 compliance state and federal compliance checks.
Take one mortgage document set and multiply it across the total number of mortgages produced in one state, and then again over several – or all 50 – states’ regulatory policies. The result? One hell of an expensive mortgage origination process. It should come as no surprise that by the end of 2016, production costs per originated mortgage was at an all time high.
“Each time a regulator speaks, the documents change, the calculations change, the disclosures change, and the loan types change,” says Mr. Riddle. “It is a constant challenge.”
It’s no question that a lender’s focus to maintain a profitable origination business can be slowed by the ever-changing and ever-growing regulatory landscape. As the pressure on the industry mounts, so does the need for an equal and opposing force to effectively – and profitably – navigate it.
The financial tech (FinTech) and regulatory tech (RegTech) sectors have risen to the occasion by building Software as a Solution (SaaS) products. Over the past decade, the industry has accumulated a number of analytics tools and services while compliance-related tasks are still primarily performed across a wide staff. But, an increase in the number of tools and people to learn, implement, oversee, and manage those tools can be tricky.
“Banking is still people doing a job,” says Carl Pry, managing director of Treliant Risk Advisors, in a recent interview at the ABA Regulatory Compliance Conference. “And errors are a natural result.”
Technology alone is not a perfect solution, either. For all the ease and accuracy technology can provide, the rate at which technology solutions are rendered outdated is exhausting. Many best-in-class tools struggle to adapt fast enough in the ever-evolving regulatory landscape when maintained by companies with a primary expertise in software and not compliance.
The exposure of a lender is twofold: out-of-date software exposes potential security risks and out-of-date regulatory systems expose potential compliance risks. Both can result in millions of dollars of recovery costs.
For the documents space, this has taken the form of document prep programs that produce generic legal packages attuned to state regulations, but are not customized to a specific product or to a unique variability that may have specific state regulations.
“There are many one-size-fits-all solutions, which can lead to challenges when it comes to staying compliant,” says Mr. Riddle.
An Ecosystem of Mortgage Compliance. E=MC2.
The DIY solution to maintaining compliance would take any institution thousands of hours of research and manpower to implement policies that adhere to federal and state regulations, not including the technical know how to build a platform to manage it.
While the complexity facing the industry appears daunting, the answer exists at the intersection of regulatory, legal expertise and technical mastery: a holistic and advanced ecosystem of mortgage compliance (E=MC2). The true best-in-class solutions crossbreed software engineers with experts steeped in regulatory compliance knowledge. The result is a holistic compliance management systems (CMS) maintained on both fronts.
Effective compliance management ecosystems can and have served the financial services industry for the better, guiding institutions safely through any potential risk. Bonus: CMSs are supported – and even encouraged – by the federal government.
“With a well-run, wide range, and comprehensive system that includes policy, procedures, testing, controls, automation, and risk assessment, examiners will treat banks more favorably,” says Andrew L. Sandler, Founder of Asurity Technologies. “The CFPB has been direct in saying that the more comprehensive a CMS, the more they will believe in a bank.”
While still relatively new, there are integrated tech solutions built on the backbone of legal, financial, and regulatory ecosystems that produce compliant document packages on one end and proactively manage redlining and fair lending risk on the other.
“Compliance technology can minimize errors, automate processes, save time and resources,” says Mr. Pry.
With an all-inclusive approach, institutions can access an incredible number of compliance solutions including dynamic document preparation, data validation and testing with E / O policy legal backing and HMDA, CRA, REMA, geocoding, and Fair Lending solutions. The right solution will improve the agility and speed of these diverse compliance platforms across an enterprise in a controlled, transparent, and organic way.
And while the industry “thinks of CMS as being proactive and offensive, it is also a good defense,” says Andrew L. Sandler, Founder of Asurity Technologies.
Think of it like a well-protected house: the more prepared you are for a break in, the less likely it is to happen.