By Austin Kilgore
The ongoing push for more robust loan data will continue in 2015, as market participants across the mortgage lifecycle adopt new regulatory requirements and take advantage of recent developments in paperless processing and self-service capabilities.
The Consumer Financial Protection Bureau will require lenders to use new forms that will replace the existing Good Faith Estimate disclosure and HUD-1 settlement statement, beginning Aug. 1. Along with the new forms come additional requirements, including a strict zero-tolerance on settlement fee estimates on the new "Loan Estimate" form, and delivery of the new "Closing Disclosure" to the borrower three days before the loan closing.
Loan origination system and document preparation technology vendors have been working on making the necessary changes to their platforms to accommodate the new forms, while lenders are also updating their workflows and retraining staff. In addition, title and settlement companies are working with lenders to ensure that their systems of record can effectively share loan data in compliance with the new rules.
"Our LOS partners are attempting to have all changes for their integrations by end of the winter season, allowing plenty of time for testing before the new rules go into effect at the end of summer," said Jan Clark, a vice president at Ernst Publishing, a provider of recording fee, property tax and other settlement service data in Albany, N.Y. "It has resulted in a wave of work for the industry that is not likely to crest until the very last day."
However, the new forms can't be used until the implementation date, meaning lenders will have to navigate a period where they have pending loans with two different disclosure processes.
"Lenders are going to try to really push to get as many loans as they can closed by July 31 so they can reduce the pipeline of loans that carry over after the new regulations take effect," said Tim Anderson, director of e-services at DocMagic, a Torrance, Calif., doc prep company.
But in the long term, the new disclosures are poised to help usher in greater adoption of electronic signatures, particularly since they offer digital verification that a lender complied with the three-day delivery requirement for the Closing Disclosure.
"We're pushing for full e-closing and doing the entire process paperless. That's going to force something new in the industry," Anderson said. "With the new CFPB requirements, people can now pair the new disclosure with an e-closing process and have a whole solution. Those that don't will have a piecemeal solution."
Another unique aspect to the new forms is that in addition to their paper-based format, the data fields have been mapped using the latest Mortgage Industry Standards Maintenance Organization's latest XML data format, called MISMO Version 3.3. The data mapping will help elevate the disclosures from being static PDF files to dynamic documents with data that can be stored in a database and analyzed.
While mortgage lenders work to ready themselves for the new disclosures, another CFPB data initiative is waiting in the wings. An expansion of the Home Mortgage Disclosure Act data that lenders report annually to the Federal Financial Institutions Examination Council was mandated by the Dodd-Frank Act, and the CFPB closed the comment period for its proposed rule in late October.
But how quickly the industry will be required to adopt changes to HMDA reporting requirements will depend on when the CFPB publishes its final rules. Dodd-Frank specifies that the HMDA changes must go into effect on Jan. 1, and the industry must have at least nine months to prepare for the new requirements.
Put another way, unless the CFPB releases its final rule by March 31, 2015 the new requirements can't take effect until at least Jan. 1, 2017. And since the data is aggregated and published annually in September, regulators won't have access to it until late 2018.
"My gut says they'll come out with something by March 31, but it is very possible that they won't. There are a number of things they still have to work out," said Leonard Ryan, president of the Laguna Hills, Calif., HMDA reporting and fair lending compliance software vendor.
Regardless of the timing, Ryan isn't overly concerned about implementing the changes. QuestSoft's systems already collect 22 of the 40 new data points the CFPB has proposed, and collecting the additional information won't be difficult, he said.
"When it does come out, our plan as a company is to implement the requirements as quickly as possible and allow our customers to check and see how their reporting would look under the new rules so they can get organized ahead of the new rules," he said.
Along with the new technical requirements that have come as a result of new regulation, technology developers are finding their clients have increased their vendor oversight.
"We're doing three times the work we were doing a few years ago in terms of vendor management," said Ryan. "In the past, you purchased our software like you would Microsoft Office. Now, we're going through a lot of legal work to get deals done, which has extended out the time it takes to close a deal."
And with all the focus on updating technology to meet new regulatory demands, vendors often lament the toll it takes on innovating new and unique capabilities. But one bright spot in mortgage technology innovation has come with advances in borrower self-service and consumer-direct functions designed to streamline the mortgage origination process.
But as lenders seek to accommodate evolving borrower preferences, the need for reliable underwriting data can't be ignored, warned Jeff Knott, an assistant vice president of product management at Equifax and vice chairman of the Electronic Signature and Records Association.
"The industry has to be careful that it's still incorporating information from trusted parties, versus returning to a reliance on self-reported information when it comes to making an underwriting decision," Knott said.
"Sometimes, the self-service applications may give the appearance of having information that's secure and trustworthy because it's going into the system in a machine-readable format," he added. "But what's being missed is the source itself, which introduces the doubt of the authenticity if you're not getting it from an undisputed source."