Today’s Lenders are Learning How to Navigate the Rules’ Changes, as Cost and Compliance Issues Arise
By: Harvey Foster
The Home Mortgage Disclosure Act came about shortly after I started in the industry in 1973. Since that time, many have asked how lenders can remain profitable and compliant in the face of HMDA. These questions have only ramped up with the new reporting requirements that were announced at the end of 2015.
The majority of added HMDA-related costs lenders see stem from the additional staff needed— which, in turn, raises the cost of originating and servicing loans as well. At the same time however, we also know that it’s more than just staff that’s costing lenders—it’s also price of automation.
Why Automation is Key
Today, there’s quite a bit of borrower information being passed between systems. Operational effectiveness helps manage the internal cost of origination and servicing a loan. Using standardized data formats, such as MISMO, allows lenders to manage both incoming and outgoing data effectively, and a key driver for automation is being able to do so without slowing down business operations while still managing it in real time for errors and issues.
Such automation effectively reduces the workload many have in dealing with the day-to-day processes of originating and servicing loans. Automation of both data exchange and the review of the data—thus converting the process to an exception-handling workflow that is also tracking all activity for audit purposes—is what we see as the main lever to control costs.
Good Data is Accurate Data
Clients we’re listening to and collaborating with today are telling us their main concern is the accuracy of the data. In particular for HMDA, most lenders are concerned with being able to ensure they’re collecting the right information and that it’s accurate, but also that they’re doing so in a cost-effective way.
There is also concern in the industry about whether lenders will be able to collect all of the new data elements HMDA changes demand during the loan origination process.
Looking Into the Crystal Ball
Looking into the future, the new HMDA rules call for changing the frequency of reporting. However, at this time, that doesn’t seem to be as big of a challenge for most of our clients today; they’ll deal with that in the future, since that’s coming about more in the 2020 timeframe. Instead, clients are focused on the present and their ability to collect and deliver accurate information under the new HMDA rule now.
As much as the industry would like to be able to look into the crystal ball, what the Consumer Financial Protection Bureau may do in the future is up in the air— and it’s not easy to make predictions about.
To prepare for future changes, it’s crucial to engage industry stakeholders, associations and different workgroups, as well as collaborate with clients.
One thing beginning to take shape is the significant convergence in regulatory rule-making with industry trends spearheaded by the Federal Finance Housing Agency (FHFA). The industry is also moving to more a frequent data exchange.
The future is about modernizing the lending industry in this 24/7 Internet world. Lenders need to be able to provide transparency, to bring information quickly to the process, and to track data integrity. It’s that frequency and real-time data exchange that will not only help the borrower, but also the lender, the service provider, the investors, and the insurers.