Benjamin Giumarra

Mortgage lenders (depositories and non-depositories) implemented an impressive number of regulations since the financial meltdown. But that’s left most mortgage departments with an impressive number of less-than-perfect processes, limiting their customer service capabilities, operational efficiency and, sometimes, even their ability to approve loans. This comes as no surprise, with business leaders forced to change processes quickly during this period based on interpretations of complex regulatory requirements.

So with things starting to quiet down in the mortgage business, it might seem like a good time to “sharpen up” – to revisit compliance decisions searching for improvements in customer service, efficiency and profitability.

And now that things have quieted down a little, even the best organizations probably have room to “sharpen up” current processes. With clearer regulatory guidance and a better understanding of the CFPB’s regulations, going through this exercise could uncover some surprising improvements in these areas.

So what’s your regulatory cleanup action plan?

First, look at your disclosures: Are there any that are outdated, that have been replaced by new versions, that don’t exactly make sense anymore? Examples might be with the separate disclosures for initial escrow, amount financed and homeowner’s insurance being replaced by the new TRID disclosures.

Some disclosures were optional and we included them just to be safe. We might now feel comfortable removing them. For example, many lenders still include the Anti-Steering disclosures (which are relatively hard to complete) despite have modified loan originator compensation plans to comply with new TILA rules and rendering the Anti-Steering disclosure irrelevant. Another example is providing a settlement service provider list for non-shoppable services – you are allowed to disclose that but there’s absolutely no requirement to do so. How about the “Non-Standard to Standard Refinance” worksheet that is included in many standard loan packages – I’m confident no one is doing enough of those loans to warrant including in the standard package, so just get rid of it!

Are there some disclosures that you can combine to reduce the file size (every page removed helps!) and simultaneously reduce the number of signatures? Could you add a signature page with a checkbox for every disclosure, eliminating the need for a borrower to sign each disclosure separately?

Overlooked Exemptions

Second, look to maximize any applicable regulatory exemptions.

Here are some commonly overlooked exemptions: There are the Small Creditor exceptions for qualified mortgages (did you know this was recently expanded dramatically?). There is also the Small Servicer exemption from the CFPB’s revamped federal servicing regulations. There are also many small or intermediate small institutions that comply with the CRA’s rigorous reporting requirements voluntarily, not taking advantage of this exemption. The TILA-RESPA disclosure rules include a get-out-of-jail-free card for many corrections that can be accomplished within 60 days of closing. How often is your mortgage department taking advantage of this? Those are just a few to get you started, but you can see where you might stumble upon important improvements in efficiency and customer service (and perhaps even approve a few more loans than before).

Third, you can check controls put in place, such as checklists and double-checking.

Are the checklists in place practical and up-to-date? Are they personalized enough so that they make sense to users? For example, having the processor complete the same checklist as the closer might not always make a ton of sense.

You might rethink how reviews are structured. For example, do you have a strong compliance person doing a 100 percent review on post-closing? Just a crazy idea, what if you had that person do a 10 percent post-closing review and devote the remainder of the week to pre-closing reviews. It’s better to fix issues before they occur if possible. It’s also sometimes hard for someone reviewing a “cold” file, two months after closing, to get through a compliance review – the borrower, Realtor, closing attorney, are surely less likely to give you information at that point. The underwriter might very well have forgotten about that loan’s particular issues. Compare to if this review was occurring the day before closing, when it’s fresh on everyone’s minds.

Fourth, review last year’s denied loans to see if you’re being over-conservative in any way. (Of course you might find this cuts the other direction, and that you may need to be more conservative in some cases.)

Are you denying all non-Qualified Mortgage loans (aka “non-QM”)? Maybe you could revisit this policy – maybe you’d even find out that you’re a Small Creditor and can easily restructure the loan to meet QM requirements.

Are you automatically denying higher-priced, or even high-cost mortgage loans? The higher-priced requirements really aren’t that difficult to comply with (but there are QM consequences to consider). Similarly, many lenders have long shied away from high-cost mortgages, but I wonder if some should consider them now. After all, many lenders avoided high-cost loans because of the onerous ability-to-repay requirements. But guess what? Those requirements now apply to all loans post-2014 and compliance with QM equates to compliance with the high-cost rule’s ability-to-repay requirements.

Conversely, you might be approving higher-priced loans not realizing how much this waters down the protection from the Qualified Mortgage rules. This might lead you to avoid higher-priced loans, or it might very well lead you away from a QM-only policy.

Take advantage of these slower months, because spring – and the spring market (not to mention HMDA) – is just around the corner – and we’ll all need to be ready.

Ben Giumarra is a risk management consultant with Spillane Consulting. He may be reached at BenGiumarra@SCAPartnering.com.