Mortgage lenders were seemingly dealt another regulatory blow in July with the Consumer Financial Protection Bureau’s (CFPB) proposal to require significantly more data in the Home Mortgage Disclosure Act (HMDA). Some of the additional data points that will be required include loan pricing and underwriting details; applicant age, credit score and debt-to-income ratio; and property value. While HMDA changes have been on the horizon since the dawn of the Dodd-Frank Act, the plans released by the CFPB exceed the requirements lenders were expecting.
The comment period, which closes October 22, is sure to draw lots of negative input. Industry groups have already decried the additional work it will take to provide extra data. With fragmented, legacy systems housing required data and documents, the centralization necessary to easily retrieve and report all of this newly required data just isn’t there. Lenders are lagging behind the technology curve and the CFPB’s proposal is essentially forcing them to focus on new technology solutions.
It’s baffling to think that in this technology-driven world, electronic documents are touted as innovative. We have mobile apps for everything, but the mortgage application processes are still very much paper-driven and manual. As long as this prevails, lenders will continue to suffer damaging inefficiencies in all areas, but especially when it comes to regulatory compliance. Do you think one day the CFPB will decide they want less data? Or that trust will be re-instilled in the lending process and regulations will be lessened? Neither scenario is likely. In fact, it’s more likely that we’ll see the development of stricter regulations and heightened data requirements.
Instead of lamenting the difficulty of collecting and aggregating this extra data, lenders should be using this as the push they need to fix what’s broken—at the macro level. There will, of course, be short-term pain involved in a move away from paper-based processes to a centralized data and document management solution. However, that pain will be far outweighed by the long-term benefits. With less need for human involvement in manual, labor-intensive tasks like document retrieval and data entry, we can see increased efficiency and greater accuracy, all contributing to a reduction in costs over the long run.
With newly streamlined operations, traditional lenders can hope to compete with the influx of new peer-to-peer lending platforms that boast a lending process that’s simple, efficient and transparent. Further, they can focus on what matters the most—serving current customers and acquiring new business. And the quicker they jump on board the technology bandwagon, the greater the competitive advantage they can realize.
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