Everyone approaches their personal and professional life differently. Some are very organized, their calendar is meticulous with an up-to-date to-do list. Some are at the extreme opposite end. They tend to be procrastinators and appear to be scattered and unorganized. Most are somewhere in the middle. I recall early in my career where the desk of a department head was always clear except for his phone. When he was working on a project he would pull a file, work on it and return to its proper place before starting the next task. Everything in its place and a place for everything, including the pencils, freshly sharpened and lined up in the drawer. The engineer that worked for him was just the opposite. He literally had piles of folders, etc. stacked two feet high everywhere. Somehow, he managed, but was under constant criticism from his boss. One day there was a sign on the department head’s office door. “If a cluttered desk is the sign of a cluttered mind, what is an empty desk the sign of?” No more discussions were necessary. The point is, we all have our own way of dealing with the day-to-day challenges. That doesn’t mean we can’t change and make adjustments along the way.
But change can be stressful. We are uncomfortable with change. We like to stay in our comfort zone. Organizations are the same way. They are resistant to change. It’s almost like: If it’s not broke, don’t change it. However, the key to any organization’s success is embracing change, not standing pat. The organization that makes an effort signals to the world that they are open to making things better. But embracing change, for the sake of change is not enough in today’s world.
How does all of this relate to our industry? Here’s a quick example: The biggest change and accomplishment for the mortgage industry is MISMO. The focus was on the data. The development of the data dictionary was, and continues to be an industry wide effort. For the first time, the exchange of information between 2 parties was standardized. When you look at the complete loan process from application to processing to closing to fulfillment, there are numerous integration points. Many of these are simply point-to-point integrations. The MISMO standard greatly facilitates that integration. As these integrations are completed, along with e-signature adoption, we can begin moving towards the fully electronic mortgage. However, the biggest chasm has always been at the closing table because of the multiple parties in the process. No question this has been cumbersome for some time. I don’t need to go into a lot of detail, but this certainly became a focal point after the financial crisis.
How does all of this relate more directly to current events in our space you might ask. Well, “The Dodd-Frank Act directs the Consumer Financial Protection Bureau to integrate the mortgage loan disclosures. For more than 30 years, Federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage. The law also has generally required two different forms at or shortly before closing on the loan. Two different Federal agencies developed these forms separately, under two Federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information on these forms is overlapping and the language is inconsistent. Not surprisingly, consumers often find the forms confusing. It is also not surprising that lenders and settlement agents find the forms burdensome to provide and explain.” (Excerpts from the CFPB Guide to the Loan Estimate and Closing Disclosure forms)
When the CFPB first announced the Loan Estimate and Closing Disclosure documents, I thought about the transition of the 1003 (2 pages) to the new Uniform Residential Loan Agreement (4 pages). I recall the disruption in the industry over this. But, it was not a major change. This was nothing more than expanding the sections for employment, assets, liabilities, etc. and leaving blank space for comments. There was very little new data elements added. What was all the turmoil about? First, at that time, we relied heavily on forms for the collection of information in an organized fashion. Sometimes they were filled out by hand and the available white space could be a problem. Secondly, the flow in the Loan Origination Systems (LOS) was structured around that document. And finally, the LOS needed to map the data and print that document, a tedious task at best. And there was no guarantee that everyone mapped the documents the same. It was all about the documents. So, how is this different today? Let’s look at what the CFPB had in mind for the Loan Estimate and Closing Disclosure documents.
First, the focus was on the consumer. The goal was to simplify the process, make the loan closing easier to understand and provide the borrower the opportunity to review the documents ahead of time. Closing a mortgage is something the borrower may only do a few times in their lifetime, perhaps only once. This is a major financial decision, yet many are insecure about the process. Historically, on the closing day ceremony the borrower feels a little intimidated and overwhelmed. Sometimes, there are last minute changes that the borrower sees for the first time; with the feeling there isn’t anything they can do about it.
Secondly, and probably the most important, was the architecture of the Loan Estimate and the Closing Disclosure. The Model/Forms must be followed exactly, and the TILA-RESPA Rule’s requirement that many of the required disclosures may only render when the feature applies to the loan. For example, the Adjustable Payment and Adjustable Interest Rate tables may only appear if the feature(s) apply to the transaction. There are several YES/NO questions that cannot be checkboxes. The Projected Payments table can have 1-4 columns depending on the number of payment changes, but cannot have blank columns. Many have estimated this would result in thousands of static documents.
Third is the focus on the data. The MISMO volunteers have spent an enormous amount of time analyzing the required data elements and making the necessary changes to the reference model.
Finally, they established an e-closing pilot program to test and validate these concepts. They selected a small group of lenders, vendors and settlement agents. They will present progress and results to the industry during pilot and probably start a second pilot before the implementation deadline.
The Loan Estimates and the Closing Disclosures are far and away a complex and challenging project. The solution is dynamic documents. First, ensuring all required data is present, based on the transaction type and satisfies all Federal, State and Local requirements. Second, ensuring the content necessary for the transaction is properly selected and assembled. Finally, output that document in the specified format.
I commend the CFPB for their approach. They have reached out to the industry and were very open to feedback. They have welcomed comments and suggestions, resulting in a fully collaborative effort with all the involved parties. I am absolutely convinced this project will have a dramatic and rewarding impact on the industry. Change is inevitable, so let’s tackle it head on with enthusiasm.
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