Recently the CFPB published its projected one-time costs to lenders for modifying systems and processes related to the new HMDA regulatory requirements. After getting through all the numbers and the accounting rules the bottom line is this: It will cost the industry $40 Million (yes million) for each new field included in the revised requirements. While I am not an accountant, David Moffat of Mortgage TrueView is. His analysis and summary of the expected costs as published by the CFPB resulted in this astronomical number.
Mr. Moffat, as part of his analysis finds that the reoccurring HMDA costs under the new rules detailed the number of institutions by reporting profile, in other words by the largest lenders to the smallest. While the associated costs for the largest lenders (of which there are four) may appear reasonable, this cannot be said for any other company. Their approach to such things as labor costs, how the adoption costs are presented as a percentage of non-interest expenses and the division of these costs between all segments of the lender population has led him to determine that the CFPB has created their own Regulatory Accounting Principles. So instead of GAPP, we now have a new basis of accounting “CRAP”. If this material has not yet been reviewed by the CFO of your organization, it may be wise to let them review this published information.
While the cost of new regulations has traditionally been of concern to lenders, this comprehensive analysis begs for the answer to two questions: (1) What are we getting for our money and (2) Why haven’t lenders been yelling “foul”?
Keeping in mind that HMDA has been around for forty years or so with very little improvement in the distribution of home mortgages to each race, ethnicity and/or gender, what will this new data get us. After all, one of the rationalizations for the mortgage spree in the mid 2000s was the development of mortgage products that would provide accessibility to affordable housing. That just didn’t work out so well. So what will all these new fields do? Will they isolate the societal causes of why some people are paid more than others, regardless of race, sex or ethnicity and allow us to cure a deeply embedded segregation against the lower class? Will they explain why realtors repeatedly lure sellers and buyers into properties that are over-priced and intimidate appraisers to “bring in the value” or put an end to this practice? Are we actually going to get information from this data that will allow lenders to do what HMDA legislation was intended to provide—data that will tell lenders where they have opportunities to expand? Maybe there is some other overwhelming benefit that is yet to be discovered, but we better be getting some benefit for the cost we are paying.
But what if we’re not? Where are the lenders and/or the MBA, ABA, Credit Union and Community Bank Associations? Should they not be publicizing this outrageous cost and calling members to fight back. After all, lenders have nowhere to get the funds to pay these costs but from consumers and isn’t the CFPB supposed to be protecting consumers? Where is the hue and cry from consumer protection groups? Are all of these entities so in awe of the CFPB that they don’t even question the costs? Since the announcement about these new fields the only news coming from the industry has been technology companies laying out the needed changes to LOS systems and the related costs as well as seminars on “Implementing HMDA Changes”. Seems everyone is making money but lenders.
At the end of the day I am tired of lenders literally paying penance for over 10 years. Even though low interest rates have been maintained for a long period of time, those seem likely to end soon. If volumes drop and housing prices rise how can we continue to pay these outrageous costs? Will it take the destruction of the entire mortgage industry for legislatures, advocates and consumers to realize that we have paid our dues and stop this nonsense?
About The Author
rjbWalzak Consulting, Inc. was founded and is led by Rebecca Walzak, a leader in operational risk management programs in all areas of the consumer lending industry. In addition to consulting experience in mortgage banking, student lending and other types of consumer lending, she has hands on practical experience in these organizations as well as having held numerous positions from top to bottom of the consumer lending industry over the past 25 years.