How Do You Feel About The Dodd-Frank Reform Legislation?

It’s all over but the shouting. The Dodd-Frank Reform Bill is law. CNN is calling the legislation “the most-sweeping set of changes to America’s financial regulatory system since the 1930s.” Nonetheless, the bill was passed almost along party lines with just three Republicans voting for the bill.

This is “reform that will prevent the kind of shadowy deals that led to this crisis, reform that would never again put taxpayers on the hook for Wall Street’s mistakes,” the president said last week. On the other side of the political fence Senate Minority Leader Mitch McConnell, R-Ky., said, “[This bill] is widely expected to stifle growth and kill jobs.”

What is not up for debate is the fact that this will add new layers of regulation to mortgage lenders and our industry is going to have to deal with these changes. The legislation establishes a Consumer Financial Protection Bureau inside the Federal Reserve that has a great deal of power and authority to change how mortgages are done. The bill also creates a new council of regulators, lead by the Treasury Department. These regulators will decide how much funds a bank has to have on hand to prevent the need for future bailouts. In essence, government will have a lot more control over the way the mortgage space works.

Other associations will be putting out position papers to tell you where you should stand on this new reform, and journalists will be analyzing it to tell you what you should think about this reform, but that’s not going to help you. PROGRESS in Lending is setting up this forum. We’re all about thought leadership and providing our members a place to voice their own opinions and ideas. We believe that’s how the mortgage industry will move forward in a positive direction. Lenders and vendors have weighed in and we hope you will, too. Register now to read the whole article to hear what real industry insiders have to say about this legislation.

QUESTION: So, what’s your reaction to Dodd-Frank?

ANSWERS:

“The industry needs to police itself; it needs to create products that meet investor expectations through process control instead of hiding the faults behind some artificial definition of risk. When that happens this legislation will become meaningless and we will have an industry we can once again be proud to be a part of. I am concerned about many facets of this bill. First, as in any legislation, those individuals who want to “get around it” will do so. In the meantime, those that want to follow the regulations will have a huge financial burden for implementation and enforcement and the American Taxpayer will also pay for the bureaucracy. Also, the language in the bill is very broad which leaves everyone vulnerable to the interpretation by the regulators. We will be arguing the details of this for years.”

Becky Walzak, CEO, Walzak Consulting

“There are a number of issues that have come out of Dodd-Frank. It has prompted a lot of questions from clients. Some of the early feedback from depository clients is a bit different as compared to pure mortgage lenders, as well. The what does it mean to me part of the regulation is what we’re hearing now. As more detail on the framework comes from the various regulators we’ll be poised to deliver specific recommendations to customers as to what they should do.”

Jason Marx, Wolters Kluwer Financial Services

I find it interesting that the Government continues to try to protect American tax payers with new regulations and laws, and in this bill at least one new regulatory watchdog is formed, but will it really work? Experts are saying it will take at least a year or more to digest all the ramifications of this very complex bill. The Card Act was passed in 2009 to make the credit card industry more transparent and protect the American consumer. Now articles are being written about how confusing the Card Act is, and how as a consumer you have to be ever more vigilant of the small print and new fees that banks are charging (which consumers should have been doing all along). There is plenty of debate about whether financial companies can or should be “too big to fail”. This thousand-page bill certainly attempts to address as much as possible. Will it make the financial system safer? Who knows, but be rest assured there will be plenty of new opportunities for companies to help in the process.”

Gabe Minton, Chief Technology Officer, PROGRESS in Lending Association, Chief Strategy Officer, Motivity Solutions

The biggest financial crisis since the Great Depression is followed by the most sweeping reform of the financial sector since the Great Depression. This is what Davis Polk had to say: “U.S. financial regulators will enter an intense period of rulemaking over the next 6 to 18 months, and market participants will need to make strategic decisions in an environment of regulatory uncertainty. The legislation is complicated and contains substantial ambiguities, many of which will not be resolved until regulations are adopted, and even then, many questions are likely to persist that will require consultation with the staffs of the various agencies involved.”

First the law, then regulation, then commentary, then confusion, then more commentary, and depending on the level of confusion, either amended law or amended commentary. This is priceless: Expresses the “Sense of the Congress” that reform will not be complete without addressing Fannie/Freddie (which they do not do anywhere in the 2,400-page bill.) It certainly looks to me like the industry will have numerous challenges in
the future.”

Roger Gudobba, CEO, PROGRESS in Lending Association, and Chief Strategy Officer, Compliance Systems

“I’m not real excited about additional regulation that provides zero value to the lender and zero value to the borrower. I think it’s well intended but it was put together by people who don’t know much about our business. We got very involved in the 5% hold back, for example. If that had gotten in the bill it would have put a lot of people out of the mortgage business. We lobbied with the MBA and our local senator to get that out of the bill. I think the market has reacted to the fallout and corrected itself. I think the consumer protection agency is good, but I fear that it will be too bureaucratic and stringent. Several of our clients have gone out of business because they found that it wasn’t profitable to originate loans. Those are unintended consequences of this bill and I think we’ll see more lenders going out of business as a result.”

Scott Stucky, COO, DocuTech Corp.

“This is something that needed to be executed. I have not seen the level of fallout that we’ve experienced with this downturn in my 25 years of experience. However, I’m prickly about it a bit too because I think it was rushed to market. Many wonder how they will be required to execute some of the things in the legislation. Penalties may be levied within 90 days but the board that decides if penalties will be levied hasn’t been created yet. I just hope everyone that takes the time to read it looks at its overall purpose.”

Mark Chapin, Chief Valuation Officer, Interthinx

“I think most lenders like us only have a few hundred questions as we sort through it. I have added the 2,300-page Frank-Dodd Bill to the list of overwhelming reading material similar to the Bible or Atlas Shrugged (actually, these two books contain about ½ as many pages!). As a loan originator, Envoy Mortgage is most concerned with the provisions regarding Loan Officer Compensation. It is not crystal clear as to any unintended consequences regarding this portion of the Bill; however, it is top of mind for all those with a retail mortgage presence.”

David Zugheri, CMB, CMT, Envoy Mortgage

“We consistently talk about change in the mortgage space and we’ve seen it over the past year for sure. However, I think we’re more reactive. We want a better process, but we don’t buy into it all the time. As people wonder what this reform means, I hear some saying, “OK, I’ve had enough change so I’ll worry about this when it happens.” It doesn’t seem like these changes are going to be immediate. For a lender like us we’re more concerned about what our investor thinks. We look to our investor to see what they think it means and how we can change our process to make the investor happy. Over the past year and a half we have migrated to a more integrated system. We’re still looking for better solutions. We’re not just reacting.”

Lisa Schreiber, Chief Strategy Officer, NetMore America

“It creates a lot of things that people were expecting in terms of YSP originator compensation, etc. Even without the bill I think that was going to happen anyways. As I talk to folks the reaction is that it’s becoming closer to being finished. I think there are going to be a lot of tactical issues with implementing the reform package. When will it really be put into action? Are we going to see it next year or 2012? The other thing that I think is both interesting and good is that oversight will be consolidated under one agency. When this all shakes out we’ll at least have a common set of rules so we don’t run into conflicts between RESPA, TILA and other state regulations. However, anyway you splice this it will change how mortgages are originated and the government will control things that I think the market could control of its own but because the market couldn’t control itself in the past, now the government will. As a technology provider this puts more pressure on us. It will be more difficult for lenders of all sizes to comply and originate loans in a cost effective fashion. That will push them toward technology and we’ll have to deliver more as vendors.”

Jonathan Corr, Chief Strategy Officer, Ellie Mae

“In general, there is a trend toward more regulation. The pendulum has swung hard to one side and I hope it comes back to normal. I don’t think new regulation is going to fix the problem, it’ll just slow things down. Bad lending is bad lending and we have to make sure that people don’t do bad lending.”

Niraj Patel, ISGN

“Though the implications of the Dodd-Frank financial reform legislation are not yet fully clear, it’s looking like there will be severe penalties for collusion between appraisers and lenders in the appraisal process. As a result, lenders will be very cautious to avoid any hint of collusion that could be detected and will continue to favor a separation in the ordering of appraisals. Furthermore, Congress wants appraisers to be paid customary fees. As a result, appraiser fees will likely increase. The importance of technology in streamlining the appraisal process and lowering the cost of managing appraisers, especially in light of likely higher appraiser fees, cannot be overstated as financial reforms take effect.”

Jennifer Creech, InHouse

“As usual, the devil is in the details which are largely unknown at this time. This was a 2,000-page report and the jury is still out on its repercussions. We can be assured, though, that the bill will empower the regulators, who missed many early warning signs on the last go round. The newly formed Consumer Financial Protection Bureau bears close monitoring as we move controls from the marketplace to the legislative/regulatory process. That being said, the bill does recognize the errors created by the excesses seen in the ABS/MBS market and resultant collapse of the mortgage sector and housing values.”

Bill Garland, Senior Vice President, ISGN

“It’s all about unanticipated consequences. The FinReg bill has much in it that may prove of value to consumers, lenders and appraisers. It certainly calls for a return to parity and equity for appraisal fees. However, what is unknown is how the bill’s provisions for usual and customary fees will be determined and decided in the market. In addition, large portions of the bill have yet to be fully codified, and much will be decided in the next 90 days. There is certainly an important role for technology to continue to empower appraisers to provide meaningful alternatives to some of the inferior products that have predominated in the market over the last several years. Allowing for a technology-rich and more robust collateral valuation will ultimately benefit appraisers, lenders, and consumers.”

Mark Linne, EVP of Education and Analytics, AppraisalWorld

“Many of the initiatives in the finance reform legislation impact the valuation industry. Fortunately key elements of appraiser independence were reinforced. But ramp-up of registration fees, directives driving state legislation of AMCs, and intensified industry oversight will impose higher fees to the consumer. Unquestionably the oversight and compliance characteristics of the legislation will complicate matters for numerous firms. However, many of the stipulated oversight requirements will be achieved without dramatic increases in costs or human resources for those that have invested well in robust technology platforms. And technology will continue to allow better transparency of populated appraisal reports. We can be certain that analytical tools will be increasingly deployed to improve the reliability and confidence in estimates of value.”

Bill Fall, The William Fall Group

“There has been a lot of focus on passing financial reform, but the impact on the mortgage industry will only come once the regulatory agencies write out the rules that govern the industry. The financial reform law simply created the ability for the agencies to create these new regulatory guidelines. There are two camps around this. One camp firmly believes the rules will prevent a major financial crisis like the one we are going through right now. On the other hand there is concern that as we layer on more bureaucracy, we will constrain and increase the cost of credit if we require banks to hold more capital. Furthermore, any additional regulations or costs into the derivatives industry will affect hedging of securities and the amount of liquidity in the market.

“One of the glaring omissions from the law was anything around structuring Fannie Mae and Freddie Mac going forward. We probably won’t see anything on that until later in 2011. Between FHA and Fannie Mae and Freddie Mac, they are guaranteeing greater than 90% of all loans in the current market.

“From a positive standpoint, without any specific directives we are already seeing our industry stepping up and paying more attention to the quality of loans from the standpoint of verifying a borrower’s income and ability to repay loans, as well as a heightened emphasis on obtaining comprehensive documentation.

“The final rules may ultimately reshape mortgage lending practices and processes. They will likely address down payments, credit scores, and probably debt-to-income ratios. Technology in our space will be significantly impacted. That is, a lot of the major organizations providing liquidity right now have automated underwriting systems, so anything that needs to be changed will affect not only their technology but will also affect their integrations with third parties. This could be a major deal.

“All in all, there is still a lot of work that needs to be done. We are celebrating the creation of the new agencies, but we don’t know yet what will come out of those agencies. We need to wait and see.”

Scott A. Slifer, SVP—Business Development and Marketing, Altisource Portfolio Solutions

“As a whole, I think the intentions behind the financial reform bill are great and some of its provisions are long overdue. That said, we do have some concerns, depending on what direction regulators take. For example, while reform targets a wide range of abusive lending practices, new regulations could potentially make it harder for some deserving borrowers to qualify for a mortgage-like, for instance, someone who experienced a recent, temporary decline in income recently due to the economy. And so far, reform measures seem to give preference to traditional 30-year-fixed rate mortgages, which could make it tougher for qualified borrowers to obtain alternative products that might be more favorable to their needs.

“From an operations standpoint, it’s clear that lenders will need technology to comply with the new rules of the game. But these new rules affect everyone. The true test is for those who look at financial reform as an opportunity to improve the consumer experience. For example, lenders that use technology to streamline the loan process and get borrowers to the closing table quicker will win big with the hearts and minds of consumers.

“With the right controls in place, consumers will also benefit with the additional liquidity brought to the market by the return of mortgage securities investors. The provisions of the bill that deal with increasing appraisal quality, bringing new levels of transparency to a more closely regulated securities environment and improved loan data integrity can help substantially in this process. If successful, the mortgage system will become less reliant on the GSEs, providing long-term stability and the ready availability of credit for deserving consumers.”

Casey Crawford, Founder, President and CEO of New American Mortgage, a full-service mortgage banker

“I’m a glass half full kind of guy. It’s clear that the mortgage industry is going to be more regulated going forward. I think the best thing that lenders and vendors can do is use this opportunity to rethink their processes and use technology to advance the business of lending loans. We don’t need Washington to tell us what to do, we know the right thing to do. Now is the time for the entire industry to stand up and prove it has integrity and will perfect how mortgages are done. I say, “Let’s show them who we are and what we’re about. Let’s use this situation to improve and further automate our workflow and customer service efforts to demonstrate that the industry isn’t made up of people looking to scam borrowers. The title of scammer belongs to the lawyers and the politicians and that’s where it belongs.”

Tony Garritano, Chairman & Founder, PROGRESS in Lending Association

“The Dodd-Frank Bill establishes at least three new bureaucracies—Consumer Financial Protection Bureau, Financial Stability Oversight Council and Federal Insurance Office—and dictates certain guidelines that lenders must follow when making loans. Earlier this year, the mortgage industry thought changes to the Good Faith Estimate process were the end of the world. This bill proves that we can expect to see even more regulation, audits, reports and greater penalties for non-compliance then we have ever experienced.”

David Boone, The Provident Bank

“Through the enforcement of Consumer protection laws by the newly created Consumer Financial Protection Bureau, loan originators will be held accountable for policy and practices that the Federal and State regulators did not have the bandwidth to handle historically. The immediate impact will force the industry to focus on vanilla “Qualified Mortgages” due to the fact that this is where the liquidity will be, based upon the securitization issuer credit risk retention requirements. The restrictions on how brokers and lenders get paid, will force lenders to rely on closed-loan sale margins vs. origination fees paid by the consumer as the primary revenue source in mortgage loan origination.”

John Levonick, Chief Legal and Compliance Officer, Mortgage Cadence

“The Dodd-Frank Bill represents the broadest overhaul of U.S. financial rules since the Great Depression. Mortgage industry participants can most certainly expect more regulations, audits and the potential for greater penalties for non-compliance. Lenders are already being tasked to do more with less, this new legislation will force lenders to embrace automation to implement and enforce the mounting avalanche of regulations if they hope to remain compliant.”

Michael Hammond, President, NexLevel Advisors and Chief Strategy Officer, PROGRESS in Lending Association

“Now that the Congress has passed the Financial Reform Bill, with 2,300 pages to dissect, I will be amazed if the regulators can present a cohesive outline for implementation and enforcement to the industry participants before the end of this year. That said I feel the industry has moved quite a ways down the enhanced regulatory path with the provisions in the latest GFE/RESPA changes that the industry has already assimilated into their procedural steps. I feel that most of the provisions in the new bill are understood by the industry in general and that we will treat it as needed so we can get on with business as usual—albeit in the latest iteration of governmental controls.”

Richard Johnston, CEO, Acris Solutions

“The financial reform bill, the various proposals and amendments that affect plastic cards are of great concern. Credit Unions are already feeling the pinch of other regulatory reforms and margins being squeezed by the low interest rate market. So, the potential for reducing interchange fees would directly impact credit union revenues. It seems that the members of Congress don’t fully understand or appreciate the costs involved with issuing debit (and credit) cards. There are more costs involved with issuing debit cards than just the electronic processing costs. Credit Unions are responsible for network fees, network processing fees, fraud monitoring, creating the plastic, managing the data, insurance, fraud liability, marketing etc. While this is a revenue source for credit unions, the costs continue to increase and the liability continues to shift to the issuing institution. Consequently, Credit Unions will have to eliminate services or charge higher fees to account for the reduction in revenues and the increased costs from financial reform. Ultimately, the consumer will pay for this and that is counter to the goals of the proposed legislation.”

Peter M. Bagazinski, CEO, Catholic Parishes Federal Credit Union

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