Banking Compliance Index Nearly Doubles In Q2

The Banking Compliance Index (BCI) nearly doubled from Q1 2018 to Q2 2018, revealing the significant impact of regulatory relief bill S.2155, which contained over 50 separate regulatory changes. This BCI increase reinforces that any change, whether adding or reducing regulations, translates to extra work for institutions. Also, the agencies have now filled their vacant leadership positions, which reduced some of the regulatory uncertainty experienced last quarter and may have contributed to a warmer enforcement climate.

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“It’s not unusual to experience an uptick in regulatory activity from Q1 to Q2, but this is a more substantial jump than we’ve seen in years past,” stated Donna Cameron, Continuity’s director of regulatory I/O. “We’re just starting to see the impact of the regulatory relief bill on banks, credit unions and lenders. The bill added a significant number of pages and material that organizations had to read, interpret and decide on appropriate action forward. This increase in activity is only expected to continue as the agencies issue implementing regulations and guidance documents.”

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The Banking Compliance Index, published quarterly by Continuity’s Regulatory Operations Center® (ROC) quantifies the incremental burden on financial institutions in keeping up with regulatory changes. The typical community financial institution needed more than one full-time employee (1.11) just to keep pace with regulatory changes. This score doesn’t include the resources institutions are already dedicating to regulatory and compliance efforts.

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There were 61 issuances delivered between April 1 and June 30, 2018, up from 50 issuances the previous quarter. Compliance costs increased from $10,776 in Q1 2018 to $19,114 in Q2 2018, and hours required to comply per institution went from 219 hours in Q1 2018 to 369 hours in Q2 2018, a 68-percent increase.

Cameron added, “When any change occurs, institutions must make significant modifications such as retraining staff, upgrading technology, reevaluating risk and tweaking operational procedures. This is why it’s critical for institutions to have a strong, comprehensive change management system in place to help them quickly and efficiently navigate the impact of regulatory activity, especially now in the wake of regulatory relief.”

Reinstatement of the Protecting Tenants at Foreclosure Act was a significant change during Q2 2018. The act, which was terminated in December 2014, was reinstated by the regulatory relief bill, effective June 23, 2018. Other notable provisions of the bill were changes to the ways reciprocal deposits and High Volatility Commercial Real Estate are calculated and reported. These amendments were effective on the day the regulatory relief act was enacted, May 24, 2018.

“We can expect to see a more active second half of the year in regards to regulatory activity and issuances,” Cameron explained. “Agencies have made it clear that they plan to accelerate regulatory relief activity and provide guidance as soon as possible. Financial service organizations must proactively work with their regtech partners to help them automate compliance processes, interpret regulations and centralize efforts to prepare for the upcoming changes.”

The Banking Compliance Index (BCI) is a quarterly tracking index published by Continuity’s Regulatory Operations Center. It measures the incremental cost burden on financial institutions to keep up with regulatory changes.

Lenders Are Optimistic About Trump

A large majority of lenders surveyed (73 percent) believe the new administration’s policies will have a positive impact on the lending environment, according to the 2017 Lenders One Mortgage Barometer, a survey of 200 mortgage lending professionals.

“Despite some industry concerns over rising interest rates, lenders are optimistic about the potential for a more flexible regulatory environment in 2017 and beyond,” said Bryan Binder, chief executive officer of Lenders One.

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Lenders are also ready to make investments in their organizations’ business operations. In fact, 42 percent of lenders indicate their biggest investment is in operational changes (hiring new staff, compliance support and software support), and 25 percent of lenders surveyed say they are currently making the greatest investment in marketing. While these investments are necessary for the industry to keep pace with consumer demand, they may also be driving up the cost per loan, with 65 percent of respondents indicating that the cost per loan will continue to increase.

Regulations Don’t Weigh Quite as Heavy on Lenders in 2017

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Lenders are ready for new regulatory requirements, such as updates to the Home Mortgage Disclosure Act (HMDA), with two-thirds (65 percent) indicating they are very prepared for HMDA changes. Yet, the biggest HMDA compliance challenge for lenders is around additional resources needed to report transactional data, such as home equity lines of credit (HELOC) and dwelling secured loans for apartments. While lenders are investing in staff and technology, about one-third (32 percent) of them cite challenges with securing additional resources to report, connect and analyze transactional data.

E-closings See Broad Adoption a Decade after Their Inception

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Though 39 percent of lenders report they are not using electronic closings (e-closings) on mortgage loans, a third of those respondents expect their organizations to implement e-closings in one to two years, on average. The majority (61 percent), however, say their organization has implemented e-closings while seasoned lenders — those in the business for 10 or more years — are the predominant category of lenders utilizing them (67 percent).

Survey Methodology 

The Lenders One Mortgage Barometer was conducted online among a random sample of 200 mortgage lenders. Fieldwork was conducted by independent research firm Ebiquity between January 4 and 14, 2017. The margin of error associated with the sample of n=200 is +/- 6.9 percent at a 95 percent confidence level.

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The Regulatory Forecast

As of early 2017, the mortgage industry has already been affected by the 2016 election. We’ve seen rising interest rates, the rollback of a late-Obama administration move to lower FHA MIP rates, an executive order directing the Treasury secretary to review rolling back the Dodd-Frank Act, and an executive order instructing agencies to eliminate two regulations for every new regulation proposed. With changes coming fast, we can be certain that there will be more headlines in the coming months. As we see it, the focus will be on three questions: Will the Dodd-Frank Act be repealed; will this help or hinder innovation in mortgage solutions; and how will the US react?

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Chance of New Regulations: Low

Repealing or changing Dodd-Frank would require congressional action. Given the current split in the US Senate, only certain modifications can be made through reconciliation, a legislative tool that allows changes to be made with a simple majority in the Senate versus the traditional 60 votes. Additionally, as of this writing, the CFPB recently evaluated whether the recent executive actions apply to them and concluded they do not. This means, at least for the short term, no new regulations. If the CFPB determines that that they are not subject to the actions, then it will almost certainly lead to a court battle. Either way, it seems like the chance of new proposed or final regulations is low. But as a reminder, unless and until any rules are repealed, existing rules — even those with future implementation dates — are still in effect and financial institutions need to support the new HMDA reporting requirements.

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Chance of Technological Impacts: Medium

How about the impact on innovation? Fintech companies have established a new industry group to protect a small part of the Dodd-Frank Act within section 1033 (a) that states, “upon request, information in the control or possession of the covered person concerning the consumer financial product or service that the consumer obtained from such covered person, including information relating to any transaction, series of transactions, or to the account including costs, charges and usage data. The information shall be made available in an electronic form usable by consumers.” The members of this group, as well as others, hold the opinion that this section allows them to access and retrieve, with the consumer’s permission, bank and financial information. The use of this section is reflected in the development of personal budget software tools that aggregate all of a consumer’s accounts in one location. The section is also a key driver of digital application and verification services in the mortgage industry. The potential repeal of this provision would have a big impact on mortgage technology innovation.

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Chance of State Law Impacts: High

Finally, compliance with state laws could become even more important in the industry. Just as we have seen state Attorneys General filing suit against the Federal government over the President’s executive order on immigration, Attorneys General from 17 states have committed to defend the CFPB in the PHH case. If the President works with Congress to repeal all or part of Dodd-Frank, it is possible that state legislatures could step in with additional statutes and/or regulations.

What does all this mean for the mortgage industry as a whole? Regulatory changes are not new to any of us. What will really define the future for lenders is the importance of continued partnership with quality technology vendors. Working in partnership to navigate regulatory changes and define process improvements remains the key to continued success.

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Brace Yourself


In his early days in office President Trump has shown that he is ready to shake up the mortgage industry. He has said that he plans to re-evaluate Dodd-Frank and he also suspended a reduction in the premium rate offered by the Federal Housing Administration to homebuyers. The reduction, relatively small, would have saved homebuyers about $500 a year. So, what do these early moves mean for this industry?

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William Fall, CEO at The William Fall Group, says, “The higher rates that we are starting to see would have happened regardless of the election outcome. I believe the MBA’s outlook in October remains fairly accurate. The fundamentals of the housing market are strong, and while there will be much less refi business going forward, I think we’ll see a very healthy growth in purchase volume. Of course, this shift in the market will impact the appraisal industry. Appraiser capacity in some markets is very high, and I expect regulatory activities will affect AMCs over the coming year. Perhaps it goes without saying that some valuation companies will be better equipped than others to manage these challenges.”

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Curtis R. Knuth, Executive Vice President at NCS (National Credit-reporting System, Inc.), believes that “the new administration will focus on a few obvious things, such as the privatization of the GSEs and what the runway for that will look like. Many solution providers and lenders were aware of the pilot programs Fannie Mae was running prior to the launch of Day 1 Certainty, which provides relief from reps and warrants, among other benefits. Although I don’t think anyone expected the program rollout to progress with a single vendor for each solution of the program. It was conducted as if Fannie were a private rather than a public entity, which is normally very careful not to pick winners or losers. It’s something we’re drawing congressional and administration attention to.”

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Jeff Bradford, President at Bradford Technologies, sees big changes to come. “I believe the Trump Presidency will have a Big Time effect on the financial industry,” he notes. “The first casualty will be the CFPB. In October the United States Court of Appeals for the District of Columbia Circuit handed a major victory to PHH, declaring that the CFPB’s leadership structure is unconstitutional and the director of the CFPB has too much power. The ruling means that a Trump Presidency will surely clip the agency’s wings. It will be interesting to see how much power the CFPB will be left with to enforce compliance and levy fines. It may not even survive.

“The second casualty is Dodd-Frank, the law that of course created the CFPB,” Bradford continued. “Trump’s transition team has recently indicated that it would like to see a full repeal of the law. Does this mean that we will go back to the Wild West that created the Great Recession, or just a milder form of it? The third major change could be GSE reform. The key will be if moderate Republicans and Democrats collaborate to create an economic shock absorber that dampens the effect of the changes the Trump administration will attempt to make.”

“The Trump presidency will have a significant effect on housing,” added Jeff Doyle, Chief Executive Officer at LoyaltyExpress. “We are already witnessing higher interest rates due to anticipated major federal infrastructure spending and stronger economic growth. A bigger economic impact, however, will come from the reversal of banking regulations. As lenders are encouraged to loosen standards (especially for middle-income households), an upswing in residential construction and debt-financed spending will serve to boost economic growth.

“More relaxed CFPB and other major Dodd-Frank regulations will lead to greater lending competition as well as a streamlined mortgage origination process. The downside of deregulation is riskier lending programs and more defaults. Caution must be the central theme so that deregulation does not lead to a recurrence of the 2007 financial crisis. But overall, growth and inflation will both increase,” Doyle pointed out.

But will Trump be a net positive or a net negative for mortgage lending going forward? “There are two different ways the Trump election victory will affect the mortgage market,” answered Josh Friend, CEO at InSellerate. “One is bad, and one is good. On the negative side, we can expect to see higher interest rates, which we’ve already seen happen since the election. Mortgage rates are up more than 50 basis points due to a massive sell-off of U.S. Treasury securities. The fear is that President Trump will be spending a lot of money to cut taxes, create jobs and rebuild our infrastructure. Those are good things, but they will cause inflation, and interest rates will rise as a result, as they already have.

“The second impact from the Trump Presidency will be a positive one for the mortgage industry and a win for both borrowers and lenders, and that is reduced regulatory requirements. Complying with all of the new regulations that have become law over the past several years has increased the time and cost of producing loans for both borrowers and lenders. Trump made a lot of promises during the campaign to reduce regulations and he seems to be moving forward on them during the transition. His appointment of Steven Mnuchin as Secretary of the Treasury, who has a mortgage banking background, should also benefit our industry.”

Rick Sharga, Chief Marketing Officer at Ten-X, theorized that “the Trump Administration will, on balance, be good for the housing and mortgage industries for several reasons. I believe that the new administration will work towards a less burdensome regulatory environment, and more specifically will unwind some of the more problematic and punitive aspects of the Dodd-Frank legislation, which has made lending riskier, more difficult and more expensive. This should encourage more retail lenders to get back into the game, and hopefully bring back some of the smaller, community banks as well, which opted out of the mortgage market due to the overwhelming costs of regulatory compliance. More lenders making more loans to qualified borrowers – people who would have qualified for loans historically but haven’t been able to do so in today’s extraordinarily risk-averse environment – removes one of the major headwinds that has been preventing a full housing market recovery.”

Sam Heskel, CEO at Nadlan Valuation, agrees that Prsident Trump could be good for mortgage lending. He says, “Trump will not do things that make it more difficult for the industry to sell homes and close loans. At the very least, we can expect some rollback or easing of regulations that have added to longer appraisal turn times. In the near term higher rates and the typical slowdown in the winter months will ease appraisers’ workload and appraisal turn times will improve.”

So, what does this all mean? Many are cautiously optimistic even if they hate President Trump. “Regardless of your political bent, let’s first remember that Trump is a real estate magnate – and thus I’d like to believe he is well aware of the dynamics of the real estate market and would be disinclined to step on the hose, so to speak,” said Sue Woodard, President and CEO atVantage Production. “Fears over removing the mortgage interest rate deduction or “MID” are unfounded – he is considering a cap (and by the way, there is a cap already) – but even if the cap was $100K as Mnuchin suggested, it would take an enormous mortgage to generate $100K in mortgage interest.

“Simplification of the tax code could impact the ability of some buyers to deduct mortgage interest at all, but I believe most folks would remain in favor of simplification. I further suspect the CFPB is here to stay, but with the current structure placing direct oversight of the agency under the President – including a right to fire the director. I expect this might mean a more business/industry friendly agency, while still protecting the consumer. Opportunity abounds, as it always does in times of change – and it’s incumbent upon lenders to use technology to consistently and professionally communicate this message so that consumers don’t miss the opportunity to build and advance their financial futures,” concluded Woodard.

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A New Chance To Fight Back

My mother was a young woman in the early 1950s, which was the McCarthy era in the United States. I once asked my mother about why more people did not speak out against McCarthy and his reckless demagoguery. She stated that McCarthy and his supporters created such an oppressive political environment that anyone who openly spoke against them was viewed with suspicion as being a traitor.

And, she added, McCarthy had plenty of supporters. My mother recalled a co-worker of hers from that distant era who viewed McCarthy at a deity level – and this co-worker spoke of the Red-baiting senator with such fervid adoration that everyone around her was genuinely afraid of contradicting her adoration. Indeed, people would rather grit their teeth and suffer in silence than openly call out McCarthy as being a bully and a fraud.

For the past few years, I have openly called out Richard Cordray and his Consumer Financial Protection Bureau (CFPB), along with his supporters and mentors – most notably Massachusetts Senator Elizabeth Warren – as doing damage to the economy through reckless action and ridiculous statements that have no backing in fact. But, then again, I have the liberty of speaking out as a member of the media – those who have to answer to the CFPB have mostly gritted their teeth and suffered in silence, not unlike too many of the McCarthy haters of a distant era.

The tragedy of the rise of the CFPB was the reality that the CFPB could have easily been smothered to death before it was allowed to come alive via the Dodd-Frank Act. In the aftermath of the 2008 crash, the financial services industry was ridiculously quiet as Chris Dodd and Barney Frank – fueled by Elizabeth Warren’s inane anti-capitalist mania – brought forth this regulatory atrocity. Compare the inertia of the financial services industry during this period to the gun lobby’s response to congressional efforts in the aftermath of the Newtown shootings to pass gun control laws. We have the Dodd-Frank Act – we don’t have federal gun control laws. The difference is quite stark: the gun lobby fought for what it believed in, while the financial services world followed the lead of too many people in the McCarthy era and grimly endured the madness dumped upon them.

The CFPB, of course, could have been stopped at several times. President Obama’s recess appointment of Richard Cordray into the bureau’s directorship was a blatant violation of Constitutional law, but the industry chose to accept it. A small Texas community bank tried to void the Cordray appointment via the courts, but the industry refused to support that effort. And the CFPB second banana Steve Antonakes openly insulted the industry at a mortgage servicing conference last year, the industry stoically absorbed his wrath – even though his argument of servicing incompetence was contradicted by his own agency’s data.

This month, Capitol Hill looks a little different: both the House of Representatives and the Senate are controlled by the Republicans. The House GOP has been much more critical of the CFPB, of the ineptitude of the Cordray leadership at that agency, and of the excesses of the Dodd-Frank Act. The Senate GOP has been less vocal, if only because too many Senate Republicans are too busy primping for the cameras while chasing quixotic presidential aspirations.

Nonetheless, this change in the political schematics on Capitol Hill enables a new attempt to openly challenge the CFPB’s reign of error. But this can only succeed if the industry stops being afraid of the agency and supports whatever efforts are put forth to defang the CFPB.

Obviously, it would not be an easy fight – the White House likes this nasty status quo and would veto any major overhaul legislation. And the mainstream media is too blind to the concept of the CFPB that it will not acknowledge the reality of the agency’s overreach and mismanagement. But, damn it, isn’t it time for the industry to open admit what too many people have been saying among themselves for too long: the CFPB is suffocating the housing industry and ruining the economy, and the Cordray regime cannot run the agency in a cost-effective manner.

Let’s make 2015 the year when the industry stops making the same mistakes again and starts to stand up for its principles and against a bullying regulatory agency that does not have anyone’s best interests in mind – least of all the U.S. consumers. If the new Congress makes a concentrated effort to challenge and overhaul the CFPB, the industry needs to be vocal in fighting this good fight and creating an environment that benefits both consumers and lenders.

If any lesson can be learned from the McCarthy era, it would be that horrible political figures do not exist in a vacuum. They only thrive when people are terrorized into not speaking out against them. This is 2015 – let’s make this new year the one when the CFPB gets the wind taken out of its sails.

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Compliance Report: The CFPB Three Years Later

It’s been more than three years since the Consumer Financial Protection Bureau (CFPB) was created “to make markets for consumer financial products and services work for Americans,” according to its mission statement. While many improvements have been made, there are still numerous lenders and services trying to meet regulatory requirements. For many – especially small- to mid-size institutions – challenges such as the high costs of compliance, lack of bandwidth for compliance expertise, increasing technology complexities and increased urgency of operations training have stifled lenders’ and services’ ability to meet the already implemented requirements. These challenges will only worsen as new regulations role out next August.

The mortgage industry continues to work diligently to interpret and implement all the new current and future regulations to avoid the CFPB and its enforcement powers. In fact, lenders, servicers and vendors face severe fines and penalties if found in violation of a law. Even if a consumer federal law is violated with no intention and was clearly an error, the CFPB has the power to fine the organization $5,000 per day. If the organization knew about the violation, the fine can be as high as $1 million per day, which can ultimately shut down a lender or servicer.

These broad powers have gained the attention of legislators and industry experts, who are working to overturn some of the CFPB’s power on the grounds that it has no statute of limitations due to the way the Dodd Frank Act was written. In particular, many have concerns with the power given and utilized around Unfair, Deceptive and Abusive Acts or Practices (UDAAP).

Regardless, after three years, the CFPB is continuing to move forward to build strong compliance requirements, and lenders and servicers must continue to make investments in technology and services to comply with those new rules. The cost of maintaining regulatory compliance, however, will continue to have a significant impact on lenders and servicers, but the costs of non-compliance will also have consequences.

To make the most out of technology investments without breaking the bank while also remaining compliant and avoiding the even more costly fines, lenders and servicers should leverage either a cloud-based compliance tool or a CFPB mock audit to bring out regulatory issues before an actual regulatory review.

By leveraging an automated cloud-based compliance check solution or comprehensive audit, financial institutions eliminate the CFPB’s severe consequences by ensuring compliance with the changing regulatory environment, as well as better prepare for future regulatory changes. In a shared services model, lenders and servicers are also able to leverage compliance resources, which combat out-of-control costs, mitigates potential fines and ultimately results in cost-containment for consumers.

Ideally, an effective web-based compliance check or a more comprehensive mock audit will contain a series of questions. Lenders and servicers should then be guided through the review process to complete the answers, which are then analyzed using classifications in line with CFPB guidelines to calculate the risk. Financial institutions should then be provided a detailed report including compartment risk weightings, trends and high-risk items, which can be provided to regulators as well as used for action plans.

Looking ahead, the future certainly holds more regulations, investigations and penalties for those unprepared for the CFPB. Whether investing in a shared service model through a SaaS, cloud-based platform or a more comprehensive mock audit, lenders and servicers will benefit from peace of mind, reduced costs and improved quality – not to mention creating a safer experience for the consumer.

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Mr. Watt And Mr. Castro

When President Obama announced that he was naming Melvin L. Watt to run the Federal Housing Finance Agency (FHFA) and Julian Castro to become Secretary of Housing and Urban Development (HUD), I felt that both appointments were major mistakes. At this point in time, however, I think I may have been half wrong in my assessment of their abilities to handle these jobs.

At first, both Watt and Castro appeared severely out of their leagues. Watt was an undistinguished Congressman with a penchant for tilting to the left. There was genuine reason to believe that he would tow the Obama line when it came to government intervention in housing. And Castro was the mayor of San Antonio and one of the fastest rising Hispanic figures in the Democratic Party – indeed, some pundits are eyeballing him as a potential vice presidential candidate in 2016. Neither gentleman had any great experience in formulating housing policy, and it was easy to assume their appointments were strictly engineered for partisan purposes.

For his part, Watt appears to be something of a happy wild card. In an October 1 news article that ran on the Bloomberg wire, reporter Clea Benson noted that Watt has confounded those who were expecting quasi-socialist machinations from his FHFA office.

“Watt’s circumspect style and scant policy changes in his first nine months as director of the Federal Housing Finance Agency have drawn criticism from some of the same housing advocates who pushed President Barack Obama to appoint him,” Benson wrote. “The National Low Income Housing Coalition and other groups said they expected Watt, the most powerful housing official in America, to move quickly to help troubled borrowers and lower-income families shut out of the two-year housing recovery. Instead, he is maneuvering cautiously, asking for public feedback on many issues — and earning accolades from the mortgage industry.”

Benson also quoted Peter Dreier, a public policy professor at Occidental College in Los Angeles and a highly vocal advocating of enabling debt reductions for borrowers with Fannie Mae and Freddie Mac mortgages. “Mel Watt has been a huge disappointment,” Dreier complained. “No one I know in the housing community understands why he’s sitting on his hands.”

To his credit, Watt appears to making a serious effort to understand the complexity of his duties before he attempts to make any significant changes to federal housing policy. In view of my earlier assertions that he was the wrong man for the job, I humbly acknowledge that my consideration of him was incorrect.

On the other hand, Castro’s leadership at HUD appears to be placing much more focus on the “urban development” element of HUD rather than on the “housing” side of the equation. His first major speech on housing took place on September 16 before the Bipartisan Policy Center’s annual housing summit, but Castro used his time on the podium to place a surplus amount of attention on Internet-related considerations. For example, consider this upcoming quasi-clueless happening that his office is producing.

“HUD is planning an event with the White House we call a ‘codeathon,’” he stated. “We’re bringing together data experts and programmers to take our information about communities and develop new digital tools that empower others. One of our hopes is that lenders will use these tools to see the whole picture when working with potential homebuyers. Let’s say they can easily determine a family wants to buy in an area where transportation costs are low. Lenders may consider these savings as they make their decisions about the quality of the loan – and that can help get credit moving.”

Oh, that’s all it takes to “help get credit moving”? Uh huh. Later in the speech, Castro enthusiastically called for a federal crusade to improve Internet usage.

“Over the next two-and-a-half years, I’m going to place a special focus on expanding broadband access,” he said. “Access to knowledge and information is as vital to a thriving community as access to jobs, good schools and safe streets … President Obama has challenged the nation to connect 99% of American’s students to broadband and wireless in their schools and libraries by 2018.  As HUD Secretary, I’d like to ensure that this access follows them home.”

While Castro’s speech offered vague acknowledgement of issues relating to affordable housing (or the lack thereof), his Internet mania clearly drove his address. Perhaps Castro should spend some time at FHFA headquarters, where Watt can offer him some guidance on the importance of not rushing into a new job in a silly-willy manner. Until I start hearing some serious talk from Castro about how HUD can add muscle to the housing market, I remain unconvinced that his HUD ascension was a good idea.

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Can The New QC Regs Actually Increase Your Profit?

Since the OCC, CFPB, and Fannie Mae have all recently issued bulletins regarding their requirements for appraisal quality assurance strategies, many lenders and AMCs have been lamenting yet another regulatory burden piled on their already overtaxed operations.

But recently, several news stories (links below) have highlighted the direct benefits to lenders as a result of these heightened QC requirements. Many have already avoided fines for selling mortgages with defects.

Another consideration is in your offerings to the non-QM channel. When lending to lower FICO-rated borrowers, the increase in risk may be mitigated when less risk is associated with the collateral. With an effective collateral quality assurance strategy, you may be able to lend to lower FICO-rated borrowers and still maintain the same relative risk profile for your portfolio.

At least two articles were published in September that outline specific benefits to the bottom line that have resulted from lenders’ stringent new quality control operations. National Mortgage News published a story on September 16th, quoting Kevin Marconi, the chief investment officer at United Fidelity Funding. As quoted in the article, “At first glance, we thought this was just another expense, but Fannie had it right. By achieving a zero defect loan, you’re actually saving money and in some cases making money. I believe this does pay for itself.”

The article also quotes Craig Wells, the residential underwriter in charge of pre-funding quality control at United Fidelity Funding. Mr. Wells concludes, “Everybody felt that this was a hassle, an extra layer and additional cost that we had to spend just to make Fannie happy. But we found our defect rate has plummeted. We are getting loans off our line quicker and turning money faster. We’ve essentially taken sour grapes and turned it into sweet candy.”

A separate article, also published by National Mortgage News, quotes Rosemarie Wolfe, a vice president of quality assurance and investor repurchase at Bayview Loan Servicing. In the article, she provides multiple examples of how higher risk loans can eat into revenue. Read the entire article for two scenarios in which even the smallest percentage of high-risk loans can put millions in funding at risk every month.

We arranged for distribution permission on both articles, so if you don’t have a subscription to National Mortgage News, you can read both articles in their entirety at the links below.

How are you responding to the new quality control requirements? In addition to your compliance status, have you seen any extra benefits to your bottom line? If so, I’d love to hear about them so please contact me at

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Help Complying With New CFPB Rules Is Here

The industry is shifting, and the changes to HMDA released by the CFPB have promised an overhaul on industry standards. The impending changes are expected to significantly alter the collection and reporting of key lending data in the banking and credit union space, so how can businesses prepare? Here’s one way to prepare:

Laguna Hills, Calif.-based QuestSoft is an established provider of comprehensive and automated compliance software and services to the mortgage, banking and credit union industries will host a complimentary webinar this Tuesday, Aug. 19  to discuss the following:

>> The Clear Intent of the New HMDA Rule

>> Significant Rule Changes

>> Significant Data Reporting Changes

>> Impact on Fair Lending Issues of the Future

>> Parts of the Rule You Can Still Influence

>> Comparison of Data Fields to Today’s HMDA RELIEF

>> Need For Planning, Not For Panic

>> Recommended Prioritization with RESPA/TILA

>> Q&A Session

This event will take place today at 11:00 a.m. PST / 2 p.m. EST.  Check it out online here:

The Richard Cordray School Of Leadership

We all know the old saying that the fish rots from the head down, and the distinctive piscine aroma that permeates the CFPB – and stinks up the rest of the financial services world – originates in the director’s office.

Since being shoehorned into office in January 2012 through a presidential recess appointment that was recently declared unconstitutional by the Supreme Court, Richard Cordray has presided over the CFPB in a managerial style that could charitably be described as incompetent. In the past two-and-a-half years under Cordray’s leadership, the CFPB has shown itself to be fiscally irresponsible, painfully disorganized, unapologetically anti-business and operating with a fetus-level dependency on the Obama Administration. Its executive leadership has engaged in reckless attacks against the financial services industry that bear no relation to reality, while its internal personnel procedures have been the subject of accusations involving racial and gender discrimination.

Well, the Trumanesque buck has to stop somewhere, and it should stop at the director’s desk. As the captain of this sorry ship, he has turned what was supposed to be an independent and impartial regulatory agency into a mess.

Last month, the CFPB under Cordray’s leadership reached two new lows in stupidity. It is impossible to look beyond these twin atrocities without calling into question whether Cordray has the intellectual and emotional capacity to be in charge of this agency.

The first problem is an acute matter that could place the confidential data of millions of people at risk. In a report issued by the Inspector General of the Federal Reserve Board, the CFPB was warned to that it would need to immediately improve its cybersecurity measures “across all information security areas.” The CFPB’s data-mining operation covers approximately 227 million residential home mortgages and 992 million credit card accounts.

However, the Fed’s Inspector General warned that Cordray’s agency fails to meet any of the security requirements that are clearly defined by the Federal Information Security Management Act. “Our report includes recommendations to strengthen security controls for the [General Support System] in four information security areas: system and information integrity, configuration management, contingency planning and incident response,” the Inspector General stated in a report.

Following the announcement of this report, Cordray faced a direct question in a congressional hearing from Rep. Randy Neugebauer, R-Texas, on whether he was able to “personally guarantee that the consumer information is 100 percent security.” Cordray said that he could not make that guarantee, but that his agency “attempts to safeguard any information we have about the American public.” How very reassuring…NOT!

The second example of dangerous leadership under Cordray is the proposed policy change that would enable the online publishing of so-called narratives in the public database of alleged consumer complaints. In pushing for this change, Cordray’s agency appears to be confused regarding whether it is a protection bureau or an entertainment forum

“In many ways, the narratives are the most insightful part of a complaint,” the agency stated in a press announcement of this change. “They provide a first-hand account of the consumer’s experience and the problem they would like resolved.”

As a former lawyer, Cordray might be familiar with the word “hearsay.” And if he forgot the word, allow me to share the Cornell University Law School definition of the word: “An out-of-court statement offered to prove the truth of whatever it asserts.”

By planning to incorporate hearsay into its online publishing of alleged consumer complaints, Cordray is opening up the possibility that financial services companies will be faced with unsubstantiated accusations by anonymous people, with no recourse of defending themselves against whatever charges are put forth.

Considering the CFPB admits that more than three-quarters of the mortgage-related complaints filed with the agency have been dismissed as being without merit, it is astonishing to consider that Cordray would happily encourage the publication of accusations that run a three-out-of-four chance of being bogus. No responsible regulator would ever allow the industry they are monitoring to be open to such libelous actions.

There is no nice way around it: Cordray cannot do his job, and it will be in everyone’s best interest if he is ejected from his position as soon as possible.

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