Posts

LOS Update Eyes Compliance And Productivity

With an eye on keeping their clients both complaint and more productive, Ellie Mae has updated its Encompass LOS. Encompass 15.1 was designed to ensure mortgage lenders are in compliance with the Consumer Financial Protection Bureau’s (CFPB) RESPA-TILA integrated mortgage disclosures (TRID) rule scheduled to take effect on October 3, 2015.   In addition to the new fields, forms and automation that have been added to address these new compliance requirements, the Encompass 15.1 release also includes new features for correspondent lending and secondary marketing, with specific new capabilities added to the Encompass product and pricing service.

Featured Sponsors:

[huge_it_gallery id=”2″]

RESPA-TILA Support

Encompass 15.1 includes new Loan Estimate (LE) and Closing Disclosure (CD) input forms and workflow, new Fee Itemization and Management, Disclosure Tracking handling, Fee Variance and Change of Circumstance handling to help lenders manage RESPA-TILA compliance. Encompass also enables lenders to set the date when their loans will use new 2015 RESPA-TILA forms by default. Lenders will be able to switch to the new forms for loan applications taken on or after the effective date.

Correspondent Lending Support

The new version of Encompass expands the ability to fully manage correspondent and third-party lending commitments, including commitment authority management and master commitment management. It also introduces a full solution for third-party fees and document management.

Featured Sponsors:

[huge_it_gallery id=”3″]

Secondary Marketing Enhancements

Encompass 15.1 contains major new tools to enhance product and pricing and secondary marketing activities, including historical pricing, worst-case pricing scenarios and automated rate lock capabilities.

“Despite the shifting of the effective date of the new regulations, we were ready and committed to providing our lenders with our new release, which we began delivering in June, as we know that compliance with RESPA-TILA is much more than adopting new forms. Lenders need real tools and resources to make the necessary changes to the loan production process and manage third-party relationships more effectively,” said Jonathan Corr, president and CEO of Ellie Mae. “The new release of Encompass provides new capabilities using our pricing and secondary solutions along with the necessary automation and resources required for a smooth transition to a post RESPA-TILA environment. Ultimately this major new version of Encompass is enabling our customers to increase productivity and efficiency.”

About The Author

[author_bio]

Change Is Always Messy

website-pdf-download

TME-RGudobbaAt the recent MBA Technology Conference a number of sessions were devoted specifically to TILA/RESPA and the looming deadline of August 1st. Rumors were rampant that the deadline would be extended, despite the fact that the CFPB stated unequivocally that the deadline would not change. We know what happened there. Now the industry has until October to be ready. However, at the MBA Technology Conference there seemed to be more questions and confusion than answers and solutions. The realization that we are now 90 days from the August 1st deadline almost seemed like a surprise to some.

American Land Title Association (ALTA) CEO Michelle Korsmo said recently, “Unfortunately, we’re already aware of one major problem with the new CFPB forms. The Bureau’s Closing Disclosure, which replaces the current HUD-1 Settlement Statement, inaccurately discloses the fees associated with title insurance premiums for consumers.” She went on to state that the new forms are misleading for consumers and could create confusion. While she did not address the reality of consumer confusion with the current HUD-1 form that the Closing Disclosure will replace, I can personally attest to the fact that consumers do, in fact, find it confusing. ALTA asked the CFPB to announce a “five-month restrained enforcement period” on the new forms to give businesses time to adjust to the new regulations. Is this the first time this issue has been brought to the CFPB and the industry’s attention?

Featured Sponsors:

[huge_it_gallery id=”2″]

The primary objective of the CFPB’s TILA-RESPA Integrated Mortgage Disclosure Rule was to ensure the consumer was not confused and had the opportunity to review and compare loan information from application to closing. I am not privy to all the interactions between the CFPB and the industry, but I will say they have been very open and responsive to Compliance Systems’s requests for clarification and interpretation over the last year and a half. It made me wonder where everyone has been for the last 18 months.

If there ever was a time for the mortgage industry to consider change, it was when the CFPB first announced the Loan Estimate and Closing Disclosures and the focus of those forms on consumer interaction. Some organizations have taken this opportunity to develop and incorporate new workflows, while others tend to automate with little, if any, attempt at process efficiencies or new ways to look at the process.

In the technology world, paving cow paths means automating a business process as is, without thinking too much about whether or not that process is effective or efficient. We tend to automate how we do business today and incorporate little, if any, process efficiencies.

Featured Sponsors:

[huge_it_gallery id=”3″]

Paving the Cow Path Where did this phrase originate? As the apocryphal story goes, the original winding streets in the city of Boston were built on the paths worn by cattle. Rather than lay out the type of gridded street plan that most urban dwellers are familiar with today, those city fathers supposedly elected to pave the meandering paths that the animals had already established. Those routes may have suited the cows perfectly, but were not designed for efficient human travel. The cattle’s “path of least resistance,” for better or worse, was already there, and an ineffective existing solution is easier to implement than an effective new solution that requires analysis, planning, and more development time. The admonition not to “pave the cow path” is intended to remind us of the hazards of standardizing makeshift solutions that were not intended to address the problem at hand. Like so much good advice—eating your vegetables, exercising daily—paving the proper solution path is easier said than done. Poor solutions are still solutions, after all, and change requires both force of will and a willingness to engage resources in processes that often do not yield immediate results. Jonathan Byrnes, Senior Lecturer at MIT, describes change management is one of the most difficult problems facing managers at all levels. All too often, managers focus primarily on defining the best end-state and deal with the change process almost as an afterthought. As the old change management saying goes:

Old Organization + New Technology = Expensive Old Organization

Embracing change can be intimidating, either in your personal or your professional life. As a person or business gets older, they can sometimes become more risk adverse—not willing to make changes. I like to say that not taking a risk is, in itself, a risk.

Why are we so resistant to change, and what is wrong with how we do business today? If I had to identify only one problem with our collective business practices, I would point to the invisible problem that is so often the root of other, more obvious troubles: we don’t have time to look at improving the process. One of my favorite sayings is, “we don’t have time to do it right, but we always have time to do it over.” Don’t look at how we do business today but instead look at how we want to do business tomorrow. Think about the current problems and business trends and design a system for the future—don’t just pave the cow path.

In a recent issue of Fast Company, editor-in-chief Robert Safian related that the most fully evolved portrait of the essential messiness of innovation was Disney World’s MyMagic+. This five-year digital upgrade cost close to $1 billion and involved completely refitting the 25,000 acre central Florida facility. As Safian states, this included “intense infighting and not a small amount of denial on the parts of top executives about the project’s limitations, fallout, and inefficiency. But for all that disarray, the project also succeeded in reversing declining customer satisfaction, helping propel Disney Parks to a 20% profit gains in its most recent quarter.” Safian points out that Disney would likely spin the story to emphasize collaboration rather the infighting, but that would be glossing over the messiness that is necessary for real innovation.

Safian goes on to say, “Meaningful change is never easy. Most often, it only comes after tortured conflicts and excruciating decisions. Only when we embrace the idea that messiness is to be accepted, even cheered, will we be ready to tackle our own impossible tasks… Things rarely go as planned, and that’s just the way it is. Rolling with the changes will often take you to a better place that you could have predicted.”

The well-known inventor and entrepreneur Ray Kurzweil notes, “About thirty years ago, I realized that timing was the key to success.” Many inventions and predictions tend to fail because timing is wrong. Kurzweil has found that the challenge isn’t just inventing something new, but doing so at just the right moment that both technology and the marketplace are ready to support it.

In the mortgage industry, the technology is available to support innovative process change and the marketplace, both consumers and regulators, are demanding it. Your TILA-RESPA solution doesn’t have to follow the cow path.

About The Author

[author_bio]

Understanding The TRID Deadline Delay

website-pdf-download

I resisted discussing the delay in the TRID deadline from August 1st to October 1st to get some industry input first. Various trade groups like ABA and NAMB were quick to support the delayed deadline. Personally, I’m not sure an extra two months will make much of a difference. The good lenders and vendors will be ready by August 1st regardless. My fear is that the laggards will use this as an excuse to put compliance with the new disclosures off further and will give other lenders and vendors that are prepared a bad name. But enough about my thoughts, here’s how various industry experts feel:

“Although the industry has been working toward the August 1st deadline for some time, there is nevertheless great significance to the delay until October,” stated Faramarz Moeen-Ziai, SVP, National Sales & Production at Commerce Home Mortgage. “In a nutshell, the industry needed more time to prepare for the demands of the TRID portion of “Know What You Owe.” Many observers haven’t truly appreciated all that goes in to producing what they think of as two simple disclosures, particularly with the accuracy they demand. It’s not the industry resisting change that will benefit consumers; it’s an issue of precision and technology.”

Featured Sponsors:

[huge_it_gallery id=”2″]

Another lender, Embrace Home Loans, echoed this sentiment. ““For us, the delay in implementing TRID is met with mixed feelings,” noted Kurt Noyce, President at Embrace Home Loans. “We support the “Know Before You Owe” mortgage disclosure rule, having scoped the enormity of this project as far back as 3Q14, and assigned dedicated resources that have invested themselves since then, including process change identifications, system development, staff training and vendor education. We have done much to ensure our organization was ready by August – and we are.”

There are clearly two sides to this heated debate, as explained by Rebecca Walzak, President at consulting firm rjbWalazk Consulting. She points out, “The question surrounding this announcement is whether this is a good or bad thing. On one hand, lenders, title companies and technology firms have devoted an unaccountable number of hours working on process changes, system updates and internal training requirements. It almost seems as if this delay is a letdown for these folks that have worked so hard to meet the deadline. Another thing to consider is the fact that if we had not had a delay and implemented on August 1st, we would have the chance to really identify where this worked and where it didn’t. In some ways this delay reminds me of delaying the dentist appointment time and time again hoping that somehow those cavities will magically disappear over time. Instead it would be much better to just get it over with.

Featured Sponsors:

[huge_it_gallery id=”3″]

“However, we have to recognize that there really were problems,” she continues. “One industry executive commented that the changes actually meant that there were over 2500 calculation changes in their LOS system that had to be programmed and tested. This seemed like an impossible task to complete when the programming wasn’t going to be completed until the middle of July. Furthermore the regulations contained many ambiguous directives and this delay may provide the CFPB with time to issue some clarifications that are needed.”

About The Author

[author_bio]

Survey: Many Would Not Have Been Ready By August 1

STRATMOR Group, a consulting firm that helps mortgage banks build profitable mortgage lending operations, announced that the results of a recent PeerViews Survey on the industry’s readiness to comply with the CFPB’s new TILA/RESPA Integrated Disclosure (TRID) rule confirms that lenders would not have been ready to comply with an August 1 deadline. Survey data indicated that, as of the end of March, many requirements of the new rule had not even been considered by an alarmingly high proportion of lenders.

“Lenders felt like they were ready, but when asked for specifics about how certain TRID-related tasks would be handled internally, they didn’t have good answers,” said Dr. Matt Lind, STRATMOR Group’s Managing Director. “This suggests that many lenders may be missing key elements of TRID compliance, particularly in regard to process change, that would have constituted a significant risk if CFPB had not set back its deadline.”

Featured Sponsors:

[huge_it_gallery id=”2″]
CFPB said earlier this month that an administrative error led the Bureau to set back the deadline for compliance with the new TRID rules until October 1, 2015. Given the data STRATMOR uncovered in its survey, this was a fortunate decision for the industry.
STRATMOR’s PeerViews survey revealed an alarmingly high percentage of survey respondents that had not even considered or decided on the following compliance issues at the time of the survey:
>> Who will generate and send out the Closing Disclosure?     13.5%

>> When will the Closing Disclosure be issued?  26.1%

>> Handling of Post Closing review  26.4%

>> Scripting of LOs and fulfillment personnel         41.8%

>> Preparation of initial Loan Estimate (wholesalers)      23.3%

>> Post Closing repair procedures   34.5%

Featured Sponsors:

[huge_it_gallery id=”3″]
STRATMOR’s PeerViews program is a fast turnaround, small-survey program that gives senior mortgage executives a unique way to obtain specific qualitative mortgage industry information. All PeerViews surveys are conducted as “blind” surveys, with results aggregated to protect the privacy of participants. PeerViews participation is complimentary during this special introductory period. Full results of the survey are made available only to survey participants.

About The Author

[author_bio]

TRID Deadline Change Won’t Impact Some

Many have prepared long and hard to be ready for the TRID deadline. For example, DocMagic announced that the CFPB’s proposed delay will have no bearing on its plans to be ready to  meet the CFPB’s originally planned Aug. 1 due date to implement the TILA-RESPA Integrated Disclosure (TRID) rule.

“The CFPB only stated that they will be issuing a ‘proposed amendment’ to delay the rule to Oct. 1, which means it could possibly finalize a shorter time period,” commented Rich Horn, TRID legal advisor to DocMagic and former senior counsel and special advisor at the CFPB. Mr. Horn led the 1,888 page final TRID rule and the design and consumer testing of the new mortgage disclosures. “Lenders would be wise to keep their foot on the gas and proceed with their TRID implementation work, and DocMagic gets that,” said Horn.

Featured Sponsors:

[huge_it_gallery id=”2″]

“DocMagic has been working very closely with our clients, LOS partners, industry experts and other mortgage entities to be absolutely 100 percent certain that we are TRID compliant by the original Aug. 1 date,” said Dominic Iannitti, president and CEO of DocMagic.  “The CFPB’s announcement about the proposed delay will not change our momentum.  All of our systems will be TRID-compliant come Aug. 1 ranging from loan document production to LOS integrations to our new Collaborative Closing Portal, SmartCLOSE™.

Featured Sponsors:

[huge_it_gallery id=”3″]

The CFPB’s official statement for its “proposed amendment to delay the effective date of the Know Before You Owe rule until Oct. 1, 2015” can be found here.

About The Author

[author_bio]

Let The RESPA-TILA Compliance Competition Play Out

I was recently asked it the technology world will “cease to exist” after August 1st. Here’s my answer: If the technology solution tackles RESPA-TILA compliance in a truly innovative way that both helps their lender clients and passes regulatory muster, that vendor will be just fine. If the opposite happens and either lenders, or regulators, or both don’t like the solution, that vendor may “cease to exist.” And everyday I hear about more vendors acting responsibly and offering up good solutions. For example:

Just today, I heard that Accenture launched a new version of the Accenture Mortgage Cadence Enterprise Lending Center platform in order to provide new functionality around key regulatory changes, providing tools to help lenders stay in compliance and provide better service to customers.

Featured Sponsors:

[huge_it_gallery id=”2″]

If we go back for a second to explain this situation, new regulations, called the TILA-RESPA Integrated Disclosure Rule, replaced two legacy loan origination documents and affect various calculations and workflow that take place during the loan process, requiring changes to both loan origination technology and lender processes. The Enterprise Lending Center, one of two SaaS-based loan origination systems offered by Accenture Mortgage Cadence, is highly configurable and rules-based, allowing mortgage lenders to update their systems in advance of the regulation deadline.

Featured Sponsors:

[huge_it_gallery id=”3″]

Accenture Mortgage Cadence was able to roll out the Enterprise Lending Center 8.0 release to accommodate the regulatory changes in advance of the rule’s August 1, 2015 effective date. Enterprise Lending Center Version 8.0 delivers the following enhanced capabilities:

>> The new Loan Estimate and Closing Disclosure, which include the new TILA-RESPA data points and supporting calculations;

>> Functionality that will enable three business day advance delivery of Closing Disclosures to consumers, as required by the regulation;

>> New tests and screens to provide comparison data for fees and Changed Circumstance options

>> Updates to partner integrations to improve the user experience with service orders, enabling loan compliance assessments and loan-level constrained taxes and fees estimates.

“This tremendous initiative helps to prepare our clients for the TILA-RESPA rule well ahead of the deadline. Enterprise Lending Center 8.0 gives lenders the opportunity to thoroughly test the two new documents required by the TILA-RESPA Integrated Disclosure Rule – the Loan Estimate and Closing Disclosure. Consequently, lenders will be in a better position to execute mortgage loans in a compliant manner with confidence by the deadline so that customers will see no gap in services” said Trevor Gauthier, managing director, Accenture Mortgage Cadence. “Accenture Mortgage Cadence has a longstanding history of releasing compliance changes in advance of their respective deadlines, and our changes around the TILA-RESPA Integrated Disclosures continues this tradition.”

About The Author

[author_bio]

ISGN Launches Its TRID Strategy

ISGN Corp., a provider of end-to-end technology solutions and services to the U.S. mortgage industry, today announced enhancements to its Gators settlement services and vendor management platform to help lenders and servicers prepare for the Consumer Financial Protections Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) rules that will go into effect August 1, 2015.

Featured Sponsors:

[huge_it_gallery id=”2″]

ISGN’s Gators is a highly configurable, web-based title and closing solution that streamlines the fulfillment and processing of orders. Gators will default to the correct closing disclosure form based upon the loan purpose. Gators users will still have the option to produce the HUD Settlement Statement and Good Faith Estimate for those few loan products that do not require the new closing disclosure form.

The new Gators platform will also soon support version 3.3 of the Mortgage Industry Standards Maintenance Organization (MISMO) Reference Model. ISGN developed the enhancements natively to maintain the platform’s current functionality for existing users, eliminating the difficulties associated with learning a new system. ISGN also developed one-on-one webinars and desktop support to assist users with the new functionalities.

Featured Sponsors:

[huge_it_gallery id=”3″]

“Our team of compliance experts carefully examined the CFPB’s nearly 2,000-page document to develop the necessary enhancements for Gators to help lenders and servicers seamlessly comply with the new regulations by the August 1 deadline,” said Don Gaspar, chief technology officer for ISGN. “While the next couple of months will certainly be challenging, we are embarking on a journey towards complete mortgage technology transformation, and these new system upgrades are what the industry needs to move towards greater efficiency and profitability.”

A New Mortgage Process Has To Emerge

New regulation demands that lenders embrace a more efficient and seamless mortgage process. Savvy vendors realize this and they are stepping up to offer lenders a solution. For example, Complementary to its existing e-recording service, Simplifile has added two new services, Collaboration and Post Closing, to its online platform. With the addition of Collaboration and Post Closing, Simplifile now connects lenders, settlement agents, and counties, making electronic collaboration possible from loan application through final title policy delivery. Here’s why this is important:

“With the TILA-RESPA changes, being able to connect lenders to their settlement agents is more important than ever to get the fee collaboration and transaction details right. Thinking ahead to August 1, I can’t think how organizations would be able to remain compliant without electronic collaboration,” said Nancy Alley, vice president of strategic planning at Simplifile. “Our new services, Collaboration and Post Closing, were designed to deliver on the promise of a world where agents and lenders connect transparently.”

Featured Sponsors:

[huge_it_gallery id=”2″]

With new industry regulations and the CFPB’s TILA-RESPA Integrated Disclosures (TRID) rule taking effect August 1, 2015, lenders and settlement agents can utilize Simplifile’s Collaboration and Post Closing services to securely share, validate, audit, track, and collaborate on documents, data, and fees to ensure compliance.

“Trailing documents continue to be an industry pain point,” Alley added. “Lenders need to know where the documents are and what has happened to them after closing. That is where Simplifile Post Closing comes into play and helps to solve some major problems that have existed in the industry for decades.”

The two new services are free to settlement agents, and interested parties can now register for Collaboration and Post Closing or attend webinars to learn about the new services at simplifile.com.

Featured Sponsors:

[huge_it_gallery id=”3″]

“The initial reaction when some folks hear about our new collaboration piece is that it seems a little strange because our core service has always been e-recording,” said Paul Clifford, president of Simplifile. “Without fail, it only takes a couple of seconds for them to reconsider and say, ‘oh, that actually makes a lot of sense.’ Simplifile is pervasive on the settlement end, so if a lender needs to connect to the settlement end of the business, who better to work with than those people who are already there.”

Since 2000, Simplifile has grown the nation’s largest e-recording network. Over 17,000 settlement companies, ranging from small independent agents and attorneys to large title offices, use Simplifile to e-record documents in over 1,235 counties nationwide.

“We’re at the advent of changing the way people work every day, providing them with information and data in real time that they have never had access to in the past, so that’s pretty exciting,” Clifford said.

About The Author

[author_bio]

LOS Announces TRID Readiness

As the industry moves closer to the August 1 deadline, we’ll continue to share with you announcements about how the various LOS systems are handling compliance. Today I heard that LendingQB adheres to version 3.3 of the Mortgage Industry Standards Maintenance Organization (MISMO) Reference Model. When TILA-RESPA Integrated Disclosures go into effect on August 1, 2015, LendingQB LOS users are assured of uninterrupted coverage for the latest compliance requirements, according to the vendor.

An advocate of the Lean Lending philosophy, LendingQB is actively promoting best practices resulting in reduced cost per loan. Combining mortgage disclosures required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), the Consumer Financial Protection Bureau’s (CFPB) Integrated Disclosure Rule requires lenders to begin using new integrated disclosures August 1, 2015. Compliance with this rule is contingent on use of the latest version of the data standard.

Featured Sponsors:

[huge_it_gallery id=”2″]

MISMO Version 3.3 establishes a common dataset that serves as a prerequisite for lenders to use the CFPB’s new integrated disclosures and share information about the disclosures with industry participants. Beginning on August 1, CFPB’s Integrated Disclosures will supersede the current Good Faith Estimate HUD-1 Settlement Statement, and Truth in Lending disclosures for most residential mortgage loans.

“Our readiness for this upcoming watershed event comes as no surprise to LendingQB’s dedicated and demanding customers,” said Binh Dang, LendingQB president. “Organizations that wait to test compliance to the CFPB’s deadline may encounter costly penalties and workflow delays as a result of being non-compliant. The relaxed approach taken by many LOS software vendors to update their respective systems to implement the new dataset borders on irresponsible.”

Featured Sponsors:

[huge_it_gallery id=”3″]

LendingQB has prepared a recommended schedule for safeguarding operations from unnecessary fines and risky loans by properly deploying a new LOS In the face of CFPBs August 1, 2015 deadline. To get a copy of this schedule and learn more about LendingQB’s TRID-compliant efforts, please contact marketing@lendingqb.com.

About The Author

[author_bio]

Compliance Isn’t Easy

website-pdf-download

Amanda-PhillipsMatt-HydrewThere’s little argument that preparing for this summer’s RESPA-TILA changes is going to be hard. And overwhelming. And exhausting. And frustrating. We said the same about 2010’s RESPA changes. They were difficult as well, but we got through them, and we kept on lending.

We started talking the day the RESPA-TILA rule was announced that this regulation is more than the swapping out of three legacy disclosures with the new Loan Estimate and Closing Disclosure, the latter of which should be of keen interest to lenders for reasons we’ll discuss shortly. While the regulation certainly starts with document changes, it reaches much further than that.

It’s easy to see why (and it’s one of the reasons the regulation was released in November 2013) the rule does not take effect until August 2015, almost 21 months later. Properly implementing RESPA-TILA, in addition to changing documents, suggests significant changes in the mortgage process. It also provides lenders an important opportunity to talk with borrowers about mortgage finance.

Featured Sponsors:

[huge_it_gallery id=”2″]

While much has been said about the level of effort RESPA-TILA requires, the lender benefits are not something anyone has spent a great deal of time on. Yet there are benefits for lenders that extend beyond those for consumers, as unlikely as that may seem today. Some of these upsides will pay dividends for years to come.

Process improvement has been a hot topic since the mortgage industry began, so let’s start there. During refinance cycles, process improvement gets little more than lip service because everyone is far too busy closing loans. When volume tapers off, as it has over the past 12 or so months, processes get more attention. As it happens, the regulation’s effective date and lower industry volumes coincided this time around, the perfect confluence of events. So it is time to take action, following the regulation’s lead to concentrate efforts in three principal areas:

Featured Sponsors:

[huge_it_gallery id=”3″]

First is preparation and delivery of the Closing Disclosure. Under RESPA-TILA, this disclosure must be delivered three days before closing. Contrast this with current practice, as mortgage lending is one of the original just-in-time industries. Closing documents typically arrive shortly before closing, providing very little time for anyone’s review, let alone understanding.

This is troublesome, time-consuming and expensive for everyone. Errors found at the closing table must be corrected prior to closing, delaying the process for all parties  Errors found after closing must be corrected as well, typically taking far more time and causing needless confusion, especially for the borrower.

The borrower is the targeted beneficiary of three-day advance delivery. In writing the regulation, the Consumer Financial Protection Bureau (CFPB) is clear in its desire that the borrower have adequate time to review and understand what they are committing to. Three days gives them time to read, research, ask questions, and find errors. A more positive way to think about the requirement is that early delivery increases transparency, something all borrowers have sought since the housing crisis, although first-time homebuyers are more likely to demand it. For every borrower, closings should be both smooth and fast. The three-day requirement should increase borrower satisfaction.

Lender satisfaction should increase, as well. The new three-day period should reveal errors and other issues that can be fixed prior to closing at far lower cost. The number of ‘broken’ loans — those loans requiring post-closing corrections — should decrease. While the number of broken loans won’t go to zero, more error-free loans at closing will increase the amount of time available to work on new originations as well as decrease the cost-to-close.

Early delivery brings clarity to lenders and borrowers, but it also involves potentially extensive process changes. One way to address the requirement is simply to expand processing time by three additional days. While this is a potentially workable solution, it is likely to increase the cost-to-close, since time is money. It will also have a negative impact on borrower satisfaction.

The better answer is to find new ways to improve efficiency throughout the mortgage origination cycle. This starts with borrowers leveraging their lender’s online web portal. Today’s millennial borrowers expect to apply on-line, having spent their entire lives there. That’s a good reason to take this step. Another good reason is that moving online allow the lender to quickly and electronically capture application and loan data so that it can be put to use immediately, triggering workflow such as service orders.

The process continues electronically using technology to deliver disclosures and even signature by the borrower. Technology can be even more helpful with document imaging that captures and stacks required ‘paperwork’ so it can easily be underwritten and moved quickly to closing. Throughout this all-electronic, paperless journey, the digital nature of the mortgage lends itself to keeping the borrower informed every step of the way, using the same portal through which they applied. The best lenders using the best technology originate, process and close in just this way, having made the move to digital mortgage lending well in advance of August 1, 2015.

Early delivery also creates the opportunity for both borrower education and realtor education. For borrowers, it is a matter of making them comfortable with the new disclosures and closing timelines. Borrowers do not understand the mortgage origination cycle today. RESPA-TILA provides the perfect opportunity to help them increase their knowledge. For both borrowers and realtors, explaining the end to last minute closings is essential, even mandated by the rule. Some veteran borrowers and realtors who are accustomed to getting deals done right away will have to adjust their expectations. The time to start helping with those adjustments is now.

The second area to focus efforts is in preparation of the Closing Disclosure. The new Closing Disclosure is a blend of the Truth-in-Lending (TIL) disclosure and the Settlement Statement (HUD-1), both of which are being retired. The Settlement Statement is almost always prepared by the settlement agent, but RESPA-TILA gives lenders the option of preparing it. The Closing Disclosure can be prepared by either the lender or the settlement agent. That’s the good news, as it opens even more possibilities for process improvements, document accuracy and speed.

No matter who prepares the Closing Disclosure, the lender is accountable for compliance under the regulation. It is also important to keep in mind that the new disclosure is governed by the Truth in Lending Act (TILA), not the Real Estate Settlement Procedures Act (RESPA). TILA invokes different expectations for accuracy as well as new enforcement provisions. The penalties for non-compliance are also more severe than under RESPA.

Consequently, while working through process improvements to ensure early delivery of the Closing Disclosure, lenders also need to decide who prepares it. Our informal poll — conducted through daily discussions with lenders — indicates lender preparation is in the lead, thanks both to process improvement opportunities as well as compliance risk mitigation.

The third area where RESPA-TILA preparation is beneficial is an evaluation of fees and fee templates. HUD line numbers are retiring with the HUD-1 in August. HUD line numbers have driven the fee component of the mortgage business for many years. With their replacement comes an opportunity to examine and re-think all fees. Accuracy and tolerances have been under heavy scrutiny since RESPA 2010; RESPA-TILA 2015 intensifies this examination. As mentioned above, the penalty for errors increases. A careful review, a willingness to make revisions and an abundance of caution are all in order.

Timely, accurate fee delivery has the vendor community’s attention as well. Efforts are under way to better integrate valuation, title and settlement agents, among others. Technology will play a leading role here, too, as another means of creating the digital mortgage. There’s simply no escaping the fact that the end of the traditional paper-crafted mortgage is near.

We see early delivery of the Closing Disclosure, preparation of the Closing Disclosure and a new fee schema as RESPA-TILA benefits both in the near and longer terms. The timing is actually quite good for changes of this significance. Volume is down from refinance peaks. New borrowers – borrowers who expect the type of transparency RESPA-TILA calls for – are expected to enter the market in force over the next several years. By adapting to these changes, you will be ready for these new borrowers, and they, in turn, will be receptive to this new way of doing things. The end result should be happier consumers and a lower cost to close.

About The Author

[author_bio]