Mortgage Mash-Up: Regulatory Reform Here and Now: As Consumer Protection Grows Ever More Complex, Only Technology Can Keep Pace

Article excerpt

In 1974, the "personal computer" was just a metal box with lights and switches--a toy for geeks and engineers. To do anything more complicated than basic math, you needed a machine that filled an entire room and cost upward of $100,000. Meanwhile, on Capitol Hill, back in 1974 lawmakers had just finished crafting the Real Estate Settlement Procedures Act (RESPA), the country's great hope for finally understanding where all the money really goes when you get a mortgage. * Needless to say, technology has been in a state of constant change since then, growing exponentially more powerful over the past 35 years. On the other hand, the most significant change to RESPA's disclosure rules since its 1974 enactment just took effect on Jan. 1 of this year. * Reform had been in the works for nearly a decade, but it was the mortgage meltdown and subsequent credit crisis that ultimately gave regulators the evidence they needed to make the case that a 35-year-old RESPA clearly wasn't a cure-all in its current form. * The new RESPA reform completely changed the two key disclosures that must be given on virtually every mortgage transaction--the Good Faith Estimate (GFE) and the Department of Housing and Urban Development (HUD) Settlement Statement (HUD-1/1A). Despite drastic changes, regulators gave the mortgage industry just a little more than a year to adapt to the sweeping new RESPA reform. Without today's technology, that pace of change would be unthinkable. * That would just be an interesting anecdote, were it not for the fact that RESPA is only one example of the kind of regulatory changes the mortgage industry is seeing in this new era of consumer protection--an era in which regulators are keenly aware of available technology. Now the mortgage industry has little choice but to rely on automation in order to navigate the ever-changing regulatory landscape.

Consumer protection speeds ahead

With the dust still settling on RESPA reform, all eyes have now turned to the Consumer Financial Protection Agency Act of 2009 (CFPA). The act first appeared in mid-summer 2009, following the release of the Obama administration's ambitious blueprint for reforming financial services.

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Since then, the idea of creating a new Consumer Financial Protection Agency has found its way into both houses of the U.S. Congress, including in a consumer-protection bill proposed by Rep. Barney Frank (D-Massachusetts) and more recently in a larger financial regulatory reform bill passed by the House. It also was included in Senate Banking Committee Chairman Christopher Dodd's (D-Con-necticut) initial package of legislative proposals to reform the financial system (see sidebar).

As of early December 2009, it was not clear what the future holds for CFPA-related legislation in Congress. While the House has passed it, the Senate has not yet acted on the measure. Although it may be two years before the hypothetical new federal uber-agency consolidates its authority and issues regulations, the road ahead for mortgage industry professionals already is filled with unprecedented compliance challenges.

In fact, critics of the proposed agency say that a new consumer-protection agency may no longer be necessary in the mortgage space, if only because of the flood of new mortgage-centric laws and regulations that have already been enacted during the last two years. Moreover, the CFPA legislation that has emerged at this point sets forth broad purposes and guidelines, while leaving much of the details to the new agency. It is not clear what approach the new agency would adopt in regulating mortgages.

Most financial institutions are familiar with the methods federal and state agencies traditionally employ, in particular requiring consumer disclosures and imposing tighter restrictions on certain "higher-cost" and "higher-risk" mortgages. A consumer financial protection agency that springs from current proposals could simply add to the current set of federal, state and municipal requirements lenders must face. …