Magazine article Mortgage Banking

Surfing the Regulatory Tidal Wave

Magazine article Mortgage Banking

Surfing the Regulatory Tidal Wave

Article excerpt

"YOU CAN'T STOP THE WAVES, BUT YOU CAN LEARN TO SURF." Jon Kabat-Zinn [paragraph] Jon Kabat-Zinn is not a mortgage banker. He is an expert on stress and how to manage it. He is a widely published author, founding director of the Stress Reduction Clinic and the Center for Mindfulness at the University of Massachusetts Medical School, and a professor of medicine emeritus.

So while he is not in the trenches of our industry, he would undoubtedly understand our collective anxiety as we prepare to navigate unprecedented and highly uncertain regulatory change. Kabat-Zinn's quote captures the challenge for our industry--massive regulatory change is coming whether we like or not. How we respond is up to us.

When the Dodd-Frank Wall Street Re-form and Consumer Protection Act became law in July 2010, our industry knew that a regulatory tidal wave was coming. That wave crested in January 2013, when seven major final rules were issued in less than two weeks.

The scope and complexity of these changes is staggering. To compound this challenge, a host of massive new swells are already forming--another half-dozen rules are expected by year-end 2013. Unless we learn how to surf, our industry is going to find itself in very deep water.

To avoid riptides, the Mortgage Bankers Association (MBA) has moved aggressively to help our industry prepare for the coming changes, engaging with industry stakeholders and policymakers on several levels. Much work needs to be done, and very real concerns exist about the ability of any industry, let alone one as sophisticated as mortgage banking, to absorb so much change in so short a period.

Thousands of pages of new rules need to be analyzed; overlapping and interrelated business processes need to be re-engineered; major technology systems need to be reworked; and staff in diverse disciplines need to be trained--all with the goal of achieving a nearzero error rate to avoid serious legal, financial and reputational risks. It is a daunting challenge, but one that must be met.

The stakes are high. Unless mortgage lenders and investors can understand and manage to the new rules (and risks), credit standards could become even tighter than they are today--threatening a still-nascent housing recovery and the eventual return of private investment capital.

A review of the coming regulatory challenges and our efforts to mitigate and manage them will help highlight why 2013 promises to be the "year of regulatory implementation."

A tsunami of rules

Most industries might face one major rulemaking in a year. The mortgage banking industry faces a volume of rules that is absolutely staggering. In just a 10-day span in January, the following Dodd-Frank final rules were released by the Consumer Financial Protection Bureau (CFPB):

804-page ability-to-repay (Qualified Mortgage [QM]) rule;

753-page set of residential servicing rules;

311-page high-cost mortgage ap-praisal rule;

125-page appraisal disclosure rule;

431-page high-cost mortgage rule;

116-page escrow rule; and

541-page loan originator compensation and qualifications rule.

To add to this, the CFPB also published a 185-page proposed rule soliciting feed-back on several aspects of the ability-to-repay rule, with comments due Feb. 25, 2013.

You could read War and Peace, Moby Dick and The Decline and Fall of the Roman Empire before your colleague in the next office finished wading through these 3,266 pages of new Dodd-Frank rules.

While the sheer volume of the regulations is daunting, it is even more disconcerting when you consider that six more final and proposed rules are expected later this year, including:

Risk-retention (Qualified Residential Mortgage [QRM]) rule;

Real Estate Settlement Procedures Act (RESPA)/Truth in Lending Act (TILA) disclosure integration rule;

Department of Housing and Urban Development (HUD) disparate impact rule;

Anti-steering rule;

Basel III capital standards; and

Home Mortgage Disclosure Act (HMDA) rule. …

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