The Perfect Storm of Mortgage Regulations: The Dodd-Frank Act Rules Will Pose Tremendous Compliance Challenges for Lenders in the Coming Months
Triplett, Richard, Mortgage Banking
Fourteen years ago this month, the industry was in an uproar in response to then-Secretary of the Department of Housing and Urban Development (HUD) Andrew Cuomo's directive that the industry begin calculating maximum mortgage amounts differently (you remember the "simplified maximum mortgage calculation")--and do so in a mere 6o days. * If you're like me, you look back longingly on those heady days of crammed, short-fused regulatory changes. * Though there's been a staggering amount of regulatory changes over the past several years--with apologies to Bachman-Turner Overdrive--baby, you just ain't seen nothing yet. * The regulatory changes coming under the auspices of financial reform--the Dodd-Frank Wall Street Reform and Consumer Protection Act--are extraordinary in number, timing, controversy and dramatic impact. The anticipated final rules during the first quarter of 2013 will set the stage for how mortgage loans are originated well into the future.
The regulatory changes coming under Dodd-Frank, many due in January 2013, will commandeer the agenda of every company in the business of originating, servicing and securitizing mortgage loans. In addition, these rules will have an effect on affiliates, business partner and service providers.
The specific effective dates for compliance will be determined when the final rules are published in the Federal Register by the appropriate agencies. Approximately one-third of the 398 rulemaking requirements mandated by Dodd-Frank have been finalized, one-third have been proposed and one-third loom large on the horizon.
Not all of them have a direct effect on mortgage banking, but those that do will have an intense and lasting effect.
So dramatic will the change be under the umbrella of mortgage lending regulations that innovative chief financial officers might actually create new balance-sheet entries. Regulatory change always comes at a price to the mortgage lending industry, and all too often to the consumer who the regulations are designed to help.
Now more than ever, from receptionist to chief executive officer, people are paying close attention to regulatory compliance. But the complications don't end there.
In the past, a standard agreement between a mortgage lender and its investor often consisted of blanket clauses requiring compliance with federal, state and local laws and regulations. For originating lenders, it is no longer just a matter of compliance with underwriting/product guidelines. Now, at least in practice, mortgage lenders and brokers have to be compliant with laws and regulations of their prudential regulators, as well as the individual investors to whom they sell their loans, that investor's interpretation of those same laws and regulations at the time of origination and, often, that investor's regulator's interpretation of those laws and regulations.
Political differences and ideology will ensure that wrestling with regulatory changes will continue to be an endless cost of doing business. Companies unconcerned about regulatory compliance will set sail on a very perilous journey.
In the mid-1980s, the typical array of products consisted of a fixed-rate product, perhaps one adjustable-rate product, a Federal Housing Administration (FHA) and a Department of Veterans Affairs (VA) product. Will the onslaught of regulations cause us to regress back to this product line once again? It may well depend on provisions contained in four new rules and how cautiously the industry reacts in implementing them.
Those four rules are: 1) the Qualified Mortgage (QM), 2) the Qualified Residential Mortgage (QRM), 3) the integrated Real Estate Settlement Procedures Act (RESPA)/Truth in Lending Act (TILA) disclosure and 4) the proposed revisions under the Home Ownership and Equity Protection Act (HOEPA).
Interestingly, they are all interrelated due to the much anticipated future changes to points and fees deemed "finance charges" proposed under Regulation Z, thereby affecting the annual percentage rate (APR). …