Call Bob Dorsa an optimist, call him crazy, but the Las Vegas, NV-based head of the American Credit Union Mortgage Association sees some good in the two big regulatory waves that have washed ashore in credit union land this month.
The first is the Know Before You Owe mortgage disclosure rule, also known as the TILA-RESPA Integrated Disclosures rule, also known as TRID. It took effect Oct. 3 and replaces the Good Faith Estimate and Truth-in-Lending Disclosure with a single loan estimate, and the HUD-1 Settlement Statement and final Truth-in-Lending Disclosure with a single closing disclosure.
The second was the Oct. 15 publication of the new final rule for the Home Mortgage Disclosure Act. It’s a significant ramp-up of the data collection required, adding such tidbits as property value, loan terms, debt-to-income ratio, discount points, and duration of teaser interest rates. The CFPB’s published timeline shows Jan. 1, 2019, as the effective date for these changes.
Both these rules are courtesy of the aforementioned Consumer Financial Protection Bureau, itself a creation of Dodd-Frank regulatory reform aimed at protecting consumers from lenders who would do them wrong. Observers note that that means harmed as individual borrowers paying more than they should, and as members of demographic groups that regulators say could be the target of discrimination, intentional or otherwise.
And that’s precisely where Dorsa sees opportunity. Interest rates are so low there’s little room to differentiate there, but Dorsa expects banks and other for-profit lenders to try to make up new compliance costs by ratcheting up fees.
Looking at the positive side of the new rule, this can be helpful in that the HMDA data can help give an even truer picture of market share, which can mean opportunity for credit unions.
“Credit unions will have to do that to some extent, too, but we don’t have to create so many innocuous fees just to line the profitability part of the equation,” the veteran credit union man says. “And we can make sure to stress to borrowers that the fees they pay go to help support the credit union they co-own with their co-workers and neighbors, not to Wall Street and shareholders.”
As for the boost in HMDA data collecting, “here’s another threat being turned into opportunity,” Dorsa argues. “This will make credit unions look harder at their own operations. It’s always been an unwritten credit union credo that we work to comply as best we can, and in this case doing that will help us identify where we can, and really, must, become more-diversified lenders.”
Ashley Holmes, compliance director at mortgage services CUSO CU Companies in New Brighton, MN, takes a similar view. She says HMDA reporting has always enabled credit unions to assess their market position and how well they’re serving the housing needs of their communities. “Looking at the positive side of the new rule, this can be helpful in that the HMDA data can help give an even truer picture of market share, which can mean opportunity for credit unions,” Holmes says.
Dorsa, meanwhile, even thinks this could all help credit unions gain favor with social-minded millennials, as potential members and employees who join the movement. “If we approach this properly, this is a tremendous chance for us to evoke our status as a local, cooperative business model. I think there’s a pot of gold at the end of the rainbow for us if we can do that well.”
I think the closing dance between the realtors, title agents, and mortgage departments will be changing. I think it’ll be like watching an episode of bloopers from ‘Dancing with the Stars.’
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The Closing Dance
Two weeks into the new TRID era, some preliminary results are in. The Mortgage Bankers Association reported a sharp drop in mortgage applications for the week ending Oct. 9 as lenders tried to get as much done as they could before the new rules kicked in.
“Although they’re spending more man hours to ensure accuracy, most credit unions have seemed to have gotten through the first two weeks of issuing the new loan estimates,” says Mark Bigelow, national sales manager for service specialist AmeriCU Mortgage in Troy, MI.
“But I think the next few weeks will tell the real story as some of the initial applications go through the system and start to close,” he says. “I think the closing dance between the realtors, title agents, and mortgage departments will be changing. I think it’ll be like watching an episode of bloopers from ‘Dancing with the Stars.’”
Indeed. A lot of work has to happen behind the scenes — involving technology and training alike. While the HMDA work is just getting underway, financial institutions and their vendors already have spent a good deal of time and money getting the new TRID disclosure forms ready.
“The amount of heavy lifting has been large, and some credit unions are doing just fine with it while others have a lot left to do,” says Jon Bundy, a senior compliance manager at CUNA Mutual Group in Madison, WI, a provider of mission-critical documents to about three-fourths of all American credit unions. “It’s not just getting documents ready in the system. Credit unions also are struggling pretty hard to make sure their policies and procedures are in place.”
That also includes dealing with lingering questions such as when a revised loan estimate can actually be provided to the borrower, just one example of vagaries included in the 1,900-page new rule book.
The regulators have tried to accommodate, of course, by extending the original effective date and providing a hold-harmless period. Congress also is considering a bill that would do something similar, adding to the shifting sands. “It’s all about making a good-faith effort to comply, really, but the process is still kind of funky,” says Jon Jeffreys, managing partner at Callahan & Associates in Washington, DC, who’s now in the middle of strategic planning consulting season with credit union clients.
“As for HMDA, what I’m hearing is that some lenders may not be collecting all the information needed for the new data fields, and if they do, it’s not likely in the same database,” Jeffreys says. “That’s going to likely call for some new data integration to get all that information to the CFPB.”
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On The HMDA Of A Dilemma
Another veteran compliance professional, Pam Perdue at compliance provider Continuity in New Haven, CT, says she sees her client base of credit unions and banks from $6 million to $18 billion finding their own ways of dealing with new regulations with greater speed and accuracy.
“Word is getting around that all this doesn’t have to be as cumbersome as it has been in the past, although the constant changes don’t make it any easier,” Perdue says, noting that the TRID rules were changed nine times between October 2014 and now. “If they would just issue something and leave it alone, we wouldn’t have to go through the analysis process over and over again.”
Like Bigelow at AmeriCU, Perdue also cites the number of players involved, including appraisers, title and closing attorneys, forms and lending software vendors, and people at the lender itself. “The gamut of touchpoints in the institution because of the complexity of the business model really does aggravate the difficulty of compliance,” Perdue says.
The Continuity executive vice president of regulatory compliance notes that the CFPB has built in a lot of time to allow lenders to build in the changes to their data collection, and she sees some benefit in the standardization that doing that helps create across the lending technology and process infrastructure. But she does see some significant dampening of activity as a possible result, too.
That’s because the NCUA enforces the rules for most credit unions, and they are expected like their counterparts at the FDIC and OCC, to follow the lead of the CFPB. That includes excluding from the new HMDA rules only credit unions that did 25 mortgage loans or less or opened 100 HELOCs or less in each of the past two calendar years.
“Why would you take the risk of being in the mortgage lending business if you do that kind of volume? And what if you are right at the threshold? Would you turn down one mortgage so you can stay under it? That’s a dilemma,” Perdue says.