Q: As a former banker, what do you see as the challenges that regional and smaller banks are facing in terms of their mortgage operations?
A: Regional and smaller banks face many operational challenges today. The most obvious is compliance. A relatively small bank that engages in mortgage lending has to comply with the same level of regulation—at both the federal and state level—as the largest mega-lenders. The scale may be different, but the needs and costs are the same.
And the costs are escalating all the time. Based on discussions with clients, the cost of compliance for a regional bank originating 150 loans per month ranges between $25,000 and $30,000 per month, or roughly $200 per loan, when you factor in the cost of relatively high-paid compliance officers and outside counsel, infrastructure and technology.
Regardless of size, we are able to provide clients with the ongoing regulatory support that helps improve efficiency and reduce costs. Working with us, they can leverage our significant in-house expertise along with our extensive template library, which includes origination documents for all 50 states, as well as borrower communications for loss mitigation, pre-foreclosure/default and general servicing.
In addition, regional and smaller banks are competing against the megabanks and mortgage companies for qualified compliance specialists, underwriters, processors and closers. To support growth, many face the burden of continually recruiting and maintaining staffing.
As banks grow, private-label fulfillment can help shift a significant portion of costs to a third party that can absorb the additional expenses because they’re spread across a number of clients. The cost of origination changes to a predictable, variable cost, fixed fee—enabling a bank to scale up or down, knowing what their costs will be.
Of course, banks still have the obligation to maintain oversight of their fulfillment partners, to monitor their vendors’ policies and practices, and to be alert for consumer complaints. Because we work with the nation’s leading banks, we help to make that process easier and more efficient as well.
Q: Since the enactment of the Dodd-Frank Act, the mortgage industry has been almost entirely focused on compliance. Do you think deregulation will happen and result in the industry reducing their emphasis on compliance?
A: The short answer is no. While leaders in Washington, D.C. are considering diminishing the authority of the CFPB, regulators are busier than ever. In fact, there have already been 17 CFPB enforcement actions to date in 2017, up from eight last year. Of course, if some relief does come at the federal level, we expect state regulators to continue pursuing an aggressive regulatory agenda.
States like New York and California have a strong appetite for increased regulation and no pressure to end oversight. These larger and politically influential states can have a quasi-federal impact in terms of regulatory requirements, and actions taken by these states will dilute any softening of federal rules.
In addition, as the recent enforcement action taken by 20 state attorneys general, in conjunction with the CFPB, against a major nonbank mortgage servicer shows, many states are active in enforcing the CFPB’s agenda.
Regardless of the administration, the state regulators are key players in our dual-banking system and will continue to take an active oversight role.
That being said, the mortgage crisis brought about a much-needed regulatory framework. While there may be disagreements on implementation and enforcement, there is a general consensus that the current mortgage regulations serve a purpose and strengthen lending organizations, consumers, and the economy overall.
Q: Are banks re-thinking their mortgage strategies given the growth of successful digital mortgage products and new fintech entrants? How can LenderLive help level the playing field for banks?
A: Advancements in technology certainly have everyone thinking about how to improve the customer experience. We’re seeing consumer demand for the mortgage loan buying experience shifting to digital. The advent of technology now allows for a personal, guided online experience in what may be the single largest investment many individuals will make. However, lenders should not lose sight of a crucial point: when borrowers need guidance, a human loan officer is a necessary component of that buying experience.
Moving to a digital mortgage also produces steep cost reductions. The cost of originating and manufacturing a digital loan is a fraction of a traditionally originated, processed, underwritten, and closed loan because it’s much more data-centric and less human-centric, thanks to automated decision making. Historically, loans required a human to make the cognitive decisions. Using a data-enriched process now allows humans to focus only on exceptions.
LenderLive is heavily investing in technology and digitization to totally transform the mortgage experience.