Executive Conversations is a HousingWire web series that profiles powerful people in the financial industry, highlighting the operations and the people that make this sector tick. In the latest installment, we sit down with Hassan Rashid, executive vice president at Tavant Technologies, to discuss the re-emergence of the power and influence of the individual borrower in the mortgage transaction, the corresponding growth in federal regulatory scrutiny and the growing role of technology in this gravitational shift.
How is the mortgage industry being influenced by regulatory changes?
The residential mortgage world is going through an overwhelming paradigm shift that refocuses the mortgage transaction back to the individual borrower. The all-consuming Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) that came at the heels of the 2008 "Great Recession" established a powerful regulatory body aptly named the Consumer Financial Protection Bureau (CFPB).
As its name suggests, the CFPB's main responsibility is to protect the average American consumer's rights when they are a party to a financial transaction. Given that the purchase of a home is one of the biggest and most important financial decision made by US citizens, it is not surprising then that the scrutiny of the CFPB on the home loan world has caused a wave of regulatory changes that is affecting the industry from rules related to Qualified Mortgages and Ability-To-Repay (QM/ATR) and Loan Officer Compensation at the beginning of this year to the new Integrated Mortgage Disclosure Acts (also known as RESPA-TILA 2015) that go into effect on Aug. 1 of next year.
How do you think the lenders are coping with the regulatory changes?
There has always been a tug of war for mortgage lenders in the U.S. market; catering to the needs of the borrower vs. fulfilling the needs of the investor. For the time being, with the new "consumer-focused" regulations that the CFPB is finalizing and that the lenders are mandated to implement this year and next, the borrower is king. Although, overall this is a change in the right direction for the mortgage industry, it creates incredible regulatory compliance and technology pressure upon lenders who originate on their own, in-house, proprietary systems.
For example, implementation of RESPA-TILA 2015 (which is due in less than 10 months from now) will require review, consideration and modification of pretty much everything within the lender's ecosystem; changes to applications and systems, introduction of new documents, changes to timing of processes, updates to business workflows and procedures and training of staff across the board. The lenders who are in this boat unfortunately have only one of two options to follow in very little time; opt to buy/lease and migrate to an off-the-shelf Loan Origination System (LOS), and thereby, offload the regulatory changes to the LOS vendor or choose to stay on their in-house system and attempt a race to the finish to implement the changes required.
As mortgage technology experts with deep experience, do you think lenders are taking maximum advantage of emerging technology trends?
Technology plays an important role in accelerating the implementation of and ensuring the final adoption of the new rules. For lenders, opting to deploy an off-the-shelf LOS, they must ensure that the vendor's product is architecturally sound; capable of being functionally extended, able to integrate with compliant third-party systems such document generation and management systems, able to re-configure underwriting procedures, able to compute variances and trigger specific workflows due to key data attributes changing on a loan and all this without requiring major re-writes of the core system.
Lenders need to keep in mind that there is no guarantee that a vendor product will be RESPA-TILA compliant nor should lenders trust that vendors will be able to comply in time with the wave of changes. For lenders opting to keep their proprietary in-house systems, they must immediately create a technical impact roadmap for their systems and allocate business and technology resources and dedicate them to this core project. Understandably, this is a huge drain on resources and bandwidth especially for smaller nonbank lenders in the industry.
As a custom solutions provider to the industry, you are in a unique position. How are you able to help lenders keep pace with the changes?
Tavant has been in the mortgage industry for 15 years and we have been fortunate to be a technology innovator in this field. From developing real-time loan tracking systems for borrowers, providing intuitive, non-linear workflows for the loan application process, implementing HTML5-based application frameworks as the foundation for truly unique consumer direct, retail POS, wholesale, correspondent and affinity portals, we understand the centrality of the borrower in the mortgage transaction. We bring solutions to the table that provides a lifeline to the "lenders" we described above, those who are caught in the regulatory storm and must choose among the two paths to be in "safe harbor." We are a principal partner for most lenders in evaluating vendor LOS products as well as providing a "surround & extend" capability for those who want to stay on their proprietary origination platforms.
Eventually, we must see this regulatory change as a win-win for both borrowers and lenders as borrowers regain trust in their lending institutions and lenders engage more directly with borrowers and at a level that removes the fog and mystery that shrouds the lending process.