QM. ATR. TRID. The mortgage industry is enduring an alphabet soup of regulatory reform, resulting in some very dramatic changes. As the TILA-RESPA Integrated Disclosure rule nears its implementation date of Aug. 1, we see a number of firms racing to finalize their new technologies and operational procedures with the goal of 100% compliance. For some, the margin between being ready and the implementation date will be razor thin.
I am even hearing that some firms, unwilling to take the risk, are considering liquidating their mortgage lending lines of business or self-imposing moratoria on lending until they are 100% confident in their TRID execution.
Mandated or imposed change is nothing new for the mortgage and real estate industry. We will likely have to adapt to it again and again in the future. Most, if not all, industries face these circumstances occasionally. However, our industry tends to scramble when old procedures or notions are challenged or changed.
TRID could very well bring some of the most significant transformation to the settlement and origination processes that we’ve seen in decades. But it seems as if making the necessary changes is something close to traumatic for many firms.
I suspect that this is symptomatic of an issue we’ve faced for decades. The mortgage industry is primarily composed of individuals and teams which are both industrious and creative. For a tremendous period of time, the mortgage, housing and real estate industry has been a cornerstone of the American economy — anyone doubting this need only to examine the circumstances leading up to the Great Recession. Ours is an industry of innovation; perseverance and talent. Yet, there is one thing we collectively have done poorly for years.
We don’t always work together effectively and efficiently.
How many firms or professionals touch a mortgage transaction from the time a prospective homebuyer decides to enter the market until the final closing? Five? Ten? Fifteen?
If we step back and view the big picture, we see a heavily segmented industry. Origination, credit, appraisal, title and escrow, closing and settlement, default, foreclosure and REO...and the list goes on. This segmentation, in and of itself, is not a shortcoming.
Ours is one of the most heavily regulated of all the industries, canvassed by a mosaic of state, federal and even local laws and regulations. Many of these segments and sub-segments are driven (even created) by the demands of legislators and regulators.
However, collectively, we still fail to employ some of the common means used by other industries to reduce cost, improve speed, guarantee efficiency and ensure accuracy. We still see data being re-keyed or lost from vendor to vendor. We still see patched-together technologies that inhibit the transaction because they do not interact effectively.
We still see relevant data collected manually (and even incorrectly) when there are better, more efficient ways to do it. We really don’t universally share the relevant data (where legally possible, of course) that drives the transaction forward.
Perhaps the imposition of TRID, more than any other regulatory mandate, drives this point home. Lenders and vendors alike are faced with much more than tweaking a few lines on a form or plugging in an update to their loan origination systems or vendor management software.
They’re being forced to revisit their workflow and processes. They’re being forced to collaborate — and to a level that’s somewhat foreign to us. It’s also coming at great cost.
In reality, now is the time for us to see what some consider a threat or a challenge as an opportunity. Perhaps we should look to other industries.
How do they increase their turn-time? How do they reduce the number of vendors necessary to touch a process without being effectively connected? How do they collaborate without unnecessarily and perennially waiting for returned voice mails or e-mails?
In my experience, the firms that succeed — whether they be lenders, title insurers or vendor managers — are those which work closely to manage and collaborate with all entities touching the mortgage transaction (internal or external). Simply handing off a task or function and hoping for the best is no longer an option.
Now, more than ever, I am seeing mortgage businesses, especially lenders, moving to ensure that reporting, documentation, quality control and more conform to their standards. Vendor selection is based upon that vendor’s performance, compliance and compatibility (technological, operational) with the way the lender does business.
In many ways, the mortgage lender is the hub of the mortgage transaction. Increasingly, the top lenders are taking a deeper interest in the minute details of the transaction far beyond the point of origination. As a result, they are driving their partners to use reporting, monitoring and operational processes that facilitate the lender’s ability to stay involved. In other words, there is some element of standardization going on. And the lender’s interest in the quality of vendor products is also growing exponentially — a function of investor demand as well as risk mitigation.
The technology is out there to bring all of the parties charged with closing a real estate transaction onto the same proverbial page. The phone or email should be eliminated as a crucial part of vendor coordination — there are too many ways to more easily communicate using a shared system. We could eliminate hours and days from the average transaction with this alone.
We need to find better ways to share the data we are required to share (and, at the same time, keep it secure from those who should not have access to it). We must be willing to outsource services or make use of (quality) data collection products in the interest of pruning our costs. Most important, we will have to change a long entrenched silo mentality that is almost as old as mortgage lending itself.
Although it will be challenging, it is time for us to embrace the opportunity to better the way we do things. The mortgage process is complex enough as it is, and it may grow even more complicated with new regulations and rules. It is time for our industry to simplify that which we can, and collaborate in doing so.