DALLAS—One company is concerned that FIs may be overlooking “manufacturing consistency” within mortgage origination as they focus heavily on regulatory compliance.
CalyxSoftware emphasized that accuracy and consistency of mortgage loan production has become critical with the new mortgage lending rules.
“The TILA-RESPA Integrated Disclosure (TRID) rule has been a challenge and continues to be a learning experience for our industry,” explained Benjamin Wu, executive director of technology at CalyxSoftware. “While there will be a natural tendency to ‘take a break’ once TRID solutions are in place, credit unions that stop considering new technology to improve workflows, accuracy and consistency in 2016 do so at their own risk. That’s because new Home Mortgage Disclosure Act data collection requirements are coming next year, along with significantly expanded reporting the year after. And both bring with them heightened fair lending liability.”
Similarly, approaching changes a few years down the road in the Financial Accounting Standards Board accounting rules will require credit unions to provide additional data on asset quality as part of the stress-testing scenarios that will determine required capital-levels.
Quality Underwriting
“Being able to demonstrate that a consistent, quality underwriting process is used to manufacture your assets will be essential for preparing for these new rules,” said Wu. “And the time to make process and technology changes is this year and next, not when the sweeping new rules take effect.”
Consistency is the first level of defense that credit unions will have against fair lending challenges, as they as demonstrate that their manufacturing processes treat all members equally when it comes to providing mortgage credit, explained Wu.
“But consistency alone isn’t total protection from fair lending challenges that can now come from both the Consumer Financial Protection Bureau and the plaintiffs’ bar,” said Wu. “The huge amounts of data that will now be available—and transparent to class-action attorneys—may lead some critics to challenge reasonable credit policies as having ‘disparate impact’ on certain groups or neighborhoods.”
Knowing, in detail, what’s being originated, where and to whom—and even more importantly, who is being denied and why—will be essential in foreseeing, and hopefully preventing, fair lending challenges, asserted Wu.
“Likewise, it will give credit unions—and regulators—more evidence in making capital and risk decisions,” said Wu. “If TRID has taught us anything, it’s that two years may sound like a long time to get ready—but it isn’t.”