MBA NewsLink recently posed questions to Reid Smeda Sr., president of Compliance Systems, Inc. Smeda has more than 20 years of banking experience, serving in senior roles as an attorney, lender, and business leader for national and international financial institutions.
MBA NEWSLINK: How does one prepare for new rules and regulations when no one–not even the regulators–knows what the final versions will be?
REID SMEDA SR.: What we do know: it has been predicted that there will be more than 200 new rules, with more than 100 of these being directly impactful on the mortgage industry. Within the roughly 2,400 pages of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the industry has a good sense of direction as to the nature of the rules that will be coming. We also know that many of the rules required by Dodd-Frank need to be finalized by January 2013.
What we do NOT know: we don’t know what to expect in terms of scope, effective dates and content for the specific changes that will flow flowing from the new rules.
In light of the foregoing, it is vital for financial institutions to be in early and often communications with their sources of compliance support–internal and external. It is equally vital to budget resources (financial and operational) to be able to move rapidly when final rules roll in.
CSi has been in conversations with the Consumer Financial Protection Bureau regarding the need for adequate advanced notice to financial institutions prior to any changes becoming effective. The CFPB team expressed a sincere concern for and solid awareness of the impact of changes on financial institutions and is working to provide the necessary amount of advance time for financial institutions to prepare/implement the coming new rules.
NEWSLINK: What are the minimum compliance measures a lender/servicer needs to have in place?
SMEDA: A theme undergirding much of Dodd-Frank is “information”–i.e., lenders having the necessary information to ensure borrowers can afford their loans and borrowers having the necessary (and comprehensible) information to make informed credit buying decisions. So it will be increasingly important for financial institutions to have policies, procedures and systems in place that are “data-obsessed,” i.e., policies, procedures and systems that can gather, analyze, disclose and retain the many, many, many pieces of data that “define the transaction,” versus simply being able to give loan files with stacks of photocopied documents to the examiners for review during an examination.
NEWSLINK: How do you integrate with a partner?
SMEDA: We work cooperatively with our business partners, by doing this, we have pioneered new ways to mitigate transaction level risks and to produce and compliantly generate transaction documentation that is easier and faster to integrate and maintain. Our relationships allow us to apply our deep understanding of the mortgage business with advanced analytics, data validation, and risk mitigation which results in the intelligent selection and generation of transaction documentation specific to the lender’s data and transactions.
NEWSLINK: What kind of impact will new rules from the Consumer Financial Protection Bureau have on your business and that of your clients?
SMEDA: Under Dodd-Frank, there are various requirements relating to a borrower’s “ability to repay” and “borrower’s best interest.” These requirements are expected to result in rules governing matters, such as maximum LTVs, unacceptable credit history, maximum amortization terms, etc. The consequences of failing to satisfy the ability to repay and borrower’s best interest tests will be direct and financially impactful.
While the rules for these requirements are still in development, financial institutions will want to carefully review what is currently known about the requirements and be ready to make the potentially tough decisions necessary as relate to the impacts on current product offerings (including CRA programs). A consequence of these requirements will be a contracting of the availability of credit to borrowers as financial institutions modify their products and underwriting criteria to meet these new tests.
NEWSLINK: What does CSi do to monitor and stay ahead of changing compliance rules/regulations at the state and local level?
SMEDA: First, we use a proprietary research methodology that combines technology and people (bankers and lawyers) to identify, evaluate, track and plan for all proposed state and federal statutes and regulations affecting financial institutions’ transactions with customers. In addition, we have working relationships with state and federal regulatory agencies that allow us to work together as to interpretation of the rules and regulations. Finally, we communicate with our partners and financial institution clients to collaborate and plan the implementation of the changes foreseen.
Like everything in this industry, it’s about information and personal relationships, i.e., having and knowing what to do with the necessary information and working collaboratively with everyone involved in order to deliver best in class compliant products and services to financial institutions and their customers.
Read the full article in the MBA NewsLink: http://www.mortgagebankers.org/tools/FullStory.aspx?ArticleId=32177#full