Abstract the number of enforcements that have been levied


The Mortgage industry has witnessed a sea change in procedures and
compliance requirement after the mortgage meltdown of 2008. After the
Dodd-Frank Wall Street reforms act was passed in 2010, CFPB (Consumer Financial Protection Bureau) and other
state requirements have introduced series of consumer protection rules through
changes in the regulations, like the amended Fair lending reporting
requirements from HMDA, Equal Credit Opportunity Act, and TILA-RESPA guideline.

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A recent surveyWF1  shows that the industry believes that
regulatory compliance is one of the emerging risks. 69% of the respondents believe that
regulators will further intensify compliance measures in the coming years. 55 % of the respondents believe that cost to comply to
regulatory risk has significantly increased the cost of operations. WF2 

important aspect of the regulation is the number of enforcements that have been
levied by regulators. As per Navigant report, 287 enforcement actions have been issued
between quarter 2 2016 and quarter 2 2017 amounting to over $22.5 billion in
monetary fines, penalties and borrower restitutions.WF3 

In this current scenario, how will the Mortgage firms gain advantage in
a fiercely competitive ecosystem? Is there a need to re-look at the traditional
way of running operations?

The white paper looks at these challenges being faced by Mortgage firms
to adhere to responsible lending practices regulation and the necessity of reimagining
operations to be future ready and remain profitable













Table of Contents


Key Challenges faced by Industry

Reimagining Operations


Key Challenges faced by Industry

Regulatory Landscape

The regulatory agencies have intensified their monitoring and reporting
mechanism as a result of Dodd-Frank Wall Street Reform and Consumer Protection
Act which came into existence in 2010. Some of the key regulations which have
impacted the Mortgage industry are listed below.

Key Regulation




Amended HMDA rule

have to report 48 data fields including 25 new data fields and 14 fields
revised by the regulator. This includes age of applicants, points and fees
payable at origination, rate of interest, prepayment penalty terms, loan
terms and loan tenure, value of property, DTI, CLTV,WF4 
non-amortizing payments terms, the origination channel, credit scores of
applicants, Lender Credits and discounts, rate spread etc.

into effect from January 2018. Reporting from 2019

reporting requirements
risks due to lapses
in Cost of Operations

New mortgage servicing rules

The CFPB issued updated
Mortgage Servicing rule in Regulation X and Regulation Z. The new rules
mandate servicers to provide periodic statements for each billing cycle,
provide upfront ARM notices at least 60 to 240 days prior to payment due
date, instant  crediting of payments
upon receipt from borrower, provide payoff statements within 7 business days
of request, compliance on force placed insurance requirements, special
protection to borrowers on delinquent loans – providing loss mitigation
options, 120 days prohibition on foreclosure initiation etc

October 19, 2017

in meeting stringent timeline requirements
tracking and reporting requirements
risks due to lapses
in Cost of Operations

REMA and redlining risks

Federal Deposit Insurance Corporation
(FDIC) section 345.41 deals with Reasonably Expected Market Area (REMA) and
examines redlining risk. The objective is to review whether banks’ lending
practices are restricted to certain areas and the credit practices are
consistent across all areas. The regulators would conduct statistical study
of lending activities between various lenders in specific geographies and
derive redlining risks.


credit exposure across all segments
and reporting of credit as per REMA

TRID rule and enhancements

A written Loan
Estimate and Closing Disclosures to be sent within stipulated timelines. It
also requires zero tolerance in fees and costs levied in initial estimate and
closing disclosure. However with the new amendments to TRID rule, there will
be inclusion of tolerance provisions for the
disclosed total of payments, exemptions for certain housing assistance loans
and provides guidance on sharing of disclosures with third parties.

Already implemented. New amendments from
October 1 2018

extensive tracking of application received date and outgoing notifications

Equal Credit Opportunity Act (ECOA)

Regulation B amended by CFPB mandates
mortgage companies to provide free copies of all appraisals and written
valuation with regards to mortgage applications to borrowers.

January 2013

could be subject to individual action by borrowers and class action by


Between 2015 and August
2017, two regulators – CFPB and Department of Justice (DOJ) have issued 34
enforcements amounting to more than USD 299 million. The enforcements were due
to lapses in providing foreclosure relief, violations to Fair Housing Act and
ECOA, REMA violations to name a few.WF6 




Enforcement Actions taken by CFPB and DOJ ( Period 2015 till
Aug 2017)


Increasing Cost of Operations

ensure compliance and avoid enforcements, Mortgage companies have had to
introduce additional checks and balances by increasing the workforce and
strengthening the internal training and quality program.

As per
latest numbers published, cost has risen by 18% within 2 consecutive quarters
in the origination space. In Quarter 1 of 2017WF8  cost of loan production expenses increased to
$8,887 from $7,562 in Quarter 4 of 2016 


Reimagining Operations


Given the above challenges, mortgage firms need to re-imagine their
existing operations to devise a solution that ensures adherence to increasing
regulatory requirements while keeping cost neutral. Two key areas which would
need to be looked at to achieve this objective are:

Creation of
an agile operations by building robust processes and systems to meet regulator
and investor objectives

digital solutions and platforms to bring in efficiencies


Devising framework for better and efficient
quality review mechanism and continuous learning culture


System assisted efficient quality review

Traditional method of a quality check
involves a loan file moving through multiple hands before getting cleared. The
approach provides a higher probability of error detection. However, the number
of checks has a proportionate impact on the cycle time and cost per loan.

The proposed approach for quality control and
assurance is for applications to develop capabilities for detection of errors
and limit the human effort to only troubleshoot escalated or high complex
issues. A suggested brief step wise approach is as follows:

§  All the loan files for compliance
requirements to be processed through a toll gate mechanism

§  The first layer of toll gate will be applications
where the compliance test is passed through a series of inbuilt checks

§  If the pass through result is successful, the
file moves to a processor for a swift review so that there are no gaps; In case
there are  gaps in the loan file which a system
could not detect, processor to take appropriate steps for issue resolution.

§  All new scenarios and solution identified for
issue resolution which are not coded in the system to be added to an issue

§  The issue tracker to be reviewed by SME for
identified gaps and solutions 

§  SME to provide approval for system
enhancements to technology team

§  After changes are implemented, system tests
to be conducted to measure readiness to detect such scenarios



ii)  Building a continuous learning culture and
preparing future ready workforce

Existing training intervention is through a
series of training modules on state and federal guidelines. The learner gets
perspective on the guidelines but correlating to daily operations becomes
challenging, which can be overcome by devising a learning framework that
integrates compliance requirements with real case scenarios.


§  Building a Case study repository: Different types
and complexity of compliance transactions to be added to Case study repository.
The selection of cases should go through a rigorous filtering mechanism by the

§  Certification process: A periodic certification
process around existing and new compliance requirements will enable team
members to stay abreast with changes. The qualification benchmark for such
assessments should be revised upwardly from time to time to instill a culture
of learning and staying updated.

§  Collaboration of Mortgage firms: Leveraging
the multiple communities that exist in the mortgage eco-system for sharing of
best practices on compliance regulations, insights, etc will go a long way in
making processes more robust.

Augmenting process workflows and automating processes
by leveraging Operations and Technology synergy


As Is Status

To be Status


workflows do not support a structured approach to look at compliance
requirements during the Loan origination process. The checks are people
driven rather than being process driven

to be designed so that compliance checks have to be performed at various
stages of loan application. Without the checks, system will not allow to
proceed to the next stage

Integration of Platforms and

and Compliance systems in most Mortgage firms are separate systems. The
integrations are partial and processors have to still enter critical details
like points and fees, NMLS details, ratios, etc., to get results

integration of LOS with Compliance systems so that data flow from one system
to another is seamless.

Automation of Compliance

every stage of Origination process human intervention is required to complete
the process. Manpower is deployed by lenders to do routine checks at various
stages of the loan processing cycle.

of Compliance Processes to ensure business rules based decisions can be taken
by applications. Systems should be able to run quality checks on ATR &
QM, HMDA, TRID, NMLS requirements and provide alerts and red flags. Alerts
and exceptions can be managed by employees.

Dealing with Borrower

collection, conditions clearance are manual with email / fax / papers being
mode of communication. Regular follow up with the borrower is required.

of back end systems to a web based front end interface which will provide
real time update to borrowers and prompt them to take actions


Key Advantages of Proposed Status


1.     Reduces human efforts and associated costs by
adopting Straight through processing of applications for meeting compliance

2.     Improves Loan Cycle time through enhanced
workflows and reengineering processes and systems.

3.     Faster adaptation to changes in Mortgage
regulatory landscape by alignment of applications.

This will control the defects and save
millions of dollars at a later stage due to enforcements.

4.     Improve borrower experience by digitizing
processes and applications; also opens alternate avenues for proactive


By adopting this approach, organization can meet its compliance
requirements, minimize enforcements and reduce manpower costs.


The compliance in the Mortgage world is a way of life and will become
more stringent in every passing year. To stay ahead of the game, Mortgage firms
have to break away from traditional methods and adapt innovative and technology
centric solutions.

Building a future ready workforce by enabling continuous learning and adapting
smarter process flow to manage compliance will optimize manpower requirements. Developing
a smart and intelligent technology framework by integrating intuitive systems
in their platform, will help in effective quality control, reduce cycle time
and cost of operations and enhance borrower experience. The Mortgage firm who
is able to adapt and implement changes rapidly will evolve as a market leader.

by ?  Please share URL of that survey

share the source of this information

share the source of this information

mention the full forms.


Also is this an industry know acronym ?

we need to mention this regulation, as it was released quite some time back and
the general understanding would be that banks would have adapted themselves to
this regulation by now.  Please advise

provide the URL / source for this information

we create this diagram, basis the information available externally or is it a
part of the report published ?

or FY ?

this diagram created by us ?  If yes,
please share an editable image in PPT format