The Future of the Mortgage Banking Marketplace Who Knows What Tomorrow Will Bring? By Cathy Blaszyk An old adage states that only two things in life are certain: Death and taxes. Well, for the mortgage industry, another truth can be added to that: Regulations, and many more legislative changes on the horizon. Since the Consumer Financial Protection Bureau (CFPB) was established in 2011, the entity has been given the primary responsibility for regulating the financial protection of consumers from student loans to mortgages and everything in between. The result has been more
compliance requirements than the industry has ever dealt with in the past. While details of additional regulatory changes and their effect are uncertain, one thing is certain: The future of mortgage banking is poised for significant and dramatic changes.
RESPA changes likely One area that poses concern for lenders is the proposed change to the fee tolerances related to the Real Estate Settlement
OCTOBER 2012
UTAH MORTGAGE PROFESSIONAL MAGAZINE
NationalMortgageProfessional.com
42
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Interestingly, the resiProcedures Act (RESPA). In dential mortgage process is fact, some lenders believe the only major financial future changes and increastransaction in which historing stringency could drastiically, estimates have been cally affect their ability to given upfront instead of remain in business. actual costs. By providing The tolerances were origexact pricing at the begininally added to the Real ning within disclosure and Estate Settlement Proceclosing forms, lenders dures Act (RESPA) rule in could manage the “no vari2008 when the U.S. ation” issue all together. Department of Housing & Even items that previously Urban Development (HUD) “While details of issued the RESPA Reform additional regulatory were not held to tolerance, such as prepaid interest, Rule, which included subchanges and their hazard insurance or stantial changes to the effect are uncertain, impounds could be critique HUD-1 Settlement Stateone thing is certain: for “variations” if a lender is ment. The tolerances or The future of limits refer to the actual setmortgage banking is found low-balling those tlement charges that can poised for significant items to create an unfair competitive advantage. vary at closing from the and dramatic The current workload amounts stated on the Good changes.” and proposed regulatory Faith Estimate (GFE). The rule established three categories of settle- changes make it virtually impossible for ment charges and each category has differ- lenders to operate using templates, tables ent tolerances. At settlement, if the charges or manual call outs to get actual costs exceed the charges listed on the GFE by upfront for the disclosure process. They more than the permitted tolerances, the must now use technology to deliver acculender must cure, or resolve, the tolerance rate pricing upfront as well as throughout violation by reimbursing or crediting the the process as changes in circumstances borrower the amount by which the toler- occur. There is no room for guesswork in ance was exceeded. This has to be done at this environment, and also no sound reasettlement or within 30 calendar days after son for a lender to pay an exorbitant amount in cures annually when there are settlement. Fees associated with origination, under- systems available today that provide curwriting, discount points and transfer taxes rent, accurate, guaranteed rates from servare held to zero-tolerance. Under the pro- ice providers anywhere in the country. A posal from the CFPB, tolerances will now technology investment is a drop in the be called “variations” and the zero-toler- bucket compared to the hundreds of thouance category will expand to also include sands lenders currently dole out each year services that borrowers cannot shop for, in fines alone, and as the CFPB adds regubut are required to close a loan. These lations, technology is no longer nice to include services such as appraisals, flood have it is a necessity. certifications and credit reports. Under the CFPB proposal, lenders are accountable for Wholesale channel inaccurate quotes; if a price comes in high- concerns er, the lender will have to pay the differ- The CFPB’s proposed changes would also ence to the borrower. With the current fee greatly affect the wholesale channel. The structure, lenders already say they are decision by Wells Fargo to join the ranks of exceeding today’s 10 percent fee tolerance Chase, CitiMortgage and other banks in level with some of the services, and backing out of the market has already prospective changes would make them shaken things up quite a bit, giving brokers responsible for paying even more. In addi- less of a choice regarding what company tion, if a lender quotes services from one of with which to do business. A proposed new their affiliated providers and the borrower form from the CFPB will create more risk uses this provider, the lender will now be for wholesale lenders, who will be responheld to zero tolerance or allowed no varia- sible for the fee quotes originators provide tion from what was quoted at the time of to consumers on the disclosures and to application This will directly affect a ensure the disclosures are delivered within lender’s bottom lines and is one the rea- three business days. With this level of sons lenders are worried about the pro- accountability, wholesale lenders want to take this option of providing the disclosure posed change from the CFPB.