We expect to see a lot of changes due to the Consumer Financial Protection Bureau’s mortgage regulations coming in 2014, such as qualified mortgage rules, servicing requirements, appraisal requirements, and escrow exceptions. With many changes coming up in the next year, banks will have to review underwriting policies and look at what changes must be made to comply. They will also have to review and likely make changes to their vendor contracts and policies for dealing with third-party partners.
The qualified mortgage rule in particular will be a major change because it will require more than just a simple adjustment to operations. The actual way that banks have been doing business will have to change. It’s definitely a big task in a short amount of time [the rule will go into effect in January]. We have asked the CFPB to extend deadlines for the requirements, but we have not received any feedback on that.
We will see more changes as the CFPB begins to look at other areas of lending. The hope is that there won’t be too many changes all at once, which can be hard for a smaller bank to absorb. When so many resources are dedicated to compliance, banks can’t direct those resources into their products and services, and it affects their day-to-day business.
In terms of how technology is evolving in compliance, there are two directions we’re seeing. Two years ago, regulators offered a supplemental guidance on data security that advised banks to treat business accounts differently from consumer accounts. The guidance said there needs to be multilayered security in place, with the ability to analyze behaviors and anomalies sitting behind the authentication capabilities.
The other direction is in dealing with third parties, which really hits close to home for community banks. Many of them rely heavily on third-party software and systems. We expect to see more regulatory scrutiny in this area. Community banks have traditionally used off-the-shelf compliance tools. That can ease the pain, but it is important that banks evaluate those solutions closely now.
Another trend we’re seeing is that regulators are seeking earlier input from stakeholders during the rule-making process. The development of the CFPB’s TILA-RESPA disclosure rules is a good example of that. The CFPB sought industry input throughout the rule-making process rather than waiting until the rule was imposed to get comments, so that extended outreach is a positive we hope will continue in the future.
Elizabeth Eugubrian and Cary Whaley, ICBA.