Earlier this week the Consumer Financial Protection Bureau released new federal disclosure forms for mortgages designed to make mortgage documents more customer-friendly and easier to understand. (See our summary of the proposed reforms here). Bank Systems & Technology spoke with Scott Stucky, COO of DocuTech, a compliance services and documentation technology provider for mortgage lenders, about what the new reforms will mean for bank lenders and consumers.
Changing over to the new consolidated disclosure forms, Stucky warns, could be a headache for banks. He recalls the last time the disclosure forms were changed in 2010. The new documents were supposed to be implemented nationwide on Jan. 1 of that year. Legal teams at mortgage lenders nationwide were firing off queries to regulators in the weeks leading up to the new year, asking them to clarify this and that regarding the new forms to ensure they were in full compliance. Stucky says that regulators were overwhelmed by the volume of legal queries and didn't issue their final last response letter regarding the new forms until a week after the new documents went into effect. Banks were issuing the disclosure forms uncertain of whether they were in full compliance.
Stucky says that the 2010 fiasco highlights the kind of disruption that can be caused by changing these mortgage documents. "This will happen again [when this year's reforms go into effect]," he predicts.
To make compliance easier on themselves Stucky says that DocuTech's forms are all dynamic because they are completely web-based and put together one paragraph at a time. DocuTech only has to make one update to execute a change in all of their documents, Stucky explains. In contrast, most lenders build their forms separately and merge them in static documents, meaning they have to go back and make changes to each and every form. "They have to touch every static document to update it. That's a lot of documents to touch," Stucky says. "That could be a huge challenge for a bigger lender."
But the change could have positive payoff down the road for banks. Stucky says he thinks the new disclosure documents will be successful in their stated of goal of making the terms of a mortgage easier for a consumer to understand. This might help to restore consumer confidence in the mortgage market after the damage done to that confidence from the financial crisis, Stucky speculates. "We have record low [mortgage] rates, and still low volume," Stucky adds. "There is a lot of uncertainty right now."
A restoration of consumer confidence in the mortgage market could also help rebuild consumer trust in the banks, another casualty of the financial crisis, as long as banks can comply with the new rules without too many negative side affects for the customer, Stucky notes. "Hopefully this will go through with as little pain as possible," he adds.