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Using Technology to Facilitate Regulatory Compliance
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  1. Using Technology to Facilitate Regulatory Compliance David Dietrich, PCi | Wolters Kluwer Financial Services Lynette I. Hotchkiss, Mavent Inc.

  2. Agenda • Compliance Issues and Challenges • HMDA • Fair Lending • Enterprise Compliance Management • TILA/RESPA • State Law Compliance • Federal, State, and Local High Cost Laws

  3. Compliance Issues and Challenges Issues • Compliance becomes more complex each year • Acquisitions create multiple technologies and LOS’s • Regulators are demanding higher quality data Challenges • The time and expense of data clean-up operations • The efficacy of implementing compliance policies with front line

  4. Fragmented Relationship

  5. Training Processes Policies Procedures Some Automation Documents Paper trail Second Review Internal and External Audits Business line compliance personnel Consultants Regulatory examinations Current Compliance Checkpoints

  6. Current Issues • HMDA Reg C Submission Requirements • Must submit APR and yield spread premiums for mortgages • Need to understand the data, control perception • Flattening Yield Curve • Managing Broker Risk • Several high profile and costly lawsuits • Going after banks and mortgage companies instead of brokers and dealers that are actually making decisions • Very difficult to monitor

  7. How to Manage Risk? • Interviews with sales and underwriting, and mystery shopping help identify overt discrimination. • Comparative file review and regression analysis will identify disparate treatment. • Comparative file review is the most common type of self-assessment. Expensive and time consuming. Usually done with a sample of loans. • Regression analysis is the best way to find disparate impact. • In-house statisticians or outsourced to consultants. Results can be confusing.

  8. The Vision • Significantly reduce overall cost of compliance • Greatly reduce effort involved in cleaning data • Achieve willing support from front-line operations • Institute stronger controls pre & post-closing Integrate and automate compliance throughout the lending cycle

  9. Pre-Close Monitoring

  10. Front-end Fair Lending Management • Address potential violations before they enter the portfolio • Determine in real-time if an applicant was denied who should have been approved • Prevent an applicant from being overcharged • Ensure that loans booked do not contain disparate treatment issues • Integrates with existing LOS integration; no drag on sales • Reduce fair lending training for front-end staff • Use regression models from Fair Lending Wiz or custom

  11. Post-Closing Monitoring • Automated Comparative File Review • Quickly find similar applicants who were treated differently • Review single or combined portfolios • Use fewer resources to perform audits • Focus on high-risk applications and products • Regression Analysis • Quickly identify disparate impact and disparate treatment • Confirm factors that contribute to a lending decision • No need for extensive knowledge of statistics • Focus self-assessments and audits on area of risk

  12. Prepare Accurate TILA Disclosures Truth in Lending Disclosure Statement Notice of Right to Cancel Prepare Accurate GFE/HUD-1 State Compliance Issues Late Charge Provisions NSF Provisions Prepayment Penalty Provisions Correct Documents and Notices: Texas Designation of Homestead Co-signer Notices Special Hazard Insurance Disclosures Awareness of compliance issues through checklists or alerts How Documentation Systems Can HelpTILA/RESPA/State Law Compliance

  13. Truth in Lending Validation APR Accuracy Finance Charge Accuracy Payment Schedule Calculation Right of Rescission Timing RESPA Escrow Cushion Requirements Aggregate Adjustment Calculations How Automated Compliance Systems Can HelpTILA & RESPA

  14. State Law Compliance Requirements for: License Review and Validation for Lenders and Brokers Fee Limitations/Prohibitions Late Charges Prepayment Penalties Interest Related Issues Usury Ceilings Calculation Restrictions Interest Accrual State Specific MI Drop-off State Escrow Cushions How Automated Compliance Systems Can HelpState Law Compliance

  15. HOEPA Threshold Tests Prohibited Practices if thresholds triggered State Predatory Lending Laws Threshold Test based on unique state definitions Prohibited Practices if thresholds triggered County and Municipal Ordinances Combination of Geocoding and Address to make sure correct local law is applied Threshold Test based on unique definitions within ordinances Prohibited Practices if thresholds triggered How Automated Compliance Systems Can HelpFederal, State, and Local High Cost Laws

  16. Uniformity and Consistency for All Loans Automate labor-intensive tasks Identify issues upstream to reduce costs downstream Covers 100% of Loans Expert Minds at Work Computers Have Good Memories Benefits of Using Technology in Regulatory Compliance

  17. The Vision • Significantly reduce overall cost of compliance • Greatly reduce effort involved in cleaning data • Achieve willing support from front-line operations • Institute stronger controls pre & post-closing Integrate and automate compliance throughout the lending cycle

  18. Q & A