August 1st US Housing Apocalypse?
When speaking with leaders in the mortgage banking industry of late, the chorus always remains the same, “we are heads down on TRID.” Despite the CFPB’s recent announcement regarding leniency on enforcement of this new regulation, industry executives know full well that there is no delay. Only firms who make a “good faith effort” to comply with the new regulation will experience leniency on enforcement. The theme at lenders nationwide therefore remains “stay the course” for hitting the August 1st deadline.
TRID has been widely recognized as one of the single most impactful regulations to befall the mortgage banking industry in recent memory. The real significance of this regulation goes well beyond the requirement to change an already comprehensive and sophisticated consumer disclosure document. By shifting the burden for the consumer closing document three days prior to close from the title company to the lender, it also forces both the lender and title companies to rethink a hundred year old workflow and business relationship, engaging in a more collaborative partnership. To accomplish this effectively, TRID requires lender reconfiguration of business rules, workflows and processes, which has a direct impact on business strategy, technology requirements and system configurations while making certain audit trails go deeper and wider. Amidst it all, lenders are having to work overtime to protect the customer experience by reengineering the loan closing process and better setting expectations with consumer to ensure a positive customer experience and to avoid multiple reschedulings of loan closings. Ultimately putting added pressure on each lender’s cost to produce, not to mention potentially increasing housing costs for consumers.
With less than 60 days remaining to implementation, lenders continue to break the glass and retrieve their proverbial Mortgage Bankers First Aid Kit in order to swiftly bandage together the disparate impact points of TRID, not only to ensure compliance, but for self-preservation. With almost two years to prepare and most vendor organizations fully focused on developing various document solutions and workflow assistance, it’s unfortunate there has been little offered in the way of a universal “one size fits all solution” that lenders can simply plug in and safely implement to help ensure compliance, workflow efficiency and a winning customer experience. Yet after twenty-seven years in the mortgage banking industry, I remain confident mortgage bankers will once again be resourceful, agile and pliable to ensuring successful adoption of the new TRID regulations to ensure consumer satisfaction. After all, it’s in our DNA. We will do what it takes, even if it means throwing bodies at it (similar to days gone by) or adding new layers of manual processes and procedures or quality control checks. I am convinced most will be ready to meet the industry’s new requirements. But at a cost.
So the question remains, “What’s next? Where do mortgage bankers focus after August 1st?”.
As with many disruptive changes, focus before the deadline is on complying with the regulation. Afterwards the focus must shift to actually making it work effectively and efficiently. This could mean that lenders need to take a pause, step back and get back to the basics by conducting an end-to-end full-scale process assessment. A business process assessment serves to help ensure lenders are originating loans at the lowest possible cost to produce by looking to remove redundancies, maximize technology configurations, better integrate appropriate vendor solutions and new business rules, or by simply amending a series of processes and procedures in light of new ones.
Veteran mortgage banking executive, A.W. Pickel, President and CEO at Leader One Financial, is very concerned about the impact of TRID regulation on consumers. “My concern is, what happens to customers with a moving van in the driveway and due to circumstances beyond their control they now have to wait three more days to close. Regulations meant to do good may cause further harm. Will this regulation then cause realtors and loan officers to do off balance sheet items?” In regards to how to how to mitigate the risk, Mr. Pickel goes on to say, “The only way to offset this risk is through the adoption of additional procedures. In the end, however, additional procedures can equate to increased cost to produce a loan.”
Pete Lansing, former President of Colorado Mortgage Lenders Association and President of Universal Lending for over thirty-four years, feels TRID really isn’t any different than any other regulation. “Post August 1st we will be in full force compliance evaluation and review, looking for any holes left over that were not covered before the implementation date. Every organization must keep their eye on regulatory compliance at the same time keeping customer service as its number one objective. The balance between these two objectives has always been the mortgage banker’s concern and goal. I believe these new changes are no more difficult than those previously issued by the regulatory forces.”
Taking it one step further, Gellert Dornay, President & CEO of Axia Home Loans, when speaking of his TRID implementation strategy, put it this way, “Post TRID implementation, lenders should be auditing compliance with the new rule and identifying any areas that require further training or process tweaks. However, if you’re not doing a full-scale operational assessment until after the rule has gone into effect, you’ve missed the boat.”
While the mortgage banking apocalypse is not likely to take place on August 1st, what is more likely is that lenders are going to need to take time post-TRID implementation to conduct a full-scale audit of their end-to-end origination process in order to lower cost to produce and ensure consumer satisfaction. Based on CC Pace’s experience in conducting business process assessments in the mortgage banking industry, we encourage lenders to keep three key components in mind when conducting their post TRID operational assessments. First, be honest in asking yourself if your recently amended TRID process is actually economically “scalable”―is it scalable enough to support what is anticipated to be a growth market if secondary liquidity truly returns due to a rising interest rate environment? Second, when reviewing the operational assessment, challenge yourself with this question, “Is the right long-term answer to take the temporary bandages off and look at full-scale reconstructive surgery of processes, systems and organizational structures in order to successfully implement long-term, scalable growth strategies?” Lastly, decide on a strategy and move forward. Meaningful operational assessments that end up sitting idle on the shelf collecting dust are generally reflective of an overly conservative approach and commitment to long-term failure. Such efforts are best defined as exercises in futility.
After August 1st there is no better time to stop, rebuild the origination’s foundation and prepare for the new mode of lending.
During a recent family driving expedition, my teenagers were surprised at a rest stop along I-95 when an attendant began filling our gas tank. “Why is that guy pumping our gas?” After providing the short answer (“New Jersey is a rare state that prohibits consumers from servicing their own vehicles”), I reminisced about “the good old days” when gas station attendants not only filled your tank, but checked the oil level, put air in your tires and washed your windshield—all at no additional cost! “Why would they do that?” “Customer service. That’s how they competed for your business.” Those days really do seem so far away, don’t they?
In the early 1990s I did a project for Richmond, VA-based Crestar Mortgage (pre-SunTrust merger). I was helping to define the business requirements critical to replacing their loan origination software and a question that came up early in the discussions with their executive team was “why don’t mortgage systems interact with the bank’s customer information file?” That was a good question then, as it still is today. Most consumer banking systems are predicated on a customer information file (CIF) to connect all the various banking products and services the customer might use. Consumer banking systems are generally customer centric, thanks to that CIF, which is critical to good customer service and, not coincidentally, cross-selling and retention. Marc Smith, CEO of Crestar Mortgage at the time, promoted customer focus as a key aspect of company culture, so much so that his organizational chart was inverted—his role was at the bottom of an up-side-down pyramid, supporting the management team, who supported the staff, who served the customer. In short, Marc felt that everyone should act as if they worked for the customer.
Mortgage systems, unlike their consumer lending brethren, and for reasons I still cannot understand, are loan-centric by nature. Sure, they deal with borrower and property data, but at their core, they are all about the loan. They deal with the details of this one loan, no matter how many times the property has been bought and sold, how many times this particular borrower has refinanced the same property, or what other banking services they may use. Is it any wonder that customers have such limited sense of loyalty to their lenders or servicers when there is no reciprocation?
It was a great pleasure to be back in the Richmond area a few years ago (nearly twenty years after my Crestar engagement) working with Jeff Coward, SVP of Mortgage Lending at Virginia Credit Union, and his management team on an LOS selection. While defining the business requirements for crafting an RFP for our vendors, Jeff made one thing very clear: “Whatever system we implement has to allow us to pull member information from the CIF into the loan app. They are members; we can’t sit there and ask them to tell us information we should already know.” No commercial system provided that capability out of the box, so Jeff paid dearly for customizations to make it happen. For a state-chartered credit union, customer loyalty—or member loyalty, more accurately—was paramount. Accepting anything short of respecting that relationship was simply out of the question. The real question is why haven’t more lenders pushed their system vendors to do the same?
More recently I’ve been working with the Export-Import Bank of the United States to help find opportunities for making business processes more effective. Improving the customer experience is one of Ex-Im Bank’s strategic goals, so we are continually looking for opportunities to improve both process efficiency and customer experience. Ex-Im Bank takes this goal seriously, so much so that they have a Vice President of Customer Experience, Stephanie Thum, who I often have the pleasure of working with. Stephanie’s efforts include significant amounts of customer interaction, directly and through focus groups, to gather input on their experiences in working with Ex-Im Bank, their impressions on the levels of effort required to transact with the Bank, and ideas they have for making the process a better one.
Creating a senior management role focused directly on the customer and the experience they have with doing business with your organization is a very powerful statement, and an effective means to measure your success in meeting your customers’ expectations. More companies need to take that step like Ex-Im Bank, insist that technology systems support the customer relationship like Virginia Credit Union, or simply challenge conventional modes of operation by the symbolic gesture of inverting the org chart like Crestar.
Sometimes we should just wash a few windshields. It could serve to remind us who we really work for.