In the wake of the New Year, lenders are gearing up to adopt the latest protocols the Consumer Financial Protection Bureau (CFPB) enacted with the Truth in Lending Act / Real Estate Settlement Procedures Act (TILA/RESPA) integrated disclosure rule. Dubbed “know before you owe”, the revised document formats and accompanying regulations for closed-end credit transactions on real estate property will take effect Aug. 1st, 2015. The new policies put forth by the CFPB, in its fundamental state, consolidates the currently existing Good Faith Estimate (GFE) and Truth-in-Lending (TIL) disclosures into the “loan estimate” documents. The new loan estimate form must be prepared and sent to consumers no later than three business days after a lender receives the application information. Additionally, it unifies the HUD-1 and final TIL into the “closing disclosure” documents, which must be provided to the consumer three days prior to loan consummation. It is hypothesized that this will alleviate the overwhelming paper bundles borrowers receive when shopping for mortgages, and simplify mortgage disclosure documents to make it easier for the average consumer to examine, understand, and compare critical information such as costs of closing, payment schedules, and interest rates.
Although these new rules make it better for the borrowers, it represents a significant hurdle for lenders and their respective software vendors to overcome. It is a tremendous cost to upgrade the impending out of date software to abide by the new regulations, document formats, and calculations. There is a substantial opportunity for startups and software proprietors to enter the market and create a product that is specifically geared toward the “know what you owe” amendments. In an article titled CFPB Final Integrated Mortgage Disclosure Rule posted online at americanactionforum.org, the cost to implement the given augmentations will exceed $1 billion. Although this number includes associated costs of updating software like training employees and formulating new work processes, it does represent a significant market opportunity for software providers and developers who specialize in the lending and mortgage industries. A good portion of that cost is specifically dedicated to updating software concerns to be compliant with the modernized standards.
An entity can develop a loan origination, underwriting, amortization, and document parsing software from scratch to gain market share. This represents an opportunity to create a software that will be tailored to the specific regulations and be able to make an easy-to-use application that maximizes essential workflows. Lenders are looking to cut costs associated with the pre-qualification, origination, and processing procedures while adhering to the CFPB regulations and document formats.
Appropriate software needs to inherently automate the entirety of the lending disclosure process with proper data input fields, calculation functions, and document parsing plus formatting templates. With the new workflow timing of three days it may be advantageous to offer these services as a cloud-based platform. This will allow multiple departments within a lending branch to update information at the same time, thus enabling them to create the loan estimate within the required timeline.
Another viable option is to offer third-party updates and compliance solutions for those not looking to invest in a completely new software system. For lenders who only wish to be compliant to the new regulations, software developers and providers can create a patch for existing SaaS or native software applications. This provides lending entities with an inexpensive executable patch file for popular loan originating, underwriting, amortization, and parsing software can be a feasible monetization strategy for existing platforms. The patch should be programmed to precisely bridge any gaps in functionality where the application fails to meet any specific regulation requirements.
Furthermore, software providers can market an independent compliance audit software. This would run as a Qualitative Analysis (QA) program to ensure that all software is compliant with the requirements. This will enable lenders to identify where they would need to augment their current software. With regulations constantly changing and companies mandatorily keeping up with the pace, companies employ automated compliance tools to assess which processes need to be updated. This is an important tool lenders use to reduce time and money, giving internal operations a minimum recommendation to be compliant with new amendments to regulatory compliances.
With the regulations and red-tape surrounding the mortgage and finance industry, having the guidance of an industry specific back-end programmer is paramount. Amidst recursive revisions in the mortgage industry it is important to keep a lasting relationship with technology developers to update software to stay ahead of the curve. With Aug. 1st a mere seven months away, software proprietors need to act now to cash in on the market fueled by the necessity to conform. If you feel it is too soon to penetrate the finance and mortgage market at the current time, the regulation landscape is constantly being altered, and offers multiple opportunities for market entry with innovative mortgage software.
Chetu, Inc. does not affect the opinion of this article. Any mention of specific names for software, companies or individuals does not constitute an endorsement from either party unless otherwise specified. All case studies and blogs are written with the full cooperation, knowledge and participation of the individuals mentioned. This blog should not be construed as legal advice.
Chetu’s Finance team implements solutions for the Finance Industry. Chetu differentiates itself in providing industry specific expertise combined with its low cost, high productivity model. You can find more information about the portfolio of our Finance experience at: http://www.chetu.com/financial-it-services.php
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