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Looking Back on 2015 and Seeing Opportunities For Innovation Going Forward

Faith Schwartz    |    Housing Policy

Over the past few years, innovation has taken a backseat to compliance as our industry has had to cope with a spate of new rules and regulations. This trend continued in 2015: the year that the “Know Before You Owe” or TRID devoured the industry’s bandwidth. But not all the changes that the regulators have wrought have been negative. In fact, some might be setting the stage for future innovation.

Yes, the Consumer Financial Protection Bureau (CFPB) brought us TRID. But the idea of “Know Before You Owe” is laudable and, over time, should be beneficial to consumers and make the home finance process more transparent and understandable.

The Bureau is also one of the biggest advocates of e-closings, a concept our industry has talked about for ages, but has yet to comprehensively achieve. It has launched a pilot study to demonstrate the benefits of e-closings to both consumers and the industry and will hopefully bring us closer to the day when closing are simpler, more understandable and paperless.

Who knows, maybe the Bureau’s efforts will help us crack the code with the ever-elusive, paper-adverse Millennials?

Using data to achieve transparency and accountability is also the game plan behind the new Home Mortgage Disclosure Act (HMDA) reporting rules. That massive data pull is a big effort for lenders to comply with currently, and will become even more so with new transparency mandates. But the Bureau’s intention is clear: full pricing and credit transparency for nearly every mortgage loan originated. This has always been inferred, but in the future lenders will have to capture and report significantly more data. Increased transparency is a positive for consumers and investors as well if credit standards rise. Over time, lenders and industry stakeholders will find a cadence with this new reporting requirement and readjust for a new approach to lending reporting standards.

In 2015, the government continued to play an oversized role in the housing finance market. It appeared as if GSE reform slipped to the back burner, with one notable exception: the new common securitization platform. 

This hugely important federal effort continued apace in 2015. The 2016 Federal Housing Finance Agency scorecard released in December indicates there will be a two-tier release of the new platform, the first coming in 2016 and involving existing Freddie Mac single-class securities. The first release will be followed by implementation of the single-security on the common platform by both GSEs in 2018. When it is ready, the common platform will support and enhance the agency market, and make a new single GSE security possible.

A “phenomenon limited repertoire” is an expression that management consultants used to use to explain why companies and industries resisted new ideas. Basically, it means that managers believed that the way they had been doing something was the only way to do it, and they tended to remember how deviations from the norm had failed in past.

Over the past seven years, regulators have significantly altered the way our industry originates and services loans. For legacy players, this has caused a great deal of disruption and discomfort.

It has also created openings for new entrants—non-bank originators, private equity and hedge funds, mega-special servicers and now fintech companies—who are eyeing opportunities that were once the sole province of the federal agencies and big depositories.

These non-banks and new entrants aren’t worried about how things have changed. What they are focused on is using new technology to drive inefficiencies out of originating and servicing loans. In 2016 and beyond, this kind of thinking will drive innovation. So maybe there is a silver lining to the regulatory cloud that has been hanging over our industry.

[1]FHFA  2016 Scorecard

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