Mortgage lenders have to comply with a range of federal and state regulations. Such regulations are extremely binding and are complex. It becomes an uphill task for lenders to execute all the intricate mortgage lending processes while maintaining strict regulatory adherence. Each year the regulations undergo significant changes that bring fresh sets of complexities for mortgage lenders.
In 2022, mortgage lending is slated for additional binding regulatory scrutiny. The Consumer Financial Protection Bureau (CFPB) will deepen its focus on fair lending practices, consumer data protection, foreclosure policies, among others.
It will be a rough journey ahead for small and medium mortgage lending institutions who have limited resources and technologies to improve their vigilance on regulatory compliance. Failure to comply will invite costly litigations and bad name for lenders.
In this article, we will highlight the top regulatory changes that will impact the process of lending mortgage loans this year.
Impending Regulatory Changes In 2022
Here’s a look at the top changes in regulations that lenders must focus on in 2022.
General QM Rule
Qualified mortgages (QM) are those that have borrower-friendly features that make it more affordable for consumers. Lenders are required to abide by the ability-to-repay rule to approve QMs.
The CFPB had issued the general QM final ability-to-repay/qualified mortgage (ATR/QM) rule. According to this rule, mortgage lenders should make a reasonable determination of a borrower’s ability to repay a residential mortgage loan.
The general QM is a sub-category of QM. For general QMs, the ratio of a borrower’s total debt in a month to his/her monthly income should not cross a limit of 43%. It is termed as the loan debt-to-income (DTI) ratio.
In December 2020, the CFPB issued the final rule. Under this rule, the above DTI based QM definition was replaced by a more price-based general QM loan. Mortgage lenders had to comply to this rule from July 1, 2021.
However, the CFPB had issued a new rule that delayed the compliance date to October 1, 2022. Prior to this date, lenders have the option to comply with either the DTI-based QM pricing or the new price-based general QM rule.
The Home Mortgage Disclosure Act (HMDA) was originally enforced by Congress in 1975 and operated by Regulation C.
Under this act, it is mandatory for lending institutions to generate report that enlist mortgage loan level information.
These reports help the regulatory authorities to understand whether the lenders are properly catering to communities’ housing needs. The reports highlight mortgage lenders’ level of adherence to regulations pertaining to fair lending practices such as the Community Reinvestment Act (CRA), the Fair Housing Act, the Equal Credit Opportunity Act, among others.
In April 2020, the CFPB had introduced changes in Regulation C. According to the changes, mortgage lenders will have to issue reports if they reach a limit of 200 open end credit lines. Earlier, the limit was set at 500. The rule went effective from January 1, 2022.
Equal Credit Opportunity Act Amendment
The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating against borrowers on the basis of factors. These factors are gender, caste, race, color, religion, nationality, age, marital status, on support by public assistance program, and good faith right exercise under the consumer credit protection act.
Under this act, lenders are obliged to send an adverse action notice stating the reason of declining a loan to an applicant.
Recently, the CFPB had proposed an amendment in the act. According to the proposal, mortgage lenders will have to send data to CFPB that will detail all the loan application done by small businesses, minorities, and women.
The amendment proposal includes access control of consumer data for underwriters, restricted data use for recordkeeping and publication purpose.
High Conforming Loan Limits
The upward spiraling housing prices prompted the Federal Housing Finance Agency (FHFA) to increase the loan conforming limit from USD 453,100 to USD 679,650 for single houses.
Conforming loan limit denotes the maximum debt that Fannie Mae or Freddie Mac guarantee to purchase from lenders.
The loan limit is determined by the Housing and Economic Recovery Act. This limit varies as per the cost of housing across cities. For instance, the conforming loan limit is higher in cities like New York, California and lower across cities like Hawaii, the US Virgin Islands, and others.
MSuite- The Tool That Simplifies Regulatory Adherence During Mortgage Lending
The imposition of a new regulation obligates mortgage lenders to bring process changes. This has become an annual headache while lending mortgage loans. Most of the rules vary across cities which forces lenders to process loans with separate sets of rules.
For instance, mortgage lenders will have separate loan processing workflow across different cities to abide by the conforming loan limit rule.
The process will further prolong and will be marked with errors if lenders stick to manual loan processing. They must rely on automation tool that will not only expedite tasks but also aid lenders in adhering to regulations.
MSuite is an easy-to-use and intuitive mortgage automation tool. This proprietary tool is powered by a combination of optical character recognition, AI and ML algorithms.
This tool is built with modules that are functional in paving the way for a lender’s regulatory adherence in every mortgage process steps.
Among the module, MSuite’s rule engine can be configured with multiple business rules to perform a task. Lenders can customize the rule engine as per the regulations that impact the way of performing a certain mortgage task.
For instance, the rule engine automates the task of borrower’s income calculation upfront. This allows lenders to check whether it tallies with the required DTI ratio for general QM loans.
The rule engine can be configured with the conforming loan limits rule. This allows lenders to automatically process loan for borrowers at different cities while adhering to the varying conforming loan limits.
MSuite’s reporting engine furnishes reports on various mortgage processes conducted by the lenders. These reports are critical during external regulatory audits. For instance, lenders are obligated to furnish these reports to the CFPB to prove their alignment with fair lending practices.
The reporting engine analyzes data such as loans denied or yet to be accepted and create reports on them. Lenders use these reports to issue an adverse action notice to borrowers.
The connector, data extraction, and indexing modules automate a range of repetitive tasks. The connector module ingests data from multiple sources. The data extraction module extracts specific data from a massive number of loan documents while maintaining 98% data accuracy. The data indexing module classifies data based on a borrower’s name, address, income details, and others. This makes it easy for loan officers to obtain any specific information within a short period of time.
Why Do We Recommend MSuite To Catch Up with Regulatory Changes
Frequent regulatory changes disrupt the way lender execute mortgage operations. This adds to the complexity of the conventional mortgage processes.
MSuite is our proprietary mortgage automation tool that was planned and supervised by industry veterans. This makes MSuite tied to the reality of the mortgage industry. Dynamic regulatory framework is one such reality that disrupts the harmony in lending mortgage loans.
Highly qualified mortgage experts’ partner with the best tech team to constantly update MSuite with process alterations triggered by regulatory changes. This empowers the tool to conduct compliant mortgage operations in a dynamic regulatory environment.
Lenders get timely process reports that are not only critical during regulatory audits but also allow a visibility on process loopholes which lenders can fix proactively.
Who We Are and Why Are We Considered as An Industry Authority?
This article is authored by professionals at Expert Mortgage Assistance, an eminent mortgage back-office solutions provider. We have successfully leveraged our proprietary tool, MSuite to help lenders, credit unions, and brokers negotiate regulatory challenges while executing all the complex mortgage lending tasks. Our scopes of services include mortgage processing, underwriting, title support, closing services, appraisal review, and many more.
Contact us now to experience how automation can bring renewed efficiency and acceleration in your mortgage lending operations.