Using Technology to Facilitate Regulatory Compliance

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Using Technology to Facilitate Regulatory
Compliance

• David Dietrich, PCi Wolters Kluwer Financial
  Services
• Lynette I. Hotchkiss, Mavent Inc.

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Agenda

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

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Compliance Issues and Challenges

• Issues
• Compliance becomes more complex each year
• Acquisitions create multiple technologies and
  LOSs
• 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

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Fragmented Relationship
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Current Compliance Checkpoints

• Training
• Processes
• Policies
• Procedures
• Some Automation
• Documents
• Paper trail

• Second Review
• Internal and External Audits
• Business line compliance personnel
• Consultants
• Regulatory examinations

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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

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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.

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The Vision
Integrate and automate compliance throughout the
lending cycle

• 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

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Pre-Close Monitoring
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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

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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

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How Documentation Systems Can HelpTILA/RESPA/Stat
e Law Compliance

• 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

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How Automated Compliance Systems Can HelpTILA
RESPA

• Truth in Lending Validation
• APR Accuracy
• Finance Charge Accuracy
• Payment Schedule Calculation
• Right of Rescission Timing
• RESPA
• Escrow Cushion Requirements
• Aggregate Adjustment Calculations

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How Automated Compliance Systems Can HelpState
Law Compliance

• 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

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How Automated Compliance Systems Can
HelpFederal, State, and Local High Cost Laws

• 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

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Benefits of Using Technology in Regulatory
Compliance

• 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

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The Vision
Integrate and automate compliance throughout the
lending cycle

• 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

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