by Joe Dahleen
In my discussions with the many mortgage industry executives I’ve had the pleasure to build relationships with over the years, I have found that those who welcome the Consumer Financial Protection Bureau’s new TILA/RESPA Integrated Disclosure rule and those who dread it are perfectly polarized. By time you read this, the new rule will be in effect and the industry will be dealing with it, for better or for worse. The government maintains that it’s a step toward better consumer experiences. Opponents feel it is a huge step backward for all involved. The jury is still out on that, but one thing we can be absolutely sure of is that TRID is driving the industry toward all-electronic processing.
I’ve seen a number of experts that I respect comment on this in the trades over the past few months. TRID compliance will drive the industry away from paper. Those who resist this will find the new rule to be worse than cumbersome. It could destroy companies. But most firm are already moving in this direction. Mortgage technologists have been looking for a good excuse to get lenders to take action for years. TRID fills that need.
What I find interesting is that this is not the first time the federal government has taken an action that pushes the mortgage industry a little closer to electronic transaction processing.
For this discussion, I’m throwing the former GSEs into the general category of government. Well, they are technically (and apparently will forever be) in receivership.
For years, my friends who develop loan origination systems have told me that their discussions with regulators have included a discussion of how to enable lenders to send loan data directly to the GSEs or to banking regulators. This hasn’t happened yet, but as part of their drive toward loan quality, both Fannie Mae and Freddie Mac have advanced both data standards and an industry valuation portal through which all lenders now submit property data directly to the government electronically.
More recently, the CFPB hosted an eClosing pilot where it asked a number of technology vendors and some lenders to test their ability to close mortgage loans completely electronically. The pilot was judged a success by the CFPB and while it stopped short of requiring that lenders start closing electronically now, the Bureau made it clear that eClosings were in the industry’s future.
But perhaps the best evidence that the government would rather have your data than your paper documents can be found within the IRS. Every loan that we process today requires tax transcripts from the borrower as a risk mitigation strategy. It’s the old trust but verify. In the past, every time a lender requested this information, they had to get a signed paper document, a 4506-T, from the borrower to submit their Income Verification Express Service (IVES) vendor and then on to the IRS. That’s not necessary anymore.
While many lenders don’t know it yet, the IRS is just as happy to get the borrower’s approval to release tax transcripts electronically, which is what we began doing this year. Lenders still work through an IVES, but one that exposes the lender and borrower to a mobile app that allows the work to be accomplished electronically. It’s faster, easier and paper free.
While I have some friends who are conspiracy theorists and it’s fun to talk about how the government is forcing certain industries down certain paths, the migration to a fully digital mortgage workflow has long been the goal of forward thinking mortgage lenders. There are many benefits that accrue to the lender that can successfully eliminate paper. Such a process would absolutely return a better experience to the consumer, which is likely the main reason the government is making digital the obvious choice.
Author Note: this was also published in Housing Wire on October 5, 2015