By Tory Barringer
MCM: How do you prepare for the unexpected?
KM: I tend to think that in the world of compliance, a well thought out compliance management system is the best way to get ahead of as many problems as possible before they come. For example, if a company is covered by a rule like TRID, it must fill out disclosure forms in a particular way and it must not exceed specified limits on any change in fees. To get ahead of problems, the company needs to institute policies and procedures to ensure they’re compliant, which are part of their compliance management system.
Even though you won’t be able to avoid the unexpected, you can lessen the set of problems you’ll have if you plan for what is known. In other words, if you do the advance planning with the rule in your hand, thinking about how your operation works—who does what, who should approve what, who should monitor what—then there will be a lot less that’s unexpected.
MCM: In your view, what do compliance officers need to be focused on right this second?
KM: TRID isn’t over. Compliance officers need to be looking at some of the last changes to TRID, which came to be known as TRID 2.0, to make sure that their companies comply—whether it’s how cash to close works or other parts of the rule.
The other big thing is, of course, HMDA. The new rule demands much more data from companies than is currently required. In the past, HMDA reporting – for some few companies – has been sort of a “crash project” at the end of the year. But starting in January 2018, because of the enormous expansion of the data points and the fact that even the old data points in most cases are redefined, it’s hard to imagine that most companies could successfully comply on a crash basis. Compliance officers need to focus on the new rule now. Unless something unexpected happens—and there are parties calling for a delay of the rule—the D-Day for collecting data under the new rule is January 1, 2018 for reporting in early 2019. Unless there is a delay, as a compliance officer, I would be focused on the HMDA rule now until I was comfortable that my company was complying.
Dodd-Frank brought an array of new rules affecting our industry with several amendments this year. It might be a good idea to take a year-end inventory of all that came out in 2017 to make sure your company complied.
MCM: Looking past the immediate, what do you see being the biggest focus in the next year or two?
KM: “Look backs,” “URLA,” and most of all changes at the CFPB.
Dodd-Frank forces a review of significant rules within five years after they’re effective. The CFPB has already requested input on its approach to analysis of the QM/Ability-to-Repay and the Servicing rules. The Bureau invited comment on what they should review concerning these rules, and clearly they’re going to be gathering a lot of data. If people feel strongly about the need to change aspects of the rules, then they probably will need to focus on that effort in the next few years.
Fannie and Freddie are coming out with a new uniform residential loan application (URLA) that will be required two years from now. Implementing these new forms and gathering the required data through companies’ systems along with necessary training is going to be a challenge. Of particular note, there’s a new question on the URLA asking about which language borrowers prefer. This question is going to challenge companies to figure out what they can and should do for limited English proficiency borrowers.
And I know you want to ask about the CFPB, which is important.
MCM: Yes, TRID, HMDA, and the CFPB’s leadership are all grabbing headlines right now. Is there anything out there that you think should be getting more attention, either from regulators or compliance officers?
KM: As I said, I think the look back deserves attention and it comes at a time when new leadership will be taking the helm at the CFPB. People need to be thinking about how the current QM/Ability-to-Repay and Servicing rules could be improved, because the opportunity is coming.
Clearly, how the new leadership will affect the CFPB and its regulated entities deserves attention and is an unknown. I’m hopeful that the culture of the Bureau is revisited along with the rules themselves. The Bureau did fine work in a short time putting together the Dodd-Frank rules.
I believe it would be more effective; however, if it also provided necessary guidance to explain its rules including its legacy rules, rather than regulating or providing guidance through enforcement. A good example is Section 8 of RESPA. The Bureau adopted HUD’s RESPA rules. But nobody knows what the Bureau will do around various transactions such as marketing service agreements. Even though the Bureau provided some guidance and enforced in several cases in this area, there is no clear path for a company to comply. Hopefully, the new leadership will see the need for clear guidance and the need for industry input on the development of workable guidance. That’s where I think CFPB resources need to be directed. Companies in our industry are focused on developing sound compliance management systems; clear rules and guidance from regulators paves the way for sound, compliant policies and procedures to protect consumers.
MCM: What’s the best career advice you ever received?
KM: The best advice for the lawyer or the professional is to plan before you start. If you’re writing a piece or doing a job, have an outline. Know exactly what you’re going to do. If it’s compliance, same story—spell out what you need to do and then develop your procedures with a clear sense of what the demands are.
Sometimes folks go off half-cocked I think because they are too busy to really focus. They don’t take the time to consider the problem, how to solve it, and what steps they need to take before they dig in. The time at the front is usually the most important time.