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Using Technology to Facilitate Regulatory Compliance

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Front-end Fair Lending Management. Address potential violations before they enter the portfolio ... Reduce fair lending training for front-end staff ... – PowerPoint PPT presentation

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Title: Using Technology to Facilitate Regulatory Compliance


1
Using Technology to Facilitate Regulatory
Compliance
  • David Dietrich, PCi Wolters Kluwer Financial
    Services
  • Lynette I. Hotchkiss, Mavent Inc.

2
Agenda
  • Compliance Issues and Challenges
  • HMDA
  • Fair Lending
  • Enterprise Compliance Management
  • TILA/RESPA
  • State Law Compliance
  • Federal, State, and Local High Cost Laws

3
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

4
Fragmented Relationship
5
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

6
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

7
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.

8
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

9
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10
Pre-Close Monitoring
11
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

12
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

13
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

14
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

15
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

16
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

17
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

18
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

19
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