Technologys Role in Managing Increased Regulatory Requirements

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Technologys Role in Managing Increased
Regulatory Requirements
Jack Konyk, SVP Public and Government Affairs,
National City Mortgage Heather Czermak, Senior
Product Manager, Wolters Kluwer Financial
Services Lou Pizante, CEO, Mavent Inc.
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2009 MORTGAGE LOAN ORIGINATION LAWSSOURE MBA
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2009 MORTGAGE LENDING RESTRICTION LAWSSOURE MBA
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2009 MORTGAGE SERVICING LAWSSOURE MBA
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2009 MORTGAGE FRAUD LAWSSOURE MBA
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2009 MORTGAGE FORECLOSURE LAWSSOURE MBA
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REGULATORY HORIZON 6-9 MONTHSMAJOR LOAN-LEVEL
CHANGES
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REGULATORY HORIZON 6-9 MONTHSMAJOR LOAN-LEVEL
CHANGES
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HIGHER PRICED VS HIGH COST THRESHOLDS
3/16/09Threshold Comparison for First Lien
30-Year Loan Products for March 16
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INDEX CALCULATION METHODOLOGY
HIGH COST LAWS
RATE SPREAD LAWS
OR
AND
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INDEX CALCULATION METHODOLOGY
HIGH COST LAWS
RATE SPREAD LAWS (STARTING OCTOBER 1, 2009)
OR
AND
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Fair Lending Myths

• We only need to look at HMDA Lending
• We dont need to focus on pricing because our
  pricing is set by the secondary market
• We dont maintain our portfolio of loans, we
  sell all our loans and therefore do not focus on
  fair lending
• As a small bank fair lending has had little or
  no focus
• Our stance has been that we are not responsible
  for Broker/Dealer charges
• We have such a small number of loans, therefore
  we do not need to focus on fair lending analysis

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What data should be collected and included in our
analysis?

• HMDA Lending
• Required HMDA DATA
• Optional data to be able to calculate Rate Spread
• Extra Fair Lending data to be able to
• Ascertain Risk
• Pricing
• Identify the type of loan
• Identify where application came from
• Broker, loan office, loan officer, underwriter,
  etc.
• Non-HMDA Lending
• Required Consumer/Commercial DATA
• Extra Fair Lending data to be able to
• Ascertain Risk
• Pricing
• Identify the type of loan
• Identify where application came from
• Broker, loan office, loan officer, underwriter,
  etc.

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Recommended Fair Lending Process Flow
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Data Integrity

• Map your data flow
• Explain your edit check process
• FFIEC Edit Checks
• Data Quality Reports
• Standard Summary Report
• HMDA 5 rule
• Shoot for 0
• Share results with LOB
• Edits
• Results
• Reoccurring Edits

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Last Exam / Consumer Complaints

• What action items were left over from the last
  exam
• Do you have a consumer complaint tracking process
• Review of Policies Procedures
• Overt Discrimination
• Management Involvement
• Reporting findings Fixing issues
• Audit Involvement
• Board or Directors or Board Committee

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Focal Points

• Are you an outlier Bank
• Marketing
• Who are you lending to
• Underwriting (Declination Ratio)
• Benchmark
• Statistical Significance
• Pricing (Above HMDA Threshold)
• Benchmark
• Statistical Significance
• Disparate Impact

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Other Risk Assessment Reports

• Steering
• FHA vs. Conventional
• HMDA Threshold
• Redlining
• Marketing
• Underwriting
• Pricing
• Collateral Denials
• OTHER THAN HMDA DATA
• Underwriting Override (U7)
• High Side
• Low Side
• Difference of Means (Averages)
• LTV
• Credit
• BERatio (DTI)

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Regression Analysis

• Are similar applicants being treated the same
• 100 Review Not a sample
• Combat focal points
• Underwriting
• Declination Ratio not based on risk
• Pricing
• High Cost / APR AGAIN not based on risk
• List of files out side of your lending pattern
• Outliers
• By Race, Ethnicity, Gender, Age, Income

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Comparative File Review

• Are similar applicants being treated the same
  with regard to the same product
• 100 Review Not a sample
• Combat focal points
• List of files out side of your lending pattern
• With comparators
• Similarly situated Different results
• Decisioning
• Pricing
• DISPARITE TREATMENT

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Broker / Dealer Analysis

• Do you use third party originators
• Brokers
• Dealers
• Monitor for Fair Lending Concerns
• Underwriting
• Pricing
• Etc.
• YOU ARE RESPONSIBLE FOR THEIR BEHAVIOR

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File Review

• Are you conducting file reviews
• Sample
• Outliers
• Who is doing your file reviews
• Bias, Politics, Expertise
• Policy for negative results
• Making institutional change
• FIND IT, REPORT IT, FIX IT, REPEAT

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Key Elements of an Effective Compliance Program

• Creating a culture of compliance
• Building working relationships between
  compliance and the business units.
• Motivating senior management to support lines
  of business unity.
• Measuring compliance effectiveness
• Testing and auditing at an appropriate level.
•  Quantifying compliance risk.
• Communicating the compliance return on
  investment.
• Implementing technology to manage complex
  regulatory requirements
• Streamlining processes to avoid duplication.
• Data-mining to improve systems and detect
  violation early.