PERSON OF THE WEEK: Amanda (Mandy) Phillips is legal and compliance senior executive for Accenture Mortgage Cadence. MortgageOrb recently interviewed Phillips to learn about how the company is helping lenders meet the upcoming deadline for the Consumer Financial Protection Bureau's (CFPB) new integrated disclosures and what they should be doing to prepare for implementation.
Q: First, tell us how you got started in the mortgage industry.
Phillips: I began at the very start of the mortgage process as a receptionist for a large, local mortgage bank. I knew absolutely nothing about real estate finance and didn't have a mortgage. This was during one of the refinance booms. There was a lot of activity in the office, and, even from the limited view of the front desk, it seemed very interesting.
The receptionist's desk was my first stop, though not for long. Processing, closing, funding, underwriting, practically every hands-on operations position followed. By the time I was done and headed to law school, I had changed companies a few times and gained a fairly broad and deep perspective on the hows and whys of making mortgage loans. It was a terrific experience – the sort everyone should have if they truly want to learn this or any business.
Mortgage lending, however, was not supposed to be in the cards after law school. At least, that wasn't the plan. But earning a law degree in 2008 was not the best timing. It was not a great time for new lawyers, so I went back to the mortgage company I worked for immediately prior to law school and, not too long after, took on a compliance role. The operations experience combined with my legal education proved invaluable. Although it may not have been the best time to be a new lawyer, it could not have been a better time to be a new mortgage compliance attorney.
Returning to mortgage lending after law school turned out to be a great decision. I've informally polled many of my colleagues. We all agree: There is something about mortgage lending that draws us in and keeps our interest. For me, it is the variety, the complexity and, now especially, being on the forefront of the largest regulatory changes in the history of the business. My present position as compliance lead for Accenture Mortgage Cadence offers one of those rare opportunities to help lenders across the country re-work their operations so they are lending in a compliant manner. Like I said, there's so much to real estate finance that it becomes an avocation as well as a career.
Q: The CFPB's new integrated disclosures and related rules go into effect on Aug. 1 – how much change will these new rules bring about?
Phillips: We are now seven months away from implementation of what is arguably the largest regulatory change in mortgage lending history. Everyone knows that particular headline, but what I think gets lost is that this is not simply the replacement of three legacy documents with two new disclosures. There is so much more to it than that. RESPA-TILA 2015 represents a significant philosophical shift far more significant than just the new disclosures.
Having to deliver the closing disclosure three days ahead of closing flips lending operations on its head. Some lenders do it today: Borrowers and closing agents, in some cases, receive closing packages even earlier than three days in advance. That's the exception rather than the rule, though. We are an industry used to – and comfortable with – just-in-time document delivery.
The regulation changes this, mostly because just-in-time can be a poor experience for the borrower. We know the documents intimately. Borrowers, who might close one or two mortgages in their lives, have either never seen a closing package or haven't seen one in so long that they've forgotten what it looks like and how to interact with it.
Consequently, the hypothesis is that borrowers feel neither informed nor empowered. It's a sound hypothesis. There is an additional happy consequence: There will be time to identify and fix errors before closing. As a result, loan quality should be higher, and efficiency should improve, as well.
Early delivery of the closing disclosure is one philosophical change. The other is preparation of the disclosure itself. Today, the HUD-1 form that the new closing disclosure replaces is usually prepared by the closing agent. Everyone supplies figures, and out pops the settlement statement. The regulation does not change this per se; the closing agent may prepare what becomes the closing disclosure, yet the lender is responsible for its accuracy and timely delivery to the consumer. This change raises the stakes for the lender and may very well result in their desire to control its preparation and delivery, a shift from today's practices.
Q: What steps should lenders be taking now in order to prepare for RESPA-TILA compliance?
Phillips: Three things should be taken in parallel, right now. First, technology built to adhere to the new rules is absolutely essential for compliance on Aug. 1. Better still, comprehensive all-in-one platforms should be the solution of choice. There are simply too many complexities in lending today – especially after Aug. 1 – to depend on tired integrations of disparate systems. Compliance under these circumstances will be difficult at best and simply not possible at worst. Migrating to a single platform designed to shepherd loans from origination through closing is the answer, and the time to make the move is now.
Second, make process modifications, once proper technology is in place. Delivering every closing disclosure three days ahead of closing is no small matter. The mortgage industry is not built to do this today, but it must be starting on Aug. 1. Once we're ready to make the required early delivery, the next process adaptation is fielding borrower questions. We get some, though not many, questions from the closing table today. After RESPA-TILA takes effect, we need to be prepared for many more in that three-day period before closing. Consumers will read their disclosures. They will be making phone calls or sending emails. Process updates will have to take this into consideration, too.
Now is also the time to determine the process for preparing the closing disclosure, which also has the potential to present major operational changes. One school of thought is to continue to have this document prepared by closing agents, as is the custom. The other school of thought is that, given the responsibility and the liability is now the lender's, preparation ought to take place in-house. This necessitates further changes to the closing process, another effort that should be taking place now.
Education is third, and there's plenty of educating to be done. The first and most obvious constituency is the mortgage team. Unquestionably every team member must thoroughly understand the regulation and be able to explain it. There will be many, many questions from all angles on Aug. 1. The manufacturing team has to understand the regulation, though everyone in the mortgage company should, too.
Customers need to be educated, too. First-time home buyers are easiest: They do not know what to expect, so the change in legacy disclosures will not come as a surprise. That does not eliminate the need to provide information. New homeowners have many questions, which include all there is to know about their mortgage.
Repeat customers, especially veteran buyers, may require the most education. The Good Faith Estimate, Truth in Lending and HUD-1 have been in use for as long as most lenders can remember. When they do not appear during the processing of their next mortgage, they will wonder why. They will also wonder why they got their closing information early, because most serial financers and re-financers do not expect to see anything until closing. I suspect they will be pleasantly surprised, though they will want to know more.
Now is also the time to begin working with Realtors and other participants in the real estate transaction, as well. Although the three-day advance closing disclosure delivery is a positive step, the flipside means no rush closings. Lenders will get phone calls asking for immediate closings after Aug. 1, just as they do today. The difference, on Aug. 2 and every day thereafter, is that it is simply not possible. Realtors, and all parties to the transaction, will have to adjust their expectations to accommodate this change.
Q: Any last thoughts?
Phillips: I am sure every lender says this, and it may be a clichÃ©, yet this is a great time to be a lender. First-time home buyers, who stayed on the sidelines during the recession, are emerging. Repeat buyers are coming back, too, contemplating purchases they had put on hold. With new ways to lend and new borrowers to lend to, how could now not be a great time to be in the business?