Ellie Mae Releases White Paper on Hidden Costs of Compliance
| March 29, 2013 | Posted by Mario Yeaman under Mortgage News |
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By: Tory Barringer
via CAMPs REAL TIME LEGISLATIVE INFORMATION UNDER THE DOME http://realestatemarbles.com/campga/2013/03/29/ellie-mae-releases-white-paper-on-hidden-costs-of-compliance/
As the mortgage finance industry battens down the hatches and prepares for
this year’s “tidal wave” of regulatory changes to take effect in 2014, Ellie Mae takes a look at “the
hidden costs of compliance” in its newest white paper.
With origination costs on the rise (Ellie Mae cited data from the Mortgage Bankers Association showing the average cost of origination climbing from $2,291 in 2008 to $3,353 in Q3 2012) and more than 350 federal, state, and local laws governing loans, the cost of doing business the right way is a major concern for those companies trying to turn a profit.
However, while many of those costs can be measured and predicted—the yearly salary of a new compliance officer, for instance—Ellie Mae points to a number of factors that some firms may not have thought about.
“What is the cost of lost productivity, if underwriters are now spending a significant portion of their time manually checking and re-checking for compliance issues and addressing and reworking investor exceptions?” the company asks. “How much C-level time is now spent on compliance assurance and reporting? This is time that is not going into growing the business.”
Ironically, Ellie Mae notes that some of the new rules designed to assure compliance may have the unintended effect of undermining it. For example, the Consumer Financial Protection Bureau’s (CFPB) new rules on loan
With origination costs on the rise (Ellie Mae cited data from the Mortgage Bankers Association showing the average cost of origination climbing from $2,291 in 2008 to $3,353 in Q3 2012) and more than 350 federal, state, and local laws governing loans, the cost of doing business the right way is a major concern for those companies trying to turn a profit.
However, while many of those costs can be measured and predicted—the yearly salary of a new compliance officer, for instance—Ellie Mae points to a number of factors that some firms may not have thought about.
“What is the cost of lost productivity, if underwriters are now spending a significant portion of their time manually checking and re-checking for compliance issues and addressing and reworking investor exceptions?” the company asks. “How much C-level time is now spent on compliance assurance and reporting? This is time that is not going into growing the business.”
Ironically, Ellie Mae notes that some of the new rules designed to assure compliance may have the unintended effect of undermining it. For example, the Consumer Financial Protection Bureau’s (CFPB) new rules on loan
originator (LO) compensation removes originators’ incentive to make sure
timely disclosures are made and that all the paperwork is handled to a tee.
“Now that their compensation is predetermined by law, we are hearing that LOs have less incentive to recheck their work, since they know they will be paid—regardless of what happens to the loan down the line,” says Parvesh Sahi, VP of compliance solutions at Ellie Mae.
Another problem area is the issue of data reporting, especially when different agencies can’t agree on definitions. When different systems require different data, lenders may have to resort to “mapping,” a process by which an individual goes through each required field on each different system and tries to define which data is required.
Then there are the costs of data testing and scrubbing as regulators and investors demand thorough reviews of 100 percent of production.
“On the plus side, having comprehensive, accurate data that documents key lending decisions can reduce the hidden cost of compliance,” explains John Haring, compliance enablement manager at Ellie Mae. “On the most fundamental level, it can reduce fines, penalties and the need to remediate problems. It can also shorten the length of the exams, which means fewer days and less out-of-pocket costs for the examiners.
“As a result, both the hard costs of penalties and the soft costs of the examinations can be tracked back to data integrity,” he adds.
To combat hidden costs, Ellie Mae recommends automated compliance systems, which can help companies address costs and risks—though they’re no substitute for trained compliance experts.
“In today’s zero-tolerance environment, compliance has moved from the back-office to become an essential mission-critical function. Given what is at stake, lenders, investors and regulators are all evaluating automated solutions to take cost, human error and risk out of the mortgage business,” the paper concludes.
The full white paper can be found on Ellie Mae’s website.
“Now that their compensation is predetermined by law, we are hearing that LOs have less incentive to recheck their work, since they know they will be paid—regardless of what happens to the loan down the line,” says Parvesh Sahi, VP of compliance solutions at Ellie Mae.
Another problem area is the issue of data reporting, especially when different agencies can’t agree on definitions. When different systems require different data, lenders may have to resort to “mapping,” a process by which an individual goes through each required field on each different system and tries to define which data is required.
Then there are the costs of data testing and scrubbing as regulators and investors demand thorough reviews of 100 percent of production.
“On the plus side, having comprehensive, accurate data that documents key lending decisions can reduce the hidden cost of compliance,” explains John Haring, compliance enablement manager at Ellie Mae. “On the most fundamental level, it can reduce fines, penalties and the need to remediate problems. It can also shorten the length of the exams, which means fewer days and less out-of-pocket costs for the examiners.
“As a result, both the hard costs of penalties and the soft costs of the examinations can be tracked back to data integrity,” he adds.
To combat hidden costs, Ellie Mae recommends automated compliance systems, which can help companies address costs and risks—though they’re no substitute for trained compliance experts.
“In today’s zero-tolerance environment, compliance has moved from the back-office to become an essential mission-critical function. Given what is at stake, lenders, investors and regulators are all evaluating automated solutions to take cost, human error and risk out of the mortgage business,” the paper concludes.
The full white paper can be found on Ellie Mae’s website.
via CAMPs REAL TIME LEGISLATIVE INFORMATION UNDER THE DOME http://realestatemarbles.com/campga/2013/03/29/ellie-mae-releases-white-paper-on-hidden-costs-of-compliance/
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