Three Ways a Strong Doc Platform Keeps Compliance Costs Under Control
Despite the Senate taking an axe to parts of Dodd-Frank last month in a proposal that would impact small and mid-sized banks along with changes to the SAFE Act, TRID disclosures and PACE loans, lenders still struggle with the rapidly rising costs of compliance.
And contrary to popular belief, rolling back some regulations may only have a small impact on compliance costs. The truth is that in today’s data-driven economy, compliance will be a major consideration for any lender – and the costs run higher than staffing a compliance manager. However, lenders have a powerful tool to help keep compliance costs under control. Implementing a dynamic document platform can provide the automation and compliance support needed to help reduce many of the costs of complying with regulations.
Understanding the Different Costs of Compliance
Compliance costs come in many forms – operational costs, penalty costs and reputational costs – each of which the lender has varying levels of control over. The type of cost a lender has the least control over is the reputational cost related to compliance issues. Reputational costs are often driven by third parties who comb through enforcement announcements or public data releases to embarrass or penalize lenders they feel are breaking the law.
Recently, eight large banks were singled out by Reveal, the Center for Investigative Reporting, for redlining against minorities. The report was based on analyzing Home Mortgage Disclosure Act (HMDA) data over the past decade for select metro areas. The impact has been widespread and gained coverage in the New York Times, PBS and Wall Street Journal, as well as countless smaller publications and websites. Institutions cannot control the agendas and actions of parties outside their company, and must take steps to ensure that their compliance efforts mitigate possible PR disasters.
The second primary compliance cost is the hard costs of penalties handed down by regulatory agencies for mistakes and violations of regulations. While a lender cannot completely control the judgements and actions of a regulator, there are avenues for appeals and recourse if the lender can make the case that the penalty was applied in error.
The final cost area is the operational cost of maintaining compliance, and this is where the lender has the most control over their expenses. Operational expenses are usually broken down into personnel, technology and implementation expenses. The added benefit to building a strong operational compliance framework is that catching errors before they are submitted can lead to reduced (or eliminated) costs on the reputational and penalty arenas.
Traditionally, lenders have relied on building a strong team of compliance experts. As more and more data is built into the loan process, technology is also taking a front seat in controlling compliance costs.
Leverage Document Platforms to Reduce Compliance Costs
The advantage technology offers to compliance is the automation of testing data, analyzing data and, when applicable, submitting reports for regulatory review. This automation also means most lenders can run a leaner compliance department, handling larger loan volume with fewer staff.
One of the keys to a strong compliance tech infrastructure is to ensure that a dynamic docs platform can provide compliance with disclosures, good faith estimates, and data integrity tests. Using a doc system that can automatically import and export data from the loan origination system (LOS) is also crucial to eliminating manual entry errors and ensuring the data is identical from application to closing.
A great document provider can also help lenders more quickly adapt to new or revised regulations. A dynamic form can quickly implement national, state, local or even investor guidelines and documents immediately. This can save hours over by making one or two updates to the programming, instead of rebuilding and printing upwards of 50 documents.
Electronic documents also give you an audit trail, allowing lenders to trace loan data and disclosures all the way through the system. This ensures an accurate record all the way through the loan process, helping lenders confirm that the borrower received and signed all necessary documents.
Ultimately, saving compliance costs comes down to whether you are willing to make an investment in the right kind of tech to automate updates, implementation and reporting of key compliance data. Today’s doc systems not only make the loan process more efficient, but they help you survive an audit and identify issues long before the regulator appears at your door.