John Vong, CMB, CMT, on eExams and Lending Compliance
John Vong, CMB, CMT, is president and co-founder of ComplianceEase, Burlingame, Calif., and a frequent contributor to MBA NewsLink. He can be reached at email@example.com.
MBA NEWSLINK: Last fall, state and federal regulators took the unusual step of publicly calling on the real estate finance industry to integrate state-developed data standard with mortgage loan origination systems to enhance e-Exams. What specifically are they looking for?
JOHN VONG, CMB, CMT: In October, The Conference of State Bank Supervisors and American Association of Residential Mortgage Regulators–two of the major state regulatory groups whose members oversee our industry–issued a joint press release urging lenders and their technology partners to adopt the data standard known as the Lending Examination Format, or LEF for shorthand.
Simply put, an LEF is a file that contains the loan data requested by an examiner as part of an electronic examination (e-Exam). An LEF file may contain hundreds or even thousands of loan files with all their accompanying disclosures data. The LEF isn’t a new data format. It’s been the CSBC and AARMR preferred format since 2010 because it allows them to simultaneously audit loans for numerous federal, state, and municipal laws and regulations, including TILA-RESPA Integrated Disclosure, Truth in Lending Act and the Real Estate Settlement Procedures Act, Home Ownership and Equity Protection Act, Secure and Fair Enforcement for Mortgage Licensing Act and other state and local consumer protection laws.
In my opinion, the press release was the regulators’ way of putting the industry on notice that it’s time to develop standard processes for clean data transfers to streamline the e-Exam process.
NEWSLINK: Why is it taking our industry so long to adopt these standards? How much work will it take to integrate LEF with all the systems–LOSs, doc systems, etc.–that our industry uses?
VONG: Over the past 10 years, the mortgage industry has had to continually adapt its technology to keep pace with new and changing laws and regulations. Before TRID was enacted in 2015, the LEF was in use but it was considered a lower priority by some technology vendors. Post-TRID, with its complex data and disclosure requirements, most LOSs do not have the capability to create a complete LEF. Also, some lenders use multiple vendors, such as doc providers, to generate various documents and disclosures, so all of the data doesn’t necessarily reside in a single system of record. This has hampered the use of the LEF in e-Exams. But now the regulators are signaling that it is a priority for them, and so it should be for our industry, as well.
NEWSLINK: Why is it in lenders’ best interests to get behind these efforts? How much time does it take to get ready for e-Exam filings?
VONG: E-Exams are here to stay, and having a simple, seamless way to deliver the tremendous amount of data they often require, is in everyone’s best interest. It will result in faster audits, fewer delays due to data integrity issues and less resources dedicated to data collection, review and transfer. While some large lenders have invested the time and resources to develop proprietary software to export their data from LOSs to create LEFs, others still create them manually. One large national lender recently told us that it took 2-3 FTEs four to six weeks to create the LEF data file for thousands of records for an e-exam. What we’re talking about here is using standards and available technology to increase productivity and reduce compliance costs.
NEWSLINK: Your company recently announced that you’re building an “e-Exam Sandbox” to help lenders get more comfortable with the e-Exam process. How is this going to work?
VONG: We came up with the concept for the new Pre-Exam Portal (PEP), or “sandbox” if you will, in cooperation with the Multistate Mortgage Committee (MMC) e-Exam process. It’s meant to be a public service available to any lender and is intended to improve lenders’ experience and confidence in preparing for state and federal e-Exams.
Lenders with the LEF file can upload their e-Exam data through the Pre-Exam Portal to test the accuracy of the data they are submitting to regulators and preview audit results. The portal will generate reports to help lenders identify data integrity, mapping and translation issues, as well as view compliance findings before submitting the LEF files for the “live” e-Exam.
Once enrolled in the portal, lenders will be able to submit up to one hundred loan files in the LEF format for validation of proper formatting and evaluation against federal, state and local consumer protection compliance criteria. The Pre-Exam Portal will return complete ComplianceAnalyzer with TRID Monitor audit reports, similar to those the examiner in charge will eventually receive. I would like to point out that neither the LEF data submitted to the Pre-Exam Portal, nor the resulting Pre-Exam audit reports, will be accessible to regulators. The mock e-Exam process through the PEP is free to any lender preparing for an e-Exam.
NEWSLINK: Do you think 2020 will be the year that our industry is finally ready for these e-Exams? Do you think the regulators will be asking for more loans and files to examine, in that case?
VONG: We believe that the time and technology are finally right to make substantial gains in achieving standardization and modernization to streamline the e-Exam process. Also, as I mentioned, it’s a priority for regulators.
I can’t speak for the regulators or whether in the future they will use this to expand the volume of loans they’ll audit. What I do know is, they are already stretched very thin, just keeping up with their current exam workload, and that they see this as a way to “do more with less” in order to keep pace with the growing complexity of the rules they’re enforcing and volume of the loans they’re reviewing.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)