Lenders bank on mortgage compliance software
Although economic recovery has been more tentative than robust, evidence is growing that the housing market has stabilized. The foreclosure rate is now at its lowest level since 2007, according to the Mortgage Bankers Association, and delinquency rates at their lowest level since 2008. With the recent clarifications in what will be expected of the industry, lenders may feel more confident about moving ahead with new financing.
The analytics of compliance
Business intelligence solutions can interface with systems for processing and approving loans, ingest the data and conduct detailed analytics on the information from the loan process to examine how it relates to enterprise risk management and performance. "Mortgage lending has many moving parts," says Clark Abrahams, product marketing manager for SAS Enterprise GRC, "and it is helpful to be able to have all the information in one place so it can be analyzed from many perspectives." Among the BI solutions offered by SAS is a governance, risk and compliance (GRC) suite that manages policies and compliance.
Many types of compliance information can feed into enterprise GRC. For example, a lender might want to analyze loan information to check for aberrations in appraisals that might indicate fraud. "Information such as customer complaints could be analyzed for loan rejections, to see whether they are correlated with factors that might indicate previously undetected violations of fair housing laws," Abrahams says. With a BI solution, lenders can set a risk score on a targeted return on equity and compare it to credit ratings of borrowers. Or the time required to process a loan after a new set of regulations was implemented could be compared to the time previously required.
BI solutions can also be used to analyze factors such as cycle time, the number of loans that do not reach closure, individual or departmental performance and loan qualities that affect risk. If interest rates change, analyses can be carried out on existing customers to determine who should receive special offers, or to consider whether existing evaluation criteria should be modified. "A holistic environment for analysis presents many opportunities." Abrahams says. "Analytics help do a thorough job not just to validate a model but to create a picture that reflects common sense."
Among the key requirements affecting compliance in the housing market are:
Home Mortgage Disclosure Act (HMDA)—requires lenders to document information such as loan amounts and number of mortgages. The intent is to address predatory or discriminatory lending practices.
Community Reinvestment Act (CRA)—prevents "redlining" practices that discriminate against moderate and low-income neighborhoods.
Home Ownership and Equity Protection Act (HOEPA)—protects borrowers from predatory lending practices in home mortgages.
Truth in Lending Act (TILA)—requires disclosure of the costs of borrowing money including mortgages, specifies credit card practices and defines procedures for resolving credit disputes.