It did not take long after the Silicon Valley Bank failure for politicians in Washington to rush to the next available microphone and lament the “loosening of bank regulations”. Instinctively the finger pointing began, and in many quarters ended up in the direction of the prior administration’s policy to generally roll back stringent business regulations and allow free market decisions to govern various industries. Chief among the complainants (no pun intended) was Sen Elizabeth Warren, who emerged out of the 2008 crisis as an architect and advocate for the Wall Street Reform Act and the creation of the vaunted Consumer Financial Protection Bureau ( CFPB), which she briefly directed. Just yesterday in DC’s The Hill publication, Sen Warren was reported as blaming the the collapse of Silicon Valley Bank on Republicans in Congress, which in 2018 helped pass a law to ease bank regulations put in place following the 2008 financial crisis. “No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Warren is quoted as saying. According to The Hill piece, Warren, who voted against the 2018 bank deregulation bill, said that the crises would have been avoided if the banks were required to hold more liquid assets because the bill exempted banks with less than $250 billion in assets from rigorous Fed stress tests. Warren and other Democrats say the old rules could have caught the issues at SVB sooner. Given that politicians generally “never let a crisis go to waste,” many now suspect that the banking industry is about to be slammed with heightened regulatory scrutiny, tighter operational rules, more audits and exams, and larger and very public fines, penalties and consent orders. What does this mean for independent mortgage bankers (IMBs)? It means that they have to get back to the compliance mindset they were frightened into adopting between 2008 and 2018, and before the bottoming out of interest rates led everyone to believe that easy money was here to stay and that self-regulation meant hiring more loan officers. Keep those risk management officers and compliance directors close by folks, we are all in for a bumpy ride on the regulatory

In April last year I traveled to Washington DC to attend the CFPB forum on the mortgage closing process.  The build-up to this event came on the heels of the open public comment period the Bureau established for consumers and industry participants to offer personal experiences, ideas, suggestions and comments about the residential mortgage closing process.   The sum and substance of the open comment period was reviewed, edited and compiled into a CFPB Report entitled: “Mortgage Closings Today.”

I must say that the CFPB event was not as exciting as I hoped.  The Bureau has decided, at least for now, to focus on e-signing and e-closings as a solution to complaints by consumers that they are overwhelmed with the closing experience.  Director Cordray stated that the Bureau believes that consumers need more time to review documents and if they receive them electronically three days before a closing, they would have the time to properly review, understand and digest the loan package and thereby be better prepared to close the single largest financial transaction of their lives. The Director also talked about embedding notes and explanations in the documents as an educational component so that consumers could get an education not otherwise provided today by most closing professionals.

There was very little talk about settlement agents other than consumer complaints about their failure to explain documents, and rushing borrowers to complete the closing with little time to ask questions.  I had expected a conversation about an agent certification/education initiative for agents, who usually have no knowledge of the mortgage process, just the real estate, title and legal aspects of the closing. There was none.

A question and answer period followed the Director’s remarks and while most commented on how an e-closing would improve the process, not everyone was sold.  I was impressed with comments made by Margot Saunders, an attorney with the National Consumer Law Center.  Ms. Saunders pointed out that e-closings may possibly exclude a significant segment of consumers who do not have access to computers or have the knowledge and experience to use them in a manner that will relieve the stress of the overall experience.  She also explained that it also does not really address the core issue: the complexity of these documents and the failure of the professionals who participate in closing the loan to take the time to explain them fully so that a consumer can make an informed decision whether to proceed.

 

I applaud the CFPB and Director Cordray for the work they are doing to improve the overall mortgage experience for consumers, as well as the closing table experience in particular.  And while I believe that the e-closing initiative is an interesting first step towards a more efficient and consumer friendly experience, I believe that the time has come for uniform standards, cross-discipline best practices, and mandatory education. Measures such as these will ensure that anyone acting in such an important role in a major consumer financial transaction has the minimum knowledge, experience and ability to properly advise a consumer regarding the mortgage closing.